Government Rescue Spending: Clear or Cloudy?

Nov. 11, 2008— -- How much will the AIG bailout ultimately cost? What are the banks applying for the government's $250 billion capital purchase plan? Who is the Federal Reserve lending to and how can taxpayers be assured they'll get their money back?

After weeks of sometimes frenzied efforts by the federal government to rescue the financial system, and on the heels of the government's latest move -- the announcement of a new $40 billion infusion to the ailing insurance giant American International Group -- critics say there are many questions but few answers about the work performed by the Treasury Department and the Federal Reserve.

"The bailout, the Treasury, the Federal Reserve -- it's like a three-card monte game, you don't know where the money's coming from, you don't know who it's going to, and I think the public has every right to be outraged by this," said Bill Allison, a senior fellow at the Sunlight Foundation, a government transparency watchdog group.

Gerald O'Driscoll, a former vice president at the Federal Reserve Bank of Dallas and a senior fellow at the Cato Institute, a libertarian think tank, said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.

"Nontransparency in government programs is always associated with corruption in other countries, so I don't see why it wouldn't be here," he said.

Federal officials, however, have touted their commitment to transparency.

"We want to inform the public as much as possible about our operations, so we have posted an abundance of information on the Treasury Web site to allow everyone to have insight into our actions," interim Assistant Treasury Secretary Neel Kashkari, the official in charge of the government's $700 billion rescue package, said in remarks delivered at a securities summit Monday.

"Transparency will not only give the American people comfort in our execution, it will give the markets confidence in what form our action will take," he said.

Federal Reserve Chairman Ben Bernanke last month noted the importance of transparency with respect to mortgage-backed securities, investment instruments that have played a key role in the country's financial crisis.

Because of the complexity of mortgage-backed securities -- swaths of mortgages bundled into single investments -- "transparency about both the underlying assets and the mortgage-backed security itself is essential," Bernanke said in a speech at the University of California at Berkley.