As Treasury Secretary, Tim Geithner’s outfit runs the Secret Service.
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But it’s going to take more than your normal compliment of gun-toting agents and a Kevlar vest to protect Geithner from flak he’s taking over his direction of the nation’s bank recovery program.
At the same time that Geithner heads to Capitol Hill to defend the Treasury Dept.’s efforts, a special inspector general has delivered stinging criticism of the manner in which the bailout has been handled by the Treasury Dept.
Geithner, who already has been slammed for his slow response to the controversial AIG bonuses, now is coming under fire for his failure to make the TARP program more transparent.
With only $135 billion left of the original $700 billion in TARP funds, Special Inspector General Neil Barofsky is calling for Geithner to demand greater accountability from the banks and other financial institutions who have received billions in federal aid to disclose how the money was spent.
Criticism of Monitoring
Even though Geithner’s department already is conducting surveys of bank lending activities and is in the process of completing a series of “stress tests,” the agency watchdog believes that Treasury has not done an adequate job of discerning how American taxpayer monies have been used.
According to a public statement released by Barofsky, the need for heightened transparency is especially important in light of the fact that the Treasury, in conjunction with the Federal Reserve, is about to launch a toxic assets relief program whose price tag likely will dwarf the $700 billion already committed to TARP.
According to current projections, the cost of Treasury’s new joint initiative with the Fed to help the nation’s banks unload their crippling burden of toxic assets could reach $3 trillion.
Barofsky expressed specific concern over the potential for fiscal abuse at the taxpayers’ expense in this new public-private partnership between the federal government and banks. “The significant government-financed leverage presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit.”
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The Special Inspector General voiced particular apprehension about the inherent conflicts of interest that could attend this plan, and urged Treasury to impose strict disclosure rules regarding the beneficiaries of the program. Barofsky also recommended that Geithner’s department release an ongoing accounting of the manner in which all taxpayer funds are used.
Barofsky continued to raise additional questions about the Term Asset-Backed Securities Loan Facility, or TALF, which he said remains vulnerable to fraud. The TALF program was established to boost the market for consumer loans by providing investors up to $200 billion of financing.
Treasury plans to increase the size of TALF to as much as $1 trillion, accepting certain real estate-related securities as collateral.
Are They Really Objective?
The inspector general's office said Treasury should abolish its plan to have credit-ratings firms determine the quality of loans. Instead, it should screen each residential mortgage-backed security it takes as collateral.
The neutrality of the credit-rating companies has come into sharp doubt because of the abiding view that these same firms contributed to the real estate market collapse through their lax and potentially fraudulent valuations of the realty portfolios collateralizing trillions of dollars in mortgage-back securities.
Geithner has attempted to deflect some of the criticism by contending that he inherited the TARP program from the prior administration. In all fairness to Geithner, he was thrown into the deep end of the economic cesspool without a mask and snorkel. Geithner’s seeming public persona of uncertainty, combined with reluctance to supply details about the wide array of programs his department has unveiled since January, has not helped his cause.
Like it or not, Geithner is the President’s point man on the economy.
Since taking office, the President repeatedly has declared his faith in his Treasury Secretary’s skills and intellect. Unfortunately, it’s not the size of Geithner’s brain that’s at issue, but rather his ability to lead the economy through the minefield ahead.
If Geithner is unable to up his game by projecting a greater air of sure-footed confidence, he ought to have the good sense to step aside so the President can find someone else better suited for the job.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
