Oversight officials today demanded greater accountability and transparency for the government's $700 billion financial rescue plan, citing numerous flaws in the program, including a shortfall of $78 billion after the Treasury Department paid $254 billion for assets worth $176 billion.
"The taxpayer deserves better than what we're getting," said ranking member Richard Shelby, D- Ala., at today's Senate Banking Committee hearing.
Not only did Treasury come in for criticism for its handling of the Troubled Asset Relief Program, but lawmakers also blasted banks that, after receiving government funds, dished out billions of dollars in bonuses to executives and were planning to spend millions more on luxury jets and Las Vegas junkets.
"Too many banks are given a free pass, too many TARP recipients use these funds for everything but lending," said committee Chairman Chris Dodd, D-Conn. "The public is outraged by this behavior, and with good cause."
"The American people aren't just skeptical about this, they're angry and they have every right to be," said Sen. Bob Menendez, D-N.J.
Elizabeth Warren, chairwoman of the Congressional Oversight Panel for TARP, said that the government paid "substantially more" than market value for stocks and assets purchased under TARP. Her group, set to release a report Friday, calculated that in 2008, Treasury paid $254 billion for assets worth only $176 billion, a shortfall of $78 billion.
She criticized Treasury for not engaging in risk-based pricing but instead paying a uniform price across the board.
"Isn't that a terrible way to look after taxpayer money?" asked Shelby, who accused the Treasury of misleading Congress.
"It's as if I said that I'd pay $1 million for 10 paintings, but one was a Picasso, one was a Rembrant and the others were not," Warren said.
"Success or failure will depend on whether the Department of the Treasury has spent, and will spend in the future, that massive investment wisely and efficiently," said Neil Barofsky, the special inspector general for TARP.
But Barofsky cautioned that the jury is still out on TARP. "I think it's too early to tell if it's been wisely spent," he told lawmakers.
Gene Dodaro, acting comptroller general for the GAO, said that Treasury should better track the use of the capital infusions, communicate a clearly articulated vision for TARP, develop a comprehensive internal control system, and review and renegotiate existing conflict of interest mitigation plans.
Warren noted that she was concerned by the "lack of progress" on foreclosure mitigation but was encouraged by many initiatives recently announced by Treasury.
One of Barofsky's recommendations has already been put in place: making the program more transparent by posting all contracts online. Barofsky also said that later today his office would send out letters to banks to find out how they'd used the money in an effort to "shed light on the darkest areas of TARP."
Two Republican senators, Shelby and Jim Bunning, R-Ky., questioned the decisions of both the past and present heads at Treasury.
Shelby pressed Warren on whether she believed that former Treasury Secretary Hank Paulson had misled Congress when he said that Treasury would use the program to buy toxic assets.
"They did not do what they said they were doing," Warren replied.
Shelby also said that with Treasury and Wall Street there is "an incestuous type of financial relationship ... that is very troubling." Bunning later wondered whether new Treasury Secretary Tim Geithner could fend off the influence of Wall Street.
"The American people are screaming because they believe the TARP money was designed for one reason -- to relieve the credit crunch -- and it was being used to take care completely of friends and others on Wall Street," said Bunning, who noted that Geithner "had a seat at the table when all this original TARP was designed."
Dodd said Geithner would appear before the committee next week.
With the Obama administration now in control, Dodd said, "We must see a sharp change in the direction of this program under new management."