06 Feb 2009, Alastair Marsh, Risk magazine
Elizabeth Warren, chair of the panel, told the Senate banking committee yesterday: "Last fall, the Treasury sold the American public on the Tarp programme by claiming that it would help banks while protecting taxpayers. Secretary Paulson described the transactions as 'at or near par'-that the value of the assets the Treasury received was roughly equal to the money being spent. But that didn't happen. Treasury got less than it spent".
As of January 23, 2009, 317 financial institutions have received $194 billion, under the Treasury's Capital Purchase Program (CPP), which is designed for healthy banks, with eight large early investments for firms including Bank of America, Citigroup and JP Morgan accounting for 64% of the total. However, in these eight deals the Treasury received only $78 in bank stock and warrants for every $100 spent.
In the two deals made under the Treasury's programmes for significant institutions at particular risk, the Treasury received assets worth only $41 for every $100 spent. American International Group (AIG) received money under the Systemically Significant Failing Institutions Program (SSFI), while six weeks after receiving money under the CPP, Citigroup received a second infusion of Tarp funds as part of the Targeted Investment Program (TIP).
Warren said the Treasury had "failed to delineate a clear reason for such an overpayment" - while the overpayment, effectively a government subsidy, could have theoretically been justified by the need to keep the banks afloat, the Treasury had produced no evidence that this was in fact the case.
Warren noted that she had sent a letter to former Treasury Secretary Paulson asking for his responses on a variety of strategical and logistical issues. The Panel found the Treasury's responses to be "non responsive or incomplete", especially in relation to bank accountability, transparency and asset valuation.
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