CNSNews.com - Lawmakers Express Outrage at ‘Potential’ $23.7-Trillion Liability Bank Bailout Law Could Impose on Taxpayers

CNSNews.com - Lawmakers Express Outrage at ‘Potential’ $23.7-Trillion Liability Bank Bailout Law Could Impose on Taxpayers

Capitol Hill (CNSNews.com) – Rep. Brian Bilbray (R-Calif.) called it a “brave new world.” Rep. Dennis Kucinich (D-Ohio) called it “one fraud after another.”

Rep. Edolphus Towns (D-N.Y.) said the corporate bailout was being run as a “don’t ask, don’t tell program,” and Rep. Darrell Issa (R-Calif.) made biblical references.


A bipartisan group of lawmakers were mystified Tuesday at how what began as the $700-billion Troubled Asset Relief Program (TARP) could potentially reach a liability of $23.7 trillion for U.S. taxpayers--compared to the U.S. gross domestic product of $14 trillion.

Neil Barofsky, special inspector general of the TARP program, testified Tuesday before the House Oversight and Government Reform Committee, the same day his office’s TARP quarterly report was released, which showed the potential escalating cost of the program.

“Your report really demonstrates that we have entered into a very, very scary territory, a brave new world where Washington decides what happens on Wall Street and Main Street, and hopefully sometime in the future, we can find a way to have an exit strategy,” Bilbray said.

Barofsky was sure to state that the $23.7 trillion figure was “the total potential government support,” a worst case scenario of sorts under the current structure.
“The speculation is if every one of these programs is fully subscribed to, that is the total commitment of guarantees,” Barofsky told the panel.

Rep. Dan Burton (R-In.) remarked, “If even half of that is correct, we’ve got a big problem.”

Barofsky stressed that the amount currently outstanding is closer to $3 trillion. Of the original $700 billion in TARP funds approved by Congress and President George W. Bush, $643.1 billion have been allotted to 12 different programs, while a total of $441 billion has been spent. The actual bulk comes from loan programs through the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC).

“But when you add up all of the different programs, including the ones that are paid back, including ones that may have been cancelled, including collateral programs, the total amount of support, which is what we are trying to capture is, does total $23.7 trillion,” Barofsky said.

Documents obtained by FOXNews.com showed that the $23.7 trillion covers total estimated exposure of the government in dealing with the financial crisis and specifically some 50 “initiatives or programs” created by myriad federal agencies in dealing with the crisis, reported The New York Post.

However, Treasury spokesman Andrew Williams called the figure “inflated” and said the estimate “does not provide a useful framework for evaluating the potential cost of these programs,” the Associated Press reported.

Issa, the committee’s ranking Republican, said the $23.7 trillion figure was “about 30 times what you would have if you gave away $1 million a year from the birth of Christ until today--just for somebody to try to figure out if that’s true or not.”

Barofsky joked, “Coming from a similar persuasion, I would say even if we went back to the time that Moses parted the Red Sea, we’d still be in the right premise,” to which Issa replied, “I think maybe Abraham would be sitting here trying to figure it out too.”

Generally, the Treasury Department has been lacking in transparency in operating TARP, the report said.

“TARP has become a program in which taxpayers (i) are not being told what most of the TARP recipients are doing with their money, (ii) have still not been told how much their substantial investments are worth, and (iii) will not be told the full details of how their money is being invested,” reads the report.

“In SIGTARP’s view, the very credibility of TARP (and thus in large measure its chance of success) depends on whether Treasury will commit, indeed as in word, to operate TARP with the highest degree of transparency possible.”

The special inspector general’s office has 35 ongoing criminal and civil investigations examining how TARP money is being spent. These include suspected cases of accounting fraud, securities fraud, insider trading, mortgage servicer misconduct, mortgage fraud, public corruption, false statements, and tax investigations. More than half of those were initiated from the inspector general’s tip line (877-SIG-2009, or www.sigtarp.gov), Barofsky said.

The last quarterly report garnered 12 million hits and 7 million downloads on the Internet, proving immense public interest in how the TARP dollars are being spent, he told the committee.

Barofsky also said that the Federal Reserve is not exactly encouraging banks to make more loans, a problem that Kucinich said goes to the heart of TARP. That’s a point that infuriated Kucinich.

“First we started out being told that money was going to mortgage backed securities. They pulled a bait and switch on that. Then we’re told it’s being used to bailout banks to have a loosening of credit through direct capital infusion,” Kucinich said.

“There are businesses in our community who are quite starved. Meanwhile, the Fed is paying banks a premium to keep their money parked at the Fed instead of loosening it up,” Kucinich continued. “This is one fraud after another on the American people. They might use the excuse we’re trying to control inflation. Check it out. Unemployment is skyrocketing. Businesses can’t get money, so they’re laying off more people, and we’re thinking that somehow we solved the problem here.”

Several members of the committee asked about the Treasury Department’s inquiry with the Department of Justice, asking if the special inspector general serves at the will of the Treasury secretary and if attorney-client privilege can be used to withhold documents.

Barofsky said such a move would threaten the independence of the office, but he said that Treasury personnel have been cooperative and have not withheld documents.

“Congress would not have established a Special Inspector General to oversee the TARP if all we wanted was a ‘yes man’ that Treasury could ignore. It is critical that oversight, investigations, and audits of TARP remain unencumbered,” Towns, the committee chairman said. “Congress may have given Treasury some leeway when it comes to the TARP, but we didn’t give them a blank check.”

“Taxpayers now have a $700-billion spending program that’s being run under the philosophy of “Don’t-ask-don’t-tell,” Towns also said.

Barofsky stressed the potential for conflicts of interest in the public-private investment fund started by Treasury to purchase bad mortgage-backed assets. Treasury chose nine firms as partners in the $30 billion program.

But Treasury has declined to adopt the IG’s previous recommendations to create a “wall” between officials managing the government partnership and those handling the rest of the firms’work. The wall, he said, would stop a firm from generating profit for itself as a result of what could effectively be insider knowledge.

Answering a question from Rep. Gerry Connolly (D-Va.) about “warts and all” and how has TARP worked, Barofsky gave a diplomatic answer.

“If the goal was to remove $700 billion of toxic assets off the books of financial institutions, that clearly has not happened. If the goal was to increase lending, I think that, too, unfortunately,has not happened,” Barofsky said. “If the goal was to avoid a complete systemic collapse of the financial industry that may very well have happened."