Congress Urged To Examine Wall Street Firms: Conflicts Of Interest Raise Serious Concerns

The Project On Government Oversight sent a letter today to the congressional committees overseeing the bailout raising concerns about the serious potential for conflicts of interest involving firms that are being hired by the Federal Reserve and Treasury Department to manage and provide “independent” advice on the valuation of toxic assets.

Since last fall POGO has made it clear that the ongoing expenditure of billions of taxpayer dollars must be subjected to extraordinary scrutiny. It is critical that Congress provide greater oversight of the Fed and Treasury’s use of private asset managers, many of which have a direct financial interest in the same types of toxic assets that they are managing and valuating for the government.

POGO has taken no position on the strategic merits of the government’s plan to stabilize the national’s financial system. These are extraordinary circumstances facing both the Congress and the Administration. It’s perfectly understandable that the government is relying on the expertise of private fund managers to assist with the complex tasks of asset management and valuation. POGO is concerned, however, about the conflicts of interest that could arise if these fund managers are also investing in the same types of assets for their private clients.

“We appreciate the initial efforts by Congress to oversee these asset managers and their conflicts of interest, but we hope you’ll agree that the answers you’ve received so far have been less than satisfactory,” said POGO Executive Director Danielle Brian in the letter to Congress.

Not surprisingly, the private asset managers have defended their contracts and arrangements with the government, arguing that taxpayers are protected from conflicts of interest by internal firewalls that separate the employees working on the government contracts from the employees working for private clients.

While it is clear that the government should be collecting much more information from these asset managers before concluding that taxpayers are adequately protected from conflicts of interest, it appears that the Fed and Treasury are mostly relying on the asset managers for self-disclosure. POGO believes Congress should be demanding the Fed and Treasury take a more proactive role in protecting the interests of the American taxpayer.