The government's controversial $700 billion bailout program has failed to achieve many of its objectives, a watchdog tells Congress in a new report out Saturday night.
Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), says in the report that the financial system is stronger today than in the fall of 2008, but he concludes, "Many of TARP's stated goals...have simply not been met."
Consumers and businesses are still struggling to get loans, he says. Small businesses are still waiting for an aid program to start. Homeowners are still grappling with record levels of foreclosures. Unemployment is still 10 percent.
A case in point, says Barofsky: the administration's housing aid program "has only permanently modified a small fraction of eligible mortgages." To date, only 66,000 homeowners have finalized better mortgage terms to help them avoid foreclosure; the administration's program was designed to help 3 to 4 million.
Moreover, Barofsky cautions, the nation remains as vulnerable as ever to flaws in the financial system.
"It is hard to see how any of the fundamental problems in the system have been addressed to date," he says.
So-called too big to fail institutions are now "even larger" than before, the market is "more convinced than ever" that the government will bail out failing firms, Wall Street bonuses this year reveal "little fundamental change" in pay plans compared to past years, and federal efforts to support the housing market "risk reinflating that bubble," says Barofsky.
Voicing concerns about federal aid to the housing sector, he adds, "The government has done more than simply support the mortgage market; in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor."
On Capitol Hill, meanwhile, financial regulatory reform has been crawling along, overshadowed by the health care push and beaten back by industry lobbyists.
"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," the report warns.
Despite the litany of problems cited with the program, Barofsky does highlight a number of TARP's achievements.
"There are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008," he says. "Many large banks have once again been able to raise funds in the capital markets and some institutions -- including some that appeared to be on the verge of collapse -- have recovered sufficiently to repay their TARP investments years earlier than most would have predicted."
Due to these repayments and the sales of stock warrants received as part of the bailout, Barofsky echoes the administration's predictions about the program's cost, saying, "It now appears that the ultimate cost of TARP to the American taxpayer, while still substantial, might be significantly less than initially estimated."
In a report last summer, Barofsky had forecast that the total federal government support from a slew of programs to prop up the financial system could potentially total a staggering $23.7 trillion.