After the Economic Crisis, the Fleecing?

Emergency bailout could bring more waste, fraud and cronyism, watchdogs warn.

October 2, 2008— -- Relaxing rules for hiring personnel and firms to aid the massive economic bailout are prompting concerns over waste, fraud and cronyism from watchdog groups.

The bailout under consideration by Congress "has the potential to exacerbate wasteful contracting practices," said Laura Peterson of the Washington, D.C-based nonprofit Taxpayers for Common Sense. "We have seen that in other emergency situations," like the government's efforts following Hurricane Katrina, or the war in Iraq, Peterson said.

Federal law allows the administration to waive many protections when contracting for goods and services in a crisis, Peterson and others noted. They observed that such sole-source, no-bid contracts were used both for rebuilding after Katrina as well as in support of the Iraq war, with sometimes disastrous results.

The Treasury-led bailout effort will likely rely on a small army of private financiers to manage its details, say experts, and there are good reasons to fear for the fate of taxpayer dollars.

Profiteering and waste marred a similar bailout effort nearly two decades ago, Peterson pointed out. Audits of the Resolution Trust Corporation – a body set up in the late 1980s to manage the Savings and Loan crisis -- found private firms raking in "excessive" profits by winning hastily-written contracts. Congressional auditors concluded RTC was "highly vulnerable to fraud, waste and abuse."

Even with emergency provisions already at their disposal, the Bush administration is pushing for even broader leeway in managing the effort. Watchdogs believe the vague language included in the bill passed by the Senate Wednesday night would result in loosening rules on who can be hired.

"They can already give contracts to whomever they want to" under the emergency rules, said Danielle Brian of the Project on Government Oversight. "But they want to go further than that. That's what's really alarming: what does this guy want?" Brian asked, referring to Treasury Secretary Henry Paulson.

"We're worried we will get tremendous cronyism," said Brian. "What he's asking for really is more freedom to turn to the same buddies and have them help him get us out of this mess."

A Treasury spokeswoman said that while Paulson sought fewer restrictions on contracting, "there are strong oversight provisions in the legislation as well."

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