On Friday, Treasury Secretary Henry Paulson said that Congress must release the second $350 billion of the Troubled Assets Relief Program (TARP), since “emergency loans to the nation’s automakers have all but depleted” the initial $350 billion of the $700 billion program.
While neither the White House nor Treasury has made a formal request for the rest of the TARP money, lawmakers have already balked, particularly after reports from the Government Accountability Office (GAO) and a congressional oversight panel found that the Treasury has no idea what banks are doing with their share of the money.
– The AP contacted 21 banks that have received at least $1 billion in TARP money and asked four questions: “How much has been spent? What was it spent on? How much is being held in savings, and what’s the plan for the rest? None of the banks provided specific answers.”
– The 116 banks that so far have received taxpayer dollars gave their top tier of executives “nearly $1.6 billion in salaries, bonuses and other benefits in 2007…That amount, spread among the 600 highest paid bank executives, would cover the bailout money given to 53 of the banks.”
– Six financial firms that received billions in bailout dollars “still own and operate fleets of jets to carry executives to company events and sometimes personal trips.”
As the AP put it, “the nation’s largest banks say they can’t track exactly how they’re spending the money or they simply refuse to discuss it,” while some banks “said they simply didn’t know where the money was going.”
In light of this information, it is clear that more stringent TARP oversight is necessary, and that at least some of the funds need to be focused on something other than the financial sector. Fortunately, a plan to make this happen is already in the works.
Rep. Barney Frank (D-CA) and Sen. Chris Dodd (D-CT) are drafting legislation “that would release the remaining $350 billion of the financial-rescue fund in exchange for foreclosure help” financed by TARP money. The legislation will reportedly include Federal Deposit Insurance Corp. Chairman Sheila Bair’s foreclosure-prevention plan, as well as revisions to the Hope for Homeowners program and “provisions to hold banks accountable for stepped-up lending to consumers.”
A concerted effort to stem foreclosures is a key facet missing from the response to the financial crisis. While the TARP was ultimately necessary to avoid even wider financial chaos, there’s no reason to continue on the present course or leave banks alone to do what they will with taxpayer money.