Nearly one year to the day since the Treasury Department announced its first purchase of $250 billion in financial firms’ preferred stock under the Capital Purchase Program (CPP), the GAO has issued a comprehensive report on the ever-evolving Troubled Asset Relief Program (TARP).
The GAO gave Treasury a very mixed review on its implementation of the TARP, and offered plenty of conflicting evidence on how successful the TARP has been at stabilizing the financial system. Here’s what the GAO had to say on the following issues:
- TARP’s impact on lendingThe good news: “...the indicators that we have been monitoring over the last year suggest that there have been broad improvements in credit markets since the announcement of CPP...” The bad news: “...any changes attributed to TARP could well be changes that: would have occurred anyway; can be attributed to other policy interventions, such as the actions of FDIC, the Federal Reserve, or other financial regulators; or were enhanced or counteracted by other market forces, such as the correction in housing markets and revaluation of mortgage-related assets.”
- TransparencyThe good news: “Over the last year, Treasury has posted information on its Web site; announced decisions in press releases, press conferences, and speeches; and testified at congressional hearings.”The bad news: “...these efforts, although intended to help ensure that TARP programs and decisions are transparent, have not always been effective in communicating Treasury’s rationale for certain decisions or in addressing confusion and concerns about the program.”
- Likelihood of taxpayers recouping their moneyThe good news: “...some CPP participants had repurchased over $70 billion in preferred shares and warrants as of September 25, 2009.”The bad news: “...whether Treasury will fully recoup TARP assistance to the automobile industry and American International Group Inc., among others, remains uncertain.”
- Auto industry bailoutThe good news: “Automotive and financial experts we spoke with as part of our ongoing monitoring of AIFP [Automotive Industry Financing Program] agree that the federal government-provided funding likely increased Chrysler’s and GM’s odds of attaining financial success.” The bad news: “...whether the reorganized Chrysler and GM will achieve long-term financial viability remains unclear.”
- StaffingThe good news: “OFS [Treasury’s Office of Financial Stability] now has close to 200 staff.” The bad news: “...some key senior positions have not been permanently filled, such as the Chief Homeownership Preservation Officer and Chief Investment Officer.”
Given POGO’s ongoing concernabout Treasury’s reliance on private asset managers that have a financial interest in the services they’re providing for the government, POGO was also interested in the section on Treasury’s oversight of the 52 contractors and financial agents that are supporting the implementation of the TARP. The GAO reported that Treasury has taken important steps to address any potential or actual conflicts of interest, such as developing guidelines to formally document these conflicts, implementing an internal database for tracking conflict-of-interest queries and requests for waivers, and setting up a special online mailbox for contractors and financial agents to communicate with Treasury about conflicts of interest.
Nonetheless, the GAO found that Treasury “must remain vigilant in managing and monitoring conflicts of interest that may arise with the use of private sector resources.” POGO hopes Treasury is particularly vigilant when it comes to the private asset managers participating in the Public-Private Investment Program (PPIP), since as the SIGTARP has reported, Treasury is mysteriously refusing to take basic steps to mitigate the serious potential for conflicts of interest involving the PPIP firms.
The GAO also reported that the Home Affordable Modification Program (HAMP) — a TARP program aimed at preventing foreclosures and preserving home values — “faces a significant challenge that centers on uncertainty over the number of homeowners it will ultimately help.” This dovetails nicely with a recent report by the Congressional Oversight Panel, which raised serious concerns — albeit with dissenting votes from two of the five Panel members—about the HAMP’s scope (“It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now”), scale (“Treasury’s own projections would mean that, in the best case, fewer than half of the predicted foreclosures would be avoided”), and performance (“The result for many homeowners could be that foreclosure is delayed, not avoided”).
Finally, the GAO had some timely advice for Treasury as it considers extending the TARP past its December 31, 2009 deadline. It will be important, the GAO pointed out, for Treasury to coordinate with the FDIC and the Fed, and to fully document and communicate its decision to Congress and the public, using quantitative measures whenever possible to explain its goals: “Treasury would add further credibility to the process by announcing ahead of time the indicators or measures it plans to use. Doing so would help to disarm potential criticism that it had selectively chosen indicators or measures to justify its decisions after the fact.”
Although improved transparency won’t satisfy all of the TARP’s critics—David John at the Heritage Foundation observed that “The Titanic had good communications, but it still sank”—POGO hopes the GAO’s recommendations don’t fall on deaf ears. Treasury could also make the TARP more transparent by requiring TARP recipients to report in a more in-depth way on their use of funds, publicly disclosing the TARP portfolio, and posting information about TARP disbursements in a centralized online database.