Wednesday, July 22, 2009

TARP's Lack of Transparency

Yesterday, Neil Barofsky, the special investigator general for the Troubled Asset Relief Program (TARP), testified before congress about the status of the program. A couple of points were particularly troubling.

First, the potential liability of the TARP program is much higher than originally anticipated. Congress has authorized $643 billion for TARP (of which only $441 billion has been spent). But when you add in the liability assumed for the "toxic assets," the total taxpayer liability for the program in a worst case scenario is $23.7 TRILLION. Pretty scary.

Second, Mr. Barofsky complained that his recommendations for providing transparency for TARP are being ignored. Four of these ignored recommendations are:

  • Require TARP money recipients to report on what the money was actually used for.
  • Treasury should report regularly on the value of its portfolio of TARP assets
  • Disclose the identity of defaulting TARP borrowers
  • Disclose all trading activity of TARP assets.
These suggestions seem quite reasonable if the government is serious about transparency. Perhaps it is not as serious as it claims.

1 comment:

  1. Transparency is always a good thing, but there is reason to believe that the first recommendation is not going to provide much. Consider a Statement of Cash Flows - there are sources and uses, but it is actually pretty hard to trace one to the other unless a single source or use dominates the others. If it were the case that the companies had other sources of cash flow besides the TARP funds, there's really nothing that prevents them from claiming the TARP funds were used towards the politically correct uses like, say, meeting debt obligations to avoid bankruptcy or to increase lending; while other uses like salaries, bonuses, etc. were just paid out of cash flow from operations or security issuances.
    Unrelated to the transparency issue, here's an interesting take on the TARP funds: