The first outside look into the Treasury?? Troubled Asset Relief Program is out, and it?? not exactly glowing.
Granted, the Government Accountability Office acknowledges that the bill creating the program, and the Treasury?? new Office of Financial Stability, is barely two months old. But nonetheless, in a 65-plus page report, the GAO finds the TARP as it stands more than a little lacking.
It paints a picture of a fairly ad-hoc organization, one without mechanisms to keep tabs on the financial institutions receiving billions of dollars collectively. (Fifty-two banks had received $150 billion through Nov. 25 under the Capital Purchase Program alone, the Treasury reports).
"Treasury has yet to address a number of critical issues," the GAO says. Among them: figuring out whether the centerpiece Capital Purchase Program is actually working, and holding banks accountable for executive-compensation and dividend payment rules that came with the financial bailout.
Transition planning could use some work, the GAO adds, banks getting federal funds don't yet have to report to the Treasury, the Treasury itself doesn't have a firm grasp on conflicts of interest among its contractors, and the agency lacks adequate internal controls -- ie, checks and balances to ensure its authorities and funds aren't misused.
The GAO said the Treasury doesn't yet know how it will enforce requirements that banks limit executive pay and avoid buying back shares or increasing dividends while the government owns a stake in them. Nor has Treasury decided whether to make banks report periodically on how they're using the federal money
Such reports, the GAO report observes drily, "would enable Treasury to monitor, to some extent, how the infusions were being used." It continued: "Without a strong oversight and monitoring function, Treasury's ability to help ensure an appropriate level of accountability and transparency will be limited."
Translation: How will the Treasury know what's working? Later, the report's authors acknowledge that it's too early to know whether the Treasury's programs are improving the credit markets, and that the multitude of government programs addressing the financial crisis will make it difficult to sort out what the results really are.
The GAO also questioned how well the Treasury is policing conflicts of interest among its contractors. Contracts under the TARP largely tell the companies to identify their own potential conflicts of interest and tell the Treasury how they plan to address them.
But the companies have provided "few written details on how they intend to implement the mitigation plans," and the Treasury "has not yet developmed a process for monitoring conflicts of interest," the GAO said.
While the Treasury hired PricewaterhouseCoopers to set up a system of internal controls -- checks and balances to make sure government funds and authorities aren't misused -- it hasn't had much of a chance to do so, the GAO found. Instead, because of the Treasury's rapidly changing strategy, the focus has been on "specific transactional controls," rather than overarching protections. As a result, "there is heightened risk that the interests of the government and taxpayers may not be adequately protected," the report concluded.
In its official response to the report, the Treasury disagreed that banks should report regularly to it on how they use the government money. It didn't, however, go into detail about what it would propose instead, saying only that the agency is "developing compliance programs." Curiously, the Federal Reserve also weighed in with the Treasury on this point, the GAO report noted.
The GAO authors weren't persuaded. Given the sheer amount of money directed to the bailout, the "general metrics" the Treasury is pursuing "will not proved the necessary transparency and accountability needed" to make sure banks "are using funds in a manner that is consistent" with the law, they wrote.
For the most part, the Treasury says in its official response, it agrees with the GAO's recommendations. But Neel Kashkari, who's running the financial rescue for the Treasury, says it's way too early to pass judgment on the effort. "We believe that Treasury has made significant efforts to ensure transparency and good communication with our external stakeholders, but more can and will be done," he wrote.
House Speaker Nancy Pelosi called the GAO report "discouraging" in a statement, and criticized the Treasury for failing "to impose conditions on the use of government funds," and thereby undermining the bailout legislation and public confidence.