Yesterday, Treasury Secretary Henry Paulson sat down for an interview with Bloomberg, to discuss the effectiveness and future of the Troubled Assets Relief Program (TARP). Paulson has faced significant criticism for refusing to use any TARP money to address the housing crisis. When asked why he hasn’t used the TARP this way, Paulson said he was “reluctant to move ahead with a foreclosure plan” because it would not give “maximum bang for the buck.” Watch it:
Addressing foreclosures is key to combating the economic crisis, but evidently Paulson believes that more “bang for the buck” comes from throwing money at banks and letting them do with it what they will. According to a new report from the TARP’s congressional oversight panel, Treasury “still does not know what the banks are doing with taxpayer money”:
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.
Last month an Associated Press report revealed that no bank receiving taxpayer funds is willing to report what it has done with the money, even though, as the oversight panel noted, “it is within Treasury’s authority to make such reports a condition of receiving funding.” Reportedly, banks are simply hoarding the money, eliminating any “bang” it might have had.
To counter this, Rep. Barney Frank (D-MA) has proposed legislation “to tighten the rules of the government’s $700-billion financial bailout program and channel a large portion of it to home foreclosure prevention.” His plan includes a version of the foreclosure modification program proposed by FDIC Chairman Sheila Bair (which would cost just $24 billion), and requirements that banks “tell Congress how money received from the government is being used.”
Congress is also working on a “rewrite of bankruptcy law” that would “let bankruptcy court judges cut mortgage debts to help bankrupt homeowners.” These moves could significantly lower the number of foreclosures occurring, giving homeowners plenty of “bang for the buck,” while also repairing the tattered economic system.