SIGTARP Quarterly Report Criticizes TARP Administration and Estimates Huge Exposure

Continuing his intense criticism of the Treasury Department’s management of the Toxic Assets Recovery Program (TARP) and other federal commitments under the 2008 Emergency Economic Stabilization Act (the Bailout), Neil Barofsky, Special Inspector General for TARP (SIGTARP), issued his second quarterly report on July 21, 2009, purporting to demonstrate, contrary to Treasury’s position, that TARP recipients can meaningfully describe how TARP funding has affected their lending and other operations. While acknowledging that the majority of recipients evidently validated the value of the Bailout funding by advising that they had increased lending because of TARP funds, the SIGTARP added as a counterpoint his office’s calculation of total monetary risk of the 12 Bailout programs at $23.7 trillion, a figure news media have compared to the annual, gross domestic product of $14 trillion and an annual global gross product of less than $50 trillion. While noting that $70 billion in TARP funding has already been repaid, the report does not consider how that may affect a reasonable determination of risk to the outstanding funding and commitments.Not surprisingly, the Treasury Department has characterized Barofsky’s figure as inflated and meaningless in evaluating the risk that every possible loan will default and every guarantee be called. The Congressional reaction to the SIGTAP’s risk figure was, not surprisingly, shock.

The SIGTARP’s report describes its Investigation Division as a matured, sophisticated white-collar investigative agency, and advises that it has 35 ongoing criminal and civil investigations, an increase of 15 matters since the April 2009 report. Only two matters are public: An indictment for an $11 million fraud in purported pooling of funds to purchase TARP-guaranteed debt and an abuse on the internet of the Making Home Affordable program.

The SIGTARP report also criticizes the Treasury Department for not accepting his recommendation to install a wall between fund managers of Public-Private Investment Funds (PPIF) and employees of the firms acting as managers; he criticizes Treasury for not reporting the value of its TARP investments; he announces two investigations for members of Congress; and he announces a project to determine whether Bailout recipients’ repurchase of warrants given for Bailout funding we made at fair market value for the securities.

As he indicated in his initial appearances and emphasizes frequently before Congressional committees, Barofsky envisions his role as an unrestricted overseer of all TARP activities. He will undoubtedly be active at least as long as the Bailout funds are outstanding.