21 Jul 2009, Alexander Campbell, Risk magazine
The report calculated that total aid delivered or promised to US financial companies by the US government had reached $23.7 trillion dollars by the end of June. However, this figure was an overestimate, it said: it did not take account of collateral received in exchange for loans, nor of the fact that some programs overlapped or had already closed down. Furthermore, this was a worst-case cost - including, for example, purchases of mortgage-backed securities issued by Fannie Mae and Freddie Mac, which would only lose all their value if all the underlying mortgages defaulted without recovery.
Sigtarp repeated its criticisms of the Public-Private Investment Program (PPIP), saying the Treasury had still failed to take sufficient precautions against the risk of the private asset managers involved using their knowledge of PPIP purchases to enrich themselves and their non-PPIP funds. The conflicts of interest needed to be addressed with the imposition of 'walls' between PPIP and non-PPIP fund managers, and greater transparency on PPIP fund activities, the report said.
The inspector general's office plans to publish trading information in its own quarterly reports "in light of Treasury's refusal to publish this information [and] to meet a basic level of transparency," the report said.
The Term Asset-Backed Securities Loan Facility (Talf) also came in for criticism: the program relies in part on credit ratings to value ABS used as collateral for loans to banks. Sigtarp's last report called on the Treasury to abandon the use of credit ratings, citing concerns about their independence and reliability. But, although it has reduced Talf's reliance on the rating agencies, the Treasury still uses them - Sigtarp cited concerns that borrowers are choosing agencies known to have lax rating criteria, and added that: "The expansion from three to five of the number of rating agencies from which the issuer may obtain ratings... without an increase in the number of AAA ratings required, has the potential of giving issuers more incentives and opportunities to take advantage of the conflicts inherent in the ratings process."
A separate Sigtarp report, issued yesterday, criticised the Treasury for failing to compel banks to provide details of their use of funds received under Tarp.