Who's Minding the Bailout?
As Billions Flow to Banks, Few Checks and Balances in Place
By JUSTIN ROOD
November 10, 2008
Want to hear crickets chirping? Ask Washington who's keeping an eye on its $700 billion economic bailout.
Lawmakers and the Bush administration frantically hammered out a gargantuan package to save the nation's economy earlier this fall. But their efforts to recruit watchdogs for their creation have lacked the same urgency.
Take the White House: it was supposed to name a special inspector general to eyeball the bailout, according to the emergency legislation President Bush signed into law Oct. 3. To date, though, no one has been named.
Bush spokesman Tony Fratto said he "would expect" the president to pick someone before he leaves office next January. But, he said, "I can't give you a sense on timing of any personnel decisions."
Since last month, the bailout effort has churned out over $170 billion to dozens of banks, signed contracts with voided conflict-of-interest clauses – and generally operated with many of the normal rules of government hiring and spending largely sidelined.
That doesn't appear to be causing concern among those who pushed the bailout through Congress with sky-is-falling urgency.
Party leaders on Capitol Hill were supposed to name a special oversight commission to check how the bailout was using its legal authorities, according to the law. But over a month has passed without a single name put forward.
"There have been some beginnings of internal discussions," a spokesman for House Minority Leader John Boehner, R-Ohio, said late last week. "Still working on names," said a spokesman for Senate Majority Leader Harry Reid, D-Nev.
"No," said a spokeswoman for House Majority Leader Steny Hoyer, D-Md., when asked if her office had been talking with others about the panel. Senate Minority Leader Mitch McConnell, R-Ky., did not respond to requests for comment.
They might want to pick up the pace: the panel has its first report due Jan. 20, 2009, according to their legislation.
To make matters worse, Treasury is one of the few agencies in Washington for which there is no private, non-partisan watchdog group. Meanwhile, the biggest watchdog in town – Congress' Government Accountability Office (GAO) – placed large "Help Wanted" ads in the Washington Post and New York Times, indicating it may lack the manpower to properly scrutinize the crush of bailout activity.
Experts outside government are alarmed. "This poses every potential problem that Iraq has: corruption, conflicts of interest, theft, and waste of government resources," financial policy expert and investment firm partner Robert Dugger recently told Government Executive magazine. "It's Blackwater, Halliburton, and KBR, but right here at home."
"The thinking was, 'this should be built for speed, not accountability,'" said Paul Light, a professor of politics and government at New York University. "The coming months will show that was a mistake."
A review of contracts issued by the Treasury's new Office of Financial Stability finds it has blacked out key information– total spending figures, names of key personnel, experts' hourly rates.
In at least one instance, a company attempted to assert its own conflict-of-interest rules, only to be shot down by the Treasury Department.
"The Government takes exception" to the ethics rules laid out by accounting firm Ernst & Young, reads Treasury's contract with the company. "Treasury may waive potential or other identified conflicts of interest" and force the company to do the work anyway, it asserted. "Failure to proceed. . . under these circumstances may be cause to terminate" the contract, Treasury wrote.
In the copy of the contract released to the public, Treasury redacted the total value of that deal – a "blanket" agreement for up to three years' work – as well as the names and titles of Ernst & Young key personnel who would be working on the project.
To be fair, some oversight is said to be taking place. Until the White House names a special inspector general for the bailout, Treasury Secretary Henry Paulson asked his agency's inspector general to lend a hand. That office confirmed the arrangement, but declined to provide details of its efforts.
GAO auditors, directed by the law to file reports on the bailout every 60 days, have already rolled up their sleeves. The congressional watchdogging office has assigned as many as 30 people to work at least part-time on scrutinizing the bailout, according to Tom McCool, director of GAO's Center for Economics – although, he said, the exact number is "a little hard to pin down."
McCool said GAO has met three times so far with Treasury's top bailout officials. "I think we're managing to do what we need to do," said McCool, although he confirmed the office was looking to hire at least five new full-time experts to work on bailout issues.
Treasury spokeswoman Jennifer Zuccarelli declined to answer whether the situation gave American taxpayers cause for concern. Instead, she pointed to the "almost daily" conversations between Treasury officials and GAO; the hiring of a chief compliance officer, Don Hammond; and the meetings of the bailout's own "Oversight Board."
That board includes the top officials responsible for the bailout itself. It has met three times over the past month. Minutes posted online suggest the group has averaged roughly one minute of meeting time for every billion dollars released by the bailout effort.