Even before its inception, we’ve been very skeptical of the TARP. Paulson managed to get the type of spending authorization that you only see in wartime, with almost no contraints on what he could do, and most troubling, put himself beyond the reach of law. From the original draft of the bill:
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
In addition, some of the Paulson’s actions were inexplicable, such as hauling the 9 prospective big bank bailout recipients before Paulson and having him engage in a thuggish “you’re not leaving until you agree to take the dough” when it turns out the dough was being offered on cheap terms. And even then, some of the CEOs reportedly left the meeting looking angry.
Why was the money spread more or less evenly over that group, when, for instance, JP Morgan protested that it didn’t need the funds, while Citi was clearly a black hole and could have taken most of the money on offer.
The illogic and wastefulness of these moves leave conspiracy theories, that Paulson was simply out to raid the Federal coffers and distribute as much as possible to his industry cronies, having more explanatory power other rationales. And the fact that Paulson from the get-go felt it crucial to be outside any review process signals bad intent.
The revelation that the Treasury misrepresented how it would price bank equity securities it received for TARP funds, to the tune of $78 billion, or 31% of the $254 billion disbursed, speaks either to gross incompetence or bad faith. And while I am generally of the “Never attribute to malice that which can be explained by incompetence” school, there are too many signposts in this case that point the other way.
From Reuters:
The U.S. Treasury looks to have overpaid financial institutions to the tune of $78 billion in carrying out capital injections last year, the head of a congressional oversight panel for the government’s $700 billion bailout program told lawmakers on Thursday.Elizabeth Warren, a Harvard law professor, said her group estimated the Treasury paid $254 billion in 2008 in return for stocks and warrants worth about $176 billion under the Troubled Asset Relief Program, or TARP.
Warren said the Treasury, under then-Secretary Henry Paulson, misled the public about how it would price them.
“Treasury simply did not do what it said it was doing … They described the program one way, and they priced it another,”…
Warren said Treasury may have had a reason for paying more for investments than they appear to have been worth at the time of the transaction. “Once again, Treasury needs clear goals, methods, and measurement,” she said…
Barofsky, the inspector general for TARP within Treasury, told the Los Angeles Times in an interview Wednesday that misrepresentations in applications for TARP funds would be grounds for criminal prosecution…
Warren told the banking committee that after three months on the job, her panel is still not getting enough answers from Treasury.
Not surprisingly, the Wall Street Journal is trying to make this process sound partisan. Note how the story begins:
Lawmakers seized on a government watchdog’s assertion that the Treasury Department may have significantly overpaid for its investments in financial institutions, saying the government shouldn’t benefit the banking industry at the expense of taxpayers.
Given Elizabeth Warren’s reputation for fairness, and the high marks she has gotten so far, the “a government watchdog’s assertion” is an attempt to diminish her and shift attention away from the seriousness of her charges.
And in the Journal account, they merely speak of “overpaid” which conveniently obscures the mind-numbing amount at issue, until the end of the 10th paragraph of a 13 paragraph article. But before that, we get excuses made on behalf by the Treasury:
Treasury has frequently noted that its major investments, including the funds provided to American International Group Inc. and the targeted investments in Bank of America Corp. and Citigroup Inc., were done to maintain stability in the financial system and are different from the $250 billion plan to inject capital into the banking system, also under TARP.
However, the Journal does include a useful tidbit right before the close:
Neil Barofsky, the special inspector general overseeing TARP, said his office is opening an audit of Treasury’s multiple investments in Bank of America, as well as looking into how lobbyists may be influencing the application process for banks to receive capital infusions.
Corruption in high places is so rampant that I don’t see how we dig ourselves out. And that puts it on much the same footing as our debt hangover.
ndk 
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I think Paulson was operating under the theory that revealing who was sinking — as if that weren’t obvious enough already — was too dangerous. People still felt sufficiently empowered to do bank runs back in those heady days. If the funds were distributed only to the needy, then a weak bank might have a depositor exodus, only to collapse as soon as it was saved.
I’m not saying this is a valid defense, but I think it’s one missed likely explanation of Treasury’s behavior aside from conspiracy theories.
Neil Barofsky, the special inspector general overseeing TARP, said his office is opening an audit of Treasury’s multiple investments in Bank of America, as well as looking into how lobbyists may be influencing the application process for banks to receive capital infusions.
Lobbyists? Financial industry lobbyists? Blasphemous. Next thing you know, FNM and FRE will be accused of making campaign contributions.
Specifically targeting one bank out of the lot makes even this investigation reek of corruption. We’re getting Daddy to punish the weak brother.