TARP oversight panel finds US Treasury overpaid for assets

The US Treasury Department paid ''substantially above'' market value for the financial assets purchased through the Troubled Asset Relief Program, according to the TARP oversight panel appointed by Congress. This is not the first time that the bailout plan has come under fire. (See: Auditors fault US government's $700-billion bailout supervision)

Harvard Law Professor Elizabeth Warren, who heads the panel, told the Senate Banking Committee Thursday that Treasury paid $254 billion in 2008 to financial institutions through the TARP program but received only $176 billion worth of stocks and warrants. This estimate was extrapolated from an analysis of 10 transactions, Warren said.

''The loss estimate is conservative,'' said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee. ''It could turn out that those assets in the end are worthless. These are massive handouts to favored institutions to try to make up with taxpayer money the mistakes they made with investor money.''

The public's stake in the nation's banking system continues to grow as first the Bush administration and now President Barack Obama's team work to pull the U.S. out of the deepest recession in at least two generations. TARP, which is part of the more than $9 trillion the government has pledged to rescue the financial system, has guaranteed $350 billion to banks so far, with another $350 billion set for use in coming months.

Treasury spokesman Isaac Baker declined to discuss the panel's report directly. He said Treasury officials have already ''prevented a system-wide collapse'' and plan to make an announcement next week.

The Treasury Department has failed to explain the reasons for the overpayments, even though some of its announced policy objectives could have led it to pay more than the stocks and warrants were worth at the time, Warren said.

''Because Treasury has failed to delineate a clear reason for such an overpayment, however, the panel is unable to determine whether these objectives have been met or whether they justified the large subsidy that was created,'' Warren said.

The oversight committee faulted TARP's ''one-size-fits-all investment policy'' for the shortfall.
''The use of standardised documents probably contributed to Treasury's ability to obtain speed of execution and wide participation, but it meant Treasury could not address differences in credit quality among various capital infusion recipients,'' the report said.

The study was conducted by the panel's financial and valuation advisory committee with the help of New York-based valuation firm Duff & Phelps Corp. The study ''does not explore whether these investments were the best means of achieving broader policy goals,'' the report said.