Bush’s $700-billion bailout criticised by Congressional panel

The US government's Troubled Asset Relief Program (TARP) is in trouble again.

Only a month after the first official review of the government's $700-billion financial rescue plan found critical oversight an issue, the Bush administration's stimulus has again come in for heavy criticism.

A draft report being issued by a five-member congressional oversight panel said there appear to be "significant gaps" in the US Treasury's ability to track hundreds of billions of dollars of taxpayer money. (See: Auditors fault US government's $700-billion bailout supervision)

The report faults the US treasury on a variety of fronts - having no ability to ensure banks lend the money they have received from the government; having no standards for measuring the success of the programme; and for ignoring or offering incomplete answers to panel questions.

The bipartisan Congressional 'oersight panel', headed by Harvard Law School professor Elizabeth Warren, reserved its most strident criticism for the treasury's approach to dealing with the foreclosure crisis at the root of the economic turmoil.

The draft report noted that the treasury hadn't used any of TARP's $700 billion to help borrowers refinance or deal with mortgages that are worth more than the market value of the homes they are tied to. "There's just no money that's gone in that direction. This one's not even arguable," Warren said. "The TARP funds themselves have not been used in this way despite congressional statutes requiring them to do so."

"Treasury needs to be clear as to what, if anything, it has done, and if it insists on taking credit for private sector efforts, it must explain what 'help' means," the draft report said. It also questioned whether the treasury has fulfilled its obligations to Congress. "For treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether treasury has complied with Congress's intent that treasury develop a 'plan that seeks to maximise assistance for homeowners,' " the panel said in the report.

The report cited an Associated Press investigation that found none of the banks were willing to disclose what they were doing with hundreds of billions of dollars distributed through direct injections of federal money. "For treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence treasury seeks to restore," it said.

Appearing Friday on ABC's "Good Morning America," Warren said that treasury "didn't put any tracking mechanisms on it." "They didn't tell the banks what they had to do in order to get the money. It might be used for lending, it might be used to buy other banks ... Or it might just be stuffed in vaults and left there," she said.

"I think that Congress may want to take a very hard look at that question," Warren added. "Ultimately, we don't have a badge, don't have a gun. It's up to Congress.

"In my view, the heart of this problem started with the housing bubble and the mortgage foreclosure mess and in my view, that's where the solution should start as well," she said.

Referring to a question of why the treasury has required Citigroup, but not other firms that got money, to modify mortgages, the report says, "Treasury's refusal to answer this question is one of the most troubling aspects of their letter. The panel intends to do more fact finding on this matter."

Line after line of the column marked "Treasury Response" says simply, "No response." The panel repeatedly states its reluctance to take treasury's reassurances at face value.

"Treasury may be 'confident' that it is 'pursuing the right strategy to stabilise the financial system and support the flow of credit to our economy,' but once again, the function of oversight is to evaluate that claim," the report reads. "The question remains unanswered."

The panel's next official action will be a public hearing on Wednesday, 14 January 2008.