Sigtarp criticises Treasury's bailout accounting

AIG investment cut from $45 billion loss to $5 billion loss following accounting change, report claims

The US Treasury should have disclosed a change in accounting methodology which allowed it to announce a huge reduction in the cost of the Troubled Asset Relief Program (Tarp), according to a report released this week by the office of the Tarp special inspector-general (Sigtarp), Neil Barofsky.

The Treasury recently cut its estimated loss from the 2008 part-nationalisation of AIG from $45 billion to $5 billion. But, the report said, "there is a serious question over how much of this decrease comes from a change in Treasury's methodology for calculating the loss as opposed to AIG's improved prospects". The Treasury outlined the new method, but didn't reveal that it was substantially different from the method used previously - and that it would have to keep using the older method in its official accounts, Sigtarp added.

In response, the Treasury told Sigtarp that it had not changed its methodology - which Sigtarp said it found "unconvincing".

The inspector-general also reiterated his criticism of the Home Affordable Modification Program (Hamp), a part of the Tarp aimed at preventing foreclosures on residential mortgages; this has seen only limited success, which Sigtarp links to the Treasury's failure to set proper goals: "It has steadfastly and explicitly declined to articulate well-considered, consistent, and meaningful success standards for Hamp."

And if Treasury has been concealing the details of Tarp for political ends, this has backfired, Barofsky adds: "When Treasury refuses for more than a year to require Tarp recipients to account for the use of Tarp funds, or claims that Capital Purchase Program participants were 'healthy, viable' institutions knowing full well that some are not, or when it provides hundreds of billions of dollars in Tarp assistance to institutions, and then relies on those same institutions to self-report any violations of their obligations to Tarp, it damages the public's trust to a degree that is difficult to repair."

Tarp was capped at $475 billion by the Dodd-Frank Wall Street Reform And Consumer Protection Act, but only $387.8 billion of those funds have been spent, leaving more than $80 billion still available.

Since describing its shortfalls as "haphazard" and an "abdication of the responsibility to provide oversight" in a November 2009 interview with Risk, Barofsky and the US Treasury have has their daggers drawn - and, the latest report notes, the end of Tarp funding does not mean the end of Sigtarp's investigations. Tarp spending could actually increase this year compared with last year, the report points out - and Sigtarp promises that, even after spending comes to an end, it "will remain on watch as long as Tarp assets remain outstanding [ie, until the government has sold off, transferred or terminated all Tarp-acquired assets and insurance contracts]".