The Stunning Level of TARP Waste, Fraud & Abuse
Fraud: The government's $750 billion bank bailout was passed six months ago amid great hype. So far, a new government report claims, the program is rife with inefficiency and fraud. Surprised? You shouldn't be.
In what Special Inspector General Neil Barofsky calls only a "first wave" of investigations, some 20 criminal probes have been opened for possible securities fraud, tax-law violations and insider trading, among other serious financial crimes.
And why has this happened? The Troubled Assets Relief Program, or TARP, said Barofsky, is "inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering."
Not bad for a program alive for just six months that still has $135 billion to spend. Barofsky's 250-page report to Congress also notes that taxpayers have been exposed to huge losses under TARP, with no guarantee that the funding will do what it's supposed to do.
All told, the unique "public-private" partnerships of the Treasury, Fed and private companies buying back many of the bad assets on banks' balance sheets could cost taxpayers a total of $2 trillion.
While private investors stand to make the bulk of the profits, taxpayers will in some cases be saddled with more than 90% of the risk, since the Treasury and Fed — that is, you the taxpayer — will be lending them the money.
Next year, you can expect a rash of stories about "massive fraud" in the TARP. It's inevitable.
When that happens, please remember this: The TARP's inspector general has formally advised the Treasury Department to force all TARP recipients to account for how they use TARP money. And the Treasury has refused. It's an open invitation for further fraud.
Remember all the calls last year for "greater transparency" in the banking industry? Now, the government won't even take its own advice on that.
Already, TARP has become a money-losing boondoggle for Congress. Elizabeth Warren, who heads the Congressional Oversight Panel for TARP, estimates that the government has already lost $104.2 billion on the TARP program.
It did so, basically, by paying $1 for assets worth only 66 cents.
It doesn't end there. TARP has proved a tempting source even for members of Congress who should know better.
Take Rep. Barney Frank, D-Mass. In January, the chairman of the House Financial Services Committee unveiled the TARP Reform and Accountability Act of 2009. Its goals: to "strengthen accountability, close loopholes, increase transparency, and require Treasury to take significant steps on foreclosure mitigation."
All laudable. Except, according to a January article in the Boston Business Journal, Boston's smallish OneUnited Bank earlier got a $12 million cash infusion from federal funds after "gaining influential support from" Frank.
Frank denies any impropriety. But with little or no transparency in this program, how are we to know?
Then there's the case of Sen. Dianne Feinstein, D-Calif.
On the first day of Congress this year, Feinstein unveiled legislation to push $25 billion into the Federal Deposit Insurance Corp. It was a strange move since, as the Washington Times noted, she doesn't even sit on the Senate Committee on Banking, Housing and Urban Affairs, which oversees the FDIC.
Shortly after Feinstein put forward her legislation, CB Richard Ellis Group, the commercial real estate firm, won a major FDIC contract. CB Richard Ellis' chairman of the board is Feinstein's husband, Richard Blum.
During last summer's debate over the bailout and stimulus packages, we warned of the potential for fraud in such massive government spending. Sadly, it's turning out to be true. And given the stunning level of corruption so far, don't be surprised when further revelations of fraud and fiscal malfeasance emerge.