1st oversight report due on $700B bailout spending

WASHINGTON -- In passing the $700 billion financial system bailout package, Congress insisted on naming watchdog officials and creating a panel to scrutinize how the money is spent. Yet, oversight of the plan is just getting started after two months have passed and nearly half of the money has been allocated.

•The Senate on Monday approved the appointment of a federal prosecutor to be a special inspector general for the bailout plan after the vote was delayed for more than two weeks by an anonymous senator's hold.

•Congressional leaders appointed the five members of a special oversight panel in late November, but it has met only once, and one member has quit. Its first report is due Wednesday.

•The investigative office of Congress found in a report issued this month that the Treasury Department hasn't set up mechanisms to ensure that companies receiving taxpayer money are spending it properly.

As Congress considers a package of loans to the U.S. auto industry and the appointment of an "auto czar" to oversee its restructuring, some members — including Sen. Chuck Grassley, R-Iowa — are unhappy with oversight of the financial industry bailout, and are looking to do more.

"It's $700 billion. We need to have someone to make sure it's spent according to the law and, obviously, not wasted," says Grassley, the top Republican on the Senate Finance Committee.

Even some companies that may participate are worried the bailout isn't getting enough scrutiny, says lobbyist Peter Peyser, whose clients include financial services companies. "The potential beneficiaries of the program in the financial sector would benefit from a clearer picture of how the program operates, what's expected of them, what the rules will be going forward," he says.

The original bailout plan called for the Treasury Department to buy packages of troubled debt such as subprime mortgages. But Treasury Secretary Henry Paulson changed course and instead allocated $335 billion to invest in the financial sector and back new consumer loans.

President Bush nominated federal prosecutor Neil Barofsky in late November to the inspector general post, but a senator anonymously blocked the nomination until late last week, Senate banking committee Chairman Chris Dodd said in a statement. The reason for the hold is unknown; no senator admitted to placing it.

Grassley and Sen. Claire McCaskill, D-Mo., are co-sponsoring a bill that clarifies the special inspector general's authority to oversee all of the bailout spending, not just the now-scrapped plans to buy distressed debt. "We're all going to be really mad if we find out this money is used for (executive) bonuses at any of these banks, or we find out they were fattening their bottom line," McCaskill said.

Congressional leaders appointed the five-member oversight panel last month, and it first met Nov. 26. Last week, Sen. Judd Gregg, R-N.H., said in a statement that he quit the panel because he was too busy with other duties.

New York state Superintendent of Banks Richard Neiman, a panel member, said the group's first report will be issued Wednesday and will likely lay out the panel's oversight plans and summarize the bailout program's activities so far. The panel's remaining Republican member, Rep. Jeb Hensarling of Texas, said in a statement Tuesday night that he voted against issuing the report because he wasn't convinced the panel has "a serious agenda" for oversight.

Steve Ellis, of the non-partisan Taxpayers for Common Sense, said: "Although Congress added in a bunch of oversight mechanisms to the bailout package, they failed to follow through in making them happen."