By Pallavi Gogoi and Paul Wiseman USA TODAY
A Treasury Department watchdog is warning that a key $700 billion bailout program has damaged the governments credibility wont earn taxpayers all their money back and has done little to change a culture of recklessness on Wall Street.
The American peoples belief that the funds went into a black hole or that there was a transfer of wealth from taxpayers to Wall Street is one of the worst outcomes of this program and that is the reputational damage to the government said
Neil Barofsky special inspector general of the Troubled Asset Relief Program (TARP) in an interview.
SCATHING CRITICISM: TARP Report Slams Lack of Transparency
His 256-page report out Wednesday said TARP played a significant role in bringing the financial system back from the brink of collapse but questioned its effectiveness in increasing lending to small businesses or reducing the risk of foreclosures. Initially designed by the Treasury to buy toxic assets that threatened the financial system TARP funds ended up invested in 685 banks bailing out auto companies and funding a program on home mortgage modifications.
We dont even know where the money went says Rep. Daniel Lipinski D-Ill. who recently called for TARP assistance to end in December when its set to expire. The Treasury has the authority to extend the program until next October.
The report criticized Treasurys implementation of the program and its lack of transparency making 41 recommendations 18 of which were implemented. Barofsky says its extremely unlikely that taxpayers will recover the $77 billion committed to the ailing auto industry or the $60 billion in TARP assistance to American International Group as part of a pledge of up to $180 billion in aid. An additional $50 billion to modify unaffordable home mortgages will yield no direct return.
Financial experts say its no surprise that the government wont be able to recoup all of its investment in TARP. Anybody who said this was all secured lending that would surely be repaid was kidding himself says Lawrence White economics professor at New York Universitys Stern School of Business.
To be sure 47 financial companies have repaid $72.9 billion to the government. And Treasury has received interest and dividend payments or sold warrants for an additional $12.4 billion.
However Barofsky says the repayments and TARPs role in stabilizing the financial system have led to a rebound in bank stock prices which has removed the urgency of fixing problems with regulation of the financial system.
