Panel faults US Treasury over perception issue
By Rachelle Younglai and John Crawley |
March 17, 2011, Thursday
|
Print Edition
Print Edition
THE watchdog panel for the US$700 billion bank bailout faulted the United States government for the last time yesterday, saying the program helped underpin the perception that federal authorities will always prevent troubled financial firms from failing.
In its final report on the bank bailout, the panel attacked the government for not being transparent enough and not articulating clear goals for its foreclosure prevention program.
It also said federal intervention transformed the notion of "too big to fail" into a stark reality.
"Very large financial institutions may now rationally decide to take inflated risks because they expect that, if their gamble fails, taxpayers will bear the loss," said the report authored by the Congressional Oversight Panel.
Stigmatized for bailing out Wall Street at the expense of ordinary Americans, the Troubled Asset Relief Program, known as TARP, used billions of dollars in taxpayer money to prop up major financial firms, including Citigroup and Bank of America.
Timothy Massad, the Treasury official in charge of the bailout program, said it was "simply wrong" for companies to think that the government would provide assistance to bail them out in the future. The Dodd-Frank financial reform bill "makes it clear that we should not use taxpayer funds for that," Massad told reporters.
In recent months, TARP has enjoyed a renaissance of sorts, with some of its harshest critics admitting that the program helped save the financial system from collapsing.
The watchdog panel concluded taxpayers would not likely recoup all of the US$85 billion extended to the auto industry. Most of that went to restructure General Motors Co and Chrysler Group, now run by Italy's Fiat SpA, in bankruptcy.
The group found that government intervention in the auto maker bankruptcies "raised questions about the long-term effects" of such action on credit markets, as well as sticky scenarios involving companies considered "too big to fail."
The report found that the Treasury failed to set clear goals, making it difficult to determine whether intervention in GM, Chrysler, suppliers and auto maker financing arms was successful. It questioned whether the goal was to save the auto industry from collapse or to extend rescue financing with the aim of recovering all of it.
In its final report on the bank bailout, the panel attacked the government for not being transparent enough and not articulating clear goals for its foreclosure prevention program.
It also said federal intervention transformed the notion of "too big to fail" into a stark reality.
"Very large financial institutions may now rationally decide to take inflated risks because they expect that, if their gamble fails, taxpayers will bear the loss," said the report authored by the Congressional Oversight Panel.
Stigmatized for bailing out Wall Street at the expense of ordinary Americans, the Troubled Asset Relief Program, known as TARP, used billions of dollars in taxpayer money to prop up major financial firms, including Citigroup and Bank of America.
Timothy Massad, the Treasury official in charge of the bailout program, said it was "simply wrong" for companies to think that the government would provide assistance to bail them out in the future. The Dodd-Frank financial reform bill "makes it clear that we should not use taxpayer funds for that," Massad told reporters.
In recent months, TARP has enjoyed a renaissance of sorts, with some of its harshest critics admitting that the program helped save the financial system from collapsing.
The watchdog panel concluded taxpayers would not likely recoup all of the US$85 billion extended to the auto industry. Most of that went to restructure General Motors Co and Chrysler Group, now run by Italy's Fiat SpA, in bankruptcy.
The group found that government intervention in the auto maker bankruptcies "raised questions about the long-term effects" of such action on credit markets, as well as sticky scenarios involving companies considered "too big to fail."
The report found that the Treasury failed to set clear goals, making it difficult to determine whether intervention in GM, Chrysler, suppliers and auto maker financing arms was successful. It questioned whether the goal was to save the auto industry from collapse or to extend rescue financing with the aim of recovering all of it.
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