‘Shockingly Little Oversight’ of Taxpayer $$$ in Wall Street Bailout

by Tula Connell, Dec 17, 2008

It should come as no surprise that the same Bush administration that gave suitcases full of taxpayer cash to Iraq with no accountability about how it was spent has done pretty much the same thing in its handling of the $700 billion Wall Street bailout.

As Harvard law professor Elizabeth Warren puts it:

There has been shockingly little oversight of the money.

Warren is in good position to know. She is chairwoman of the Congressional Oversight Panel, charged with reviewing the U.S. Treasury Department’s handling of billions of our hard-earned money and making recommendations to improve it. In November, House Speaker Nancy Pelosi and Sen. Majority Leader Harry Reid appointed Warren, along with AFL-CIO Associate General Counsel Damon Silvers and New York Superintendent of Banks, Richard Neiman. Two Republicans were appointed, but one already left.

Warren’s conclusion aligns with that of the U.S. Government Accountability Office (GAO). The GAO issued a report in recent days that said in 72 pages what Warren said in one sentence: There is shockingly little oversight of the money.

Treasury and the banking regulators have publicly stated that they expect participating institutions to use CPP [capital purchase program, a preferred stock and warrant purchase program] funds in a manner consistent with the goals of the program by working to expand the flow of credit to promote sustained economic growth and modifying the terms of residential mortgages to strengthen the housing market. But Treasury has not yet set up policies and procedures to help ensure that CPP funds are being used as intended.

Warren notes that the foreclosure crisis is at the heart of the economic meltdown and says one of the questions her panel is asking is whether any of the bailout money is addressing the mortgage crisis. Right now, it doesn’t look that way. Says Warren:

The money is being put into banks, but it’s been put into banks with no restrictions. So, by and large, the banks can do what they want—use the money to acquire other banks or they can just stuff the money in their vaults and hang on to it.

So, it means none of the money is necessarily being pushed into lending. Frankly, it doesn’t do us a whole lot of good to have banks with vaults full of money if people can’t get car loans, can’t refinance their homes, can’t get small business loans to keep the economy moving forward.

No money in the system. No credit for people to buy cars and so no profits for automakers. Who then need a cash infusion to survive but can’t get a loan from Congress, as did the Wall Street whizzes who helped create this national economic disaster. 

At its first field hearing this week, the panel went to one of the hearts of the nation’s financial meltdown: Las Vegas. Speaking at the hearing, Silvers pointed out the disconnect between national strategy and middle-class reality.

Something some of us in the East don’t understand about Nevada is that for decades there have been good jobs here. The hotels of Las Vegas employ tens of thousands of workers who earn a living wage, have health insurance and a pension doing jobs that in other parts of the country often only pay poverty wages. Labor and management in Las Vegas built a service sector middle class in the ’80’s and ’90’s which is now under pressure from a national economic model that is not working. And the truth is, if America is in economic trouble, if the American middle class is under pressure, the middle class in Las Vegas will feel the pain. In a very real way our economic fate as Americans is woven together.

But our national strategy in recent years seems to have been to look to the financial sector, to borrowing, to leverage, to generate wealth. That strategy has failed, and the vain pursuit of it has made our economic situation far worse than it might have been. And now we run the risk as a nation of making the mistake of thinking that if we only cut incomes, we can get through this crisis—that the best employers are those that pay the least, the best bankers those that lend the least. The truth is that these deflationary strategies will only make things worse—much worse. 

The kicker is that while the GAO and the Congressional Oversight Panel can make recommendations, they have no authority to enforce changes. Warren says her panel has “the power of the cranky question.”

Now, let’s face it. Most of the $350 billion already has been committed. But Treasury may want that second $350 billion. And to do that, they have to come back to Congress. What accountability is there for how the banks are using that money? What are you doing to help with the foreclosure crisis? But I’ll be clear. We only have the power of the soapbox, to say these are the questions Treasury should be answering.

Let’s hope when the Treasury Department allocates the next $350 billion, it heeds the counsel of the Oversight Panel and the GAO. As Warren says:

The Treasury has taken the position that it can pretty much spend the money any way it wants. There doesn’t appear to be a great deal of statutory constraint on how the Treasury can use this money.

So, the real question is to put their feet to the fire about whether or not they have a good plan for spending taxpayer dollars.

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