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Is Treasury avoiding the TARP watchdogs?

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Elizabeth Warren, the chair of the congressional TARP oversight panel, thinks so. She told the Senate Finance committee this morning that Treasury refuses to articulate even its most basic goals for the TARP program:

We do not seem to be a priority for the Treasury Department… What we’re asking for is not rocket science here. We’re not asking for something extraordinary… we’re asking for the much broader articulation of what the plan is, transparency in the goals and the execution and strategy… we need Treasury’s commitment.

I’m doing some reporting on financial regulation this week, and Warren’s complaint is becoming a common refrain. The TARP program is probably helping banks. Some are using TARP money to increase their lending; others are using it to boost their capital reserves; still others are repaying debts. All of those are good outcomes for banks.

But does Treasury consider that a success for the TARP program? Warren says the department hasn’t defined its goals; so do some of my sources, and some members of Congress, like Sen. Olympia Snowe, R-Maine:

My [constituents] don’t see the program working as-is. The credit markets are still tight… and what I hear is that there are no specific standards for oversight… no clearly-articulated goal.

On a related note, if you’re interested in this sort of thing, here’s the GAO’s latest report on the TARP program. (It’s 100 pages — a little light bedtime reading?)

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Stress tests could stress feds (wonky)

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The Treasury Department unveiled guidelines (pdf) today for its bank “stress tests” (I have more details in this week’s paper). Seems to me the guidelines will put some federal employees — namely, the bank regulators — in a tough position. Here’s why.

According to Treasury’s guidelines, regulators have to assess the 19 biggest U.S. banks using two economic scenarios. One of them is the “standard” scenario — what most economists think will happen to our economy over the next two years. The other is a sort of worst-case scenario.

If banks fail the tests — basically if they have too many questionable loans, and not enough capital to cover their expected losses — then they have to raise money and make up the difference. They can do this through private investors, or by asking the government for another investment (more TARP money, essentially).

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Geithner announces TARP 2.0 plan

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Treasury secretary Timothy Geithner just unveiled the Obama administration’s plan to revise the Troubled Asset Relief Program, the financial system bailout. We’re calling it “TARP 2.0.”

A few of the highlights that impact federal agencies:

  • The Treasury Department will “stress-test” banks. Presumably this is to ensure that banks receiving money through TARP 2.0 are actually solvent. There’s serious concern that many of the largest banks in America are insolvent.
  • Treasury and the Federal Reserve will create a “bad bank” to buy toxic securities with a mix of public and private capital.
  • The government will guarantee a larger percentage of Small Business Administration loans. SBA lending has plummeted in recent months because of tight credit markets and the deepening recession.

Geithner said the Obama team would unveil its plan for stabilizing the housing markets “within the next few weeks.” Presumably that will involve Treasury, the Federal Housing Finance Agency, the Housing and Urban Development Department, and others.

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Better TARP oversight at GAO?

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We’ve written before about the lack of oversight in the Troubled Asset Relief Program. Things have improved a bit — the special inspector general, Neil Barofsky, seems extremely capable, and President Obama has promised more transparency — but we still don’t know much about how companies are spending money received through TARP.

But there’s news of another encouraging step, a bill introduced by Sens. Chuck Grassley, R-Iowa, and Max Baucus, D-Mont.:

The bill introduced today – the Troubled Asset Relief Program Enhancement Act – would require any private entity that receives federal funds through the Troubled Asset Relief Program (TARP) to give the GAO access to its books and records.

GAO is required to issue a report on the TARP (so many acronyms!) every 60 days. They’ve generally been critical of the program.

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