The Future Of TARP

The oversight panel led by Elizabeth Warren released another stinging report on the TARP bailout today, slamming the Treasury Department again for the complete lack of accountability in the program.

The recent refusal of certain private financial institutions to provide any accounting of how they are using taxpayer money undermines public confidence ... For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore.

Among the many details in the report are the degree to which Emperor Paulson made virtually no effort to advocate on behalf of taxpayers and not banks, highlighted by this Bloomberg report:

Henry Paulson may be the most powerful manager of money in the world and he still couldn’t do for taxpayers with the $700 billion bailout of American banks what Warren Buffett did for his shareholders in investing in Goldman Sachs Group Inc.

The Treasury secretary has made 174 purchases of banks’ preferred shares that include certificates to buy stock at a later date. He invested $10 billion in Goldman Sachs in October, twice as much as Buffett did the month before, yet gained warrants worth one-fourth as much as the billionaire, according to data compiled by Bloomberg. The Goldman Sachs terms were repeated in most of the other bank bailouts.

Paulson said “he had to make it attractive to banks, which is code for ‘I’m going to give money away,’” said Joseph Stiglitz, who won a Nobel Prize in 2001 for his work on the economic value of information.

“The worst aspect of this is that they were designed not to do what they were supposed to do,” he said in a telephone interview from Paris Jan. 7. “In many ways, it’s not only a giveaway, but a giveaway that was designed not to work.” [...]

“If Paulson was still an employee of Goldman Sachs and he’d done this deal, he would have been fired,” he said.

It's important to note that whatever comes out of the stimulus package is not the only spending that the government will be employing. There is also the second half of the TARP funds, about $350 billion dollars. George Bush is trying to steal the rest but he's run out of time, and the Congress can basically block him from getting it. The next Treasury Secretary, Tim Geithner, says that he's overhauling the program (that would make three overhauls since September).

Geithner has been working night and day on the eighth floor of the transition team office in downtown Washington with Lawrence H. Summers and other senior economic advisers to hash out a new approach that would expand the program's aid to municipalities, small businesses, homeowners and other consumers. With lawmakers stewing over how Bush administration officials spent the first $350 billion, Geithner has little chance of winning congressional approval for the second half without retooling the program, the sources added [...]

The group has come to believe the program needs a fresh start after determining the Bush administration succeeded in providing a measure of stability for the financial system but failed to jump-start bank lending or stem foreclosures, three sources said, speaking on condition of anonymity because no announcement has been made.

Geithner has no choice, without an overhaul he won't get the money. Barney Frank basically called for a revision along similar lines today.

As Josh Marshall notes, this turns TARP into something approaching stimulus - limiting foreclosures will have a tangible effect on the economy and consumer confidence. I'm just happy that we may not be wasting another $350 billion come January 20.