Congressional watchdog slams bailout

Feb 24, 2009 @ 3:42 pm

By Neil Roland

In the first watchdog criticism of the Obama administration’s handling of the financial bailout, the head of a congressional oversight panel said the new Treasury Department plan “lacks crucial details,” especially about how it will treat toxic securities held by banks.

Treasury Secretary Timothy Geithner, like his predecessor Henry Paulson, also has failed to articulate a clear strategy for the $700 billion rescue of the financial services industry, said Elizabeth Warren, head of the Congressional Oversight Panel for the Troubled Asset Relief Program. The bailout is now called the Financial Suitability Plan.

“These general frameworks do not provide an adequate foundation to oversee Treasury’s activities, or to measure the success of the TARP or the suitability plan,” Ms. Warren, a Harvard Law professor, told the House Financial Services subcommittee on oversight Tuesday.

A Treasury spokesman did not immediately respond to a request for comment.

Ms. Warren’s criticism of the new plan’s lack of specificity echoed that voiced by a number of analysts and economists after Mr. Geithner’s Feb. 10 presentation. Stocks, led by bank shares, tumbled after he spoke.

Still, Ms. Warren’s remarks carry extra heft because she is a consumer advocate appointed by congressional Democrats. Her criticism of Mr. Paulson’s handling of the bailout had been withering.

Separately, the inspector general who also is helping to oversee the bailout Tuesday asked lawmakers to push legislation that would enable him to hire staff more quickly.

“We desperately need more hiring flexibility,” Special Inspector General Neil Barofsky, a former federal prosecutor, told the House panel today.

He has nine permanent staff members, nine federal employees detailed from other agencies and six people who have been hired but have not yet started.

Mr. Barofsky asked the subcommittee to advance a bill that unanimously passed the Senate this month. It would permit his agency to hire up to 25 retired investigators and auditors without having to offset their pensions, he said.

Ms. Warren, whose panel coordinates with Mr. Barofsky’s office, said Mr. Geithner hasn’t responded to a series of questions that her panel posed a month ago. Most of these questions had been left unanswered months ago by Mr. Paulson.

Among the questions was whether the Treasury was getting the best possible value for its investments in troubled financial institutions such as Citigroup Inc. of New York and Bank of America Corp. of Charlotte, N.C.

The oversight panel’s report this month found that the Treasury under Mr. Paulson had overpaid by $78 billion and had received back only about 66 cents worth of obligations for each dollar it paid.

“We believe this is an important issue,” Ms. Warren said.

She did commend Ms. Geithner for outlining a commitment to transparency and accountability in the future administration of the bailout.

Among the main new components of Mr. Geithner’s plan are a joint public-private fund to buy up to $1 trillion of troubled bonds held by banks and a $1 trillion program to back new credit to consumers and businesses.

To read Ms. Warren’s prepared testimony, click:

http://www.house.gov/apps/list/hearing/financialsvcs_dem/testimony_of_elizabeth

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