Are Banks Fleeing Accountability?

March 31st, 2009 by Phil Mattera

It may be a coincidence, but some banks are repaying the aid they received from the federal government just as some real accountability is finally being injected into the massive financial bailout that has been going on since last fall. The repayment moves so far involve relatively small regional banks, but there have been reports that Goldman Sachs, the recipient of a $10 billion federal capital infusion, is eager to buy out Uncle Sam’s holding.

The stricter accountability that the banks may be responding to is coming not from the Treasury Department but rather from the watchdog bodies that were created in the bailout legislation enacted last year—especially the Office of the Special Inspector General for the Troubled Asset Relief Program. The SIGTARP himself, Neil Barofsky (photo), just offered some remarkable testimony to the Senate Finance Committee.

First of all, he provided a clear estimate of how much the federal government is potentially on the hook for in the dozen different bailout-related programs: up to $2.976 trillion, not counting the yet-to-be-determined cost of the capital that will be offered to banks after they are subjected to a stress test. (A breakdown of the costs can be found in the attachment at the back of his prepared testimony.)

Second, Barofsky reported that he demanded and received reports (still being analyzed) from every one of the 364 TARP recipients about how they are using federal funds and whether they are complying with restrictions on executive compensation.

Barofsky is also conducting special audits on external influences over the TARP application process, the various forms of assistance going to Bank of America, the controversial bonus payments at AIG and the payments AIG made to counterparties using federal bailout funds.

Whereas other federal officials have presented the TARP programs as impenetrable black boxes, Barofsky wants to shine a light on everything—even the initiatives that were designed before he took office and do not explicitly provide for SIGTARP oversight.

Barofsky emphasizes that his office is the only TARP watchdog that has criminal law enforcement powers, and he clearly intends to use them. He’s launched “more than a dozen criminal investigations” of possible bailout fraud and is working with the New York division of the High Intensity Finance Crime Area program, an initiative launched in the Treasury Department in 1999 to coordinate the prosecution of money laundering. Barofksy has even set up a whistleblower hotline (877-SIG-2009).

He is also working with the other TARP watchdogs, two of whom just testified with him in the Senate: Prof. Elizabeth Warren, head of the Congressional Oversight Panel, and Gene Dodaro, acting head of the Government Accountability Office.

Together, these entities are beginning to cut through the cloud of obfuscation that former Treasury Secretary Henry Paulson and, to an extent, his successor Timothy Geithner have built up around the bailouts. And some day in the not too distant future, some of the miscreants who caused the crisis and then abused the bailout may find themselves behind bars. That would be real accountability.

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