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12-10-08, 11:23 PM #1
In retrospect, maybe an unaccountable $700 billion slush fund wasn't the best idea
WASHINGTON -- Lawmakers criticized the Treasury Department's handling of its $700 billion financial-industry rescue program, saying the effort had been mismanaged, and warned that no additional money would be forthcoming barring significant improvements.
In a hearing Wednesday, members of the House Financial Services Committee questioned Treasury Assistant Secretary Neel Kashkari over his agency's handling of the Troubled Asset Relief Program, citing critical reports by the Government Accountability Office and an oversight panel appointed by Congress. (Read the full oversight panel report)
Lawmakers faulted Treasury for what they said was its failure to address the record numbers of foreclosures that continue to weigh on financial institutions and the broader economy after TARP was implemented in October in response to a credit crisis sparked by woes in the housing market. They also criticized what they described as the agency's reluctance to ensure that banks are using billions of dollars in federal funds to lend to consumers and businesses.
"We have been sold a pig-in-a-poke and a bait-and-switch has occurred," said Rep. Virginia Brown-Waite, a Florida Republican.
Treasury has used or committed most of the money available in the first tranche of funds under TARP, with $15 billion remaining out of an original $350 billion. With financial markets still weak and the broader economy in recession, Treasury Secretary Henry Paulson has been trying to decide whether to seek access to the second half of the funds.
The public tongue-lashing by the committee could complicate the decision for Mr. Paulson, who is wary about the potential impact that a fight to tap the money could have on already-fragile financial markets. Congress can vote to block Treasury's request for access to the second $350 billion.
House Financial Services Chairman Barney Frank (D., Mass.) said Treasury's ability to access the funds will depend on whether it adequately addresses various issues, including assessing whether banks are using federal dollars to increase lending, and coming up with a plan to help troubled borrowers in danger of foreclosure. "We're going to need some very hard answers," Rep. Frank said.
One Republican lawmaker, Don Manzullo of Illinois, suggested that Mr. Kashkari, who is leading the effort to implement TARP, step down.
Mr. Kashkari pushed back during the five-hour hearing. He said Treasury was working hard to operate in a transparent manner and ensure that government funds aren't misspent. He said the agency has made "significant progress" toward stabilizing financial markets. Mr. Kashkari also told lawmakers that Mr. Paulson hasn't suggested he plans to ask for the second half of the money this week.
Lawmakers seized on separate testimony by the GAO and an oversight panel appointed by Congress that said Treasury has doled out billions of dollars to banks with no way to ensure they are complying with government-mandated restrictions or using the money to help increase the availability of consumer credit.
The four-person oversight panel, in its first report to Congress, said it found Treasury has "administrated the TARP without seeking to monitor the use of funds provided to specific financial institutions."
Mr. Kashkari said: "We don't have the luxury of first building the operation, then designing our programs, and then executing them. Given the severity of the financial crisis, we must build the Office of Financial Stability, design our programs, and execute them -- all at the same time."
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