President-elect Barack Obama has requested the second half of the $700 billion in bailout funds approved by Congress last year. Before any of that money is allocated, Congress must do a much better job of ensuring that the funds go where they will do the most good. That requires better criteria on what the money can be used for and better oversight to ensure those criteria are met.
The first $350 billion, for results and accountability, appears to have vaporized.
The Associated Press reported late last year that banks viewed the TARP — the Troubled Assets Relief Program — as a pile of cash with no restrictions on its use and no requirements for transparency.
The press service contacted 21 of the nation’s largest banks to ask how they were using the TARP money. Several gave vague answers; worse, several bank executives flatly said they wouldn’t disclose that information.
One could argue that how a business applies unanticipated revenue should not be dictated by government. The bank best knows how to apply those funds to stay solvent. But the goal of the TARP — greasing up the credit market — requires some strings attached. Without benchmarks on the lend-ing front, banks may merely shore up their weak sectors and ride out the poor economy without directing any new money to consumer and business loans. This outcome alone does not justify the huge taxpayer investment. Nor has it appeared to thaw the frozen credit markets.
The Treasury Department has not been any more forthcoming. It took a threat of a subpoena from Sens. Carl Levin and Susan Collins for the department to agree to turn over the contracts it signed with 10 Wall Street firms that were large TARP recipients.
“The degree of secrecy and opacity” of the TARP program “bodes ill for future policy,” Sen. Collins wrote in a letter to Treasury Secretary Henry Paulson last month.
“It is essential that orderly and useful rules and formats for reporting be set in place immediately and made a condition of any further expenditures,” she continued.
Sen. Olympia Snowe and Rep. Mike Michaud have also called for stricter oversight before they’ll consider another round of government funds.
A letter to Congress from Mr. Obama’s economic adviser and former Treasury Secretary Lawrence Summers is a good start, but inadequate. It is encouraging that the incoming administration recognizes the need for stricter oversight, but his letter provided no specifics.
With release of the second $350 billion in TARP funds now being considered, strict accountability is both wise and necessary. Preserving as many current mortgagees as is reasonably possible is one benchmark. Responsible lending for residential housing purchases by middle-income earners and loans to allow small businesses to stay competitive are two other benchmarks.
Tracking the funds to see that such benchmarks are met is also imperative. With billions of dollars being dispersed, Congress and the White House have a responsibility to track the money and demand results.