Despite rules and vows, oversight lax on bailout
WASHINGTON - In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program, and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.
Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.
Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.
"It's a mess," said Eric Thorson, the Treasury Department's inspector general, who has been trying to oversee the bailout until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."
In approving the rescue package, lawmakers trumpeted provisions in the legislation that established layers of independent scrutiny, including a special inspector general to be nominated by the White House and a congressional oversight panel to be named by lawmakers.
According to the legislation, the special inspector is to be the primary overseer. The measure calls for him or her to conduct audits and investigations of how the government spends money under the bailout program.
The leading candidate for the post is Neil Barofsky, a federal prosecutor in New York, and his nomination could come later this week, according to people familiar with the matter. Barofsky is the lead prosecutor in the $2.4 billion accounting-fraud case against former executives of the collapsed financial firm Refco.
As officials await more formal oversight of the bailout plan, the Federal Reserve and other US regulators are urging banks to maintain lending to "creditworthy" borrowers and warning against dividend levels that would cut funds available for loans, causing a deeper slump.
Supervisors will act "when dividend policies are found to be inconsistent with sound capital and lending policies," the Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision said in a statement.
Dividends shouldn't be at levels that would hurt the ability "to meet the needs of creditworthy borrowers."
Legislators in Congress have expressed concern banks aren't using cash from the bailout program to revive credit. Senate Banking Committee chairman Christopher Dodd today holds a hearing with four large US banks on their use of the funds. House Financial Services Committee chairman Barney Frank said on Oct. 31 that using cash for nonlending violates the law.
Material from Bloomberg News was used in this report.