Geithner Defends TARP as Banks Lend Less

April 21, 2009— -- Testifying before Congress today, Treasury Secretary Timothy Geithner defended President Obama's bank bailout, parrying questions about the Troubled Assets Relief Program's transparency and the administration's plan to encourage private investors to help financial institutions get rid of their troubled assets.

"I believe in the importance of transparency, accountability, oversight. I think it is critical to our credibility to respect what you're doing in this context," Geithner told the Congressional Oversight Panel, an independent agency assigned to oversee how bailout funds are spent.

"I will commit to make sure that we have as effective a working relationship as possible, so you have the information you need and an intensity of interaction with us to help you do your jobs," he said.

His testimony came after another government watchdog's report that warned that Obama administration initiatives could increasingly expose taxpayers to losses and make the government more vulnerable to fraud.

Neill Barofsky, a special inspector general assigned to the Treasury's $700 billion bailout program, found in his quarterly report to Congress that the private-public partnership tilts in favor of private investors and creates "potential unfairness to the taxpayer."

American taxpayers have trillions of dollars at stake as part of the administration's programs to end the financial crisis, but this money is vulnerable to fraud, waste, and abuse, ranging from collusion to money laundering, according to the report.

"I think there we've identified some potentially very, very dangerous and significant fraud risks regarding price fixing and those types of frauds," Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), told ABC News.

In a quarterly report to Congress released Tuesday, Barofsky highlights a wide variety of problems with the government's financial rescue programs. The nearly 250-page report documents how the initial $700 billion TARP has grown to become "a program of unprecedented scope, scale and complexity" of 12 separate but interrelated plans involving taxpayer dollars and private funds totaling almost $3 trillion.

And Barofsky, citing that most government programs lose approximately 10 percent to fraud, noted that such a loss in this case would equal $300 billion.

"If there are no protections put in and the concerns that we raise are not paid attention to, I think the numbers could be staggering," he said.

He cautioned, however, that this is not a traditional government program and that his office has been working with the Treasury Department to put into place anti-fraud provisions that will minimize losses.

One area of particular concern is one of the more prominent government programs: its $1 trillion plan to get bad assets off of banks' balance sheets. The Public-Private Investment Partnership (PPIP) seeks to entice private investors to partner with the government to purchase toxic assets from banks thanks to attractive government financing.

The report, however, says the plan is rife with risks.

"Aspects of PPIP make it inherently vulnerable to fraud, waste, and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering."

The Treasury Department responded to Barofsky's report Tuesday morning in a written statement.

"We believe that the input and recommendations from all of the TARP oversight bodies are critical to Treasury's efforts to implement the programs critical to stabilizing the financial system and increasing the flow of credit to support economic recovery," said Treasury spokesman Andrew Williams. "Over the last two months, we've significantly increased the amount of transparency into the programs, including actively measuring lending and requiring banks under the new capital program to report on how every dollar of government resources goes toward increasing lending to consumers and businesses."