The Project On Government Oversight (POGO), in its continuing scrutiny of the Troubled Assest Relief Program's (TARP) implementation, has identified a disturbing trend.
The TARP was created for the express purpose of buttressing the financial system by assisting institutions in danger of going under. In the language of the statute, TARP was meant to "provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers."
In a letter to Chairs and Ranking Members to Key House and Senate Committees, POGO expressed its deep concern that some institutions are taking advantage of the law, assuming the trappings of failure in order to feed at the TARP trough. In fact, at least four of the institutions named by POGO had issued statements touting their financial health shortly before taking steps to seek a handout.
"We are distressed to see a number of cases of financial institutions masquerading as paupers so they can take advantage of the taxpayer," said Beverley Lumpkin, an investigator with POGO. "It seems to us that these institutions, and the regulators who allow such actions, are violating the spirit if not the letter of the law."
POGO has identified eight financial institutions engaging in similar practices:
- Lincoln National Corporation is in the process of acquiring Newton County Loan and Savings, an Indiana bank.
- Hartford Financial is acquiring Federal Trust Corporation, the parent company of Federal Trust Bank in Florida.
- Genworth Financial is purchasing InterBank FSB in Minnesota.
- CIT Group has converted its Utah Industrial Bank to a Utah State Bank.
- Morgan Stanley was approved as a Bank Holding Company on September 21, 2008.
- GMAC Financial Services has opened GMAC Bank, a Utah chartered Federal Reserve Bank member bank.
- American Express was approved as a Bank Holding Company on November 10, 2008. The company owns American Express Centurion Bank, an industrial loan bank, and American Express Bank FSB, a federal savings bank in Utah.
- Goldman Sachs was approved as a Bank Holding Company in mid-September and opened Goldman Sachs Bank USA in Salt Lake City.
Although POGO does not accuse these companies of wrongdoing in acquiring other financial institutions, we remain skeptical of at least four of the eight institutions claiming economic stability one day and reorganizing themselves dramatically when presented with the prospect of government handouts another.
We urge Members of Congress to make themselves aware of this practice and demand that TARP provide the rationale for its support of this ever-widening “rescue” operation.