It's no secret to any student of history or the human condition that power corrupts. Why is it then, that the Bush and Obama administrations seem to think they know better? In the great government giveaway known as the Troubled Asset Relief Program, there are corrupting loopholes big enough through which to drive truckfuls of cash.
The TARP, of course, has been the primary component of the Emergency Economic Stabilization Act signed into law by President Bush in October 2008. It has bestowed billions in bailout funds to Wall Street and banks --- with some curious accountability lapses, according to a recent government report.
The report, prepared by Special Inspector General Neil M. Barofsky, states that the government is purchasing mortgage packages based on value estimates by the same credit-rating firms whose gross misevaluations of these securities helped create the credit crisis in the first place.
The sums of taxpayer money at stake are far from trifling. TARP has already poured tens of billions of dollars into insurer American International Group, Inc. alone, and the program has invested $700 billion and amassed a $3 trillion obligation by April 2009. With this much money and power involved --- and without close government supervision --- it’s unsurprising that the Inspector General’s office has already opened 20 criminal fraud investigations. with, according to Barofsky, many more to come.
The temptation for Obama supporters, of course, is to blame the Bush administration for TARP’s corruption and wait for the new president’s budget-cut plan to kick in. Barofsky’s report, however, was just as scathing in its evaluation of the Obama administration’s involvement in the program. The administration has expressed plans to buy up banks’ “toxic” holdings in conjunction with help from hedge funds and various private capital groups. According to Barofsky, the plan presents just as many fraud risks as the Bush administration’s original attempt, since private investors would be able to borrow money in the form of “nonrecourse” loans.
In plain English, if the purchases proved too “toxic,” investors would be able to walk away without paying the government back or losing anything beyond their initial, fraudulently overvalued pledge of collateral.
Almost all of the risk of the multitrillion dollar TARP, therefore, falls to the taxpayers. Additionally, the report explains that without government supervision requiring bailout recipients to account for how the money is spent, the program “presents a great incentive for collusion between the buyer and seller of the asset, or the buyer and other buyers, whereby, once again, the taxpayer takes a significant loss while others profit,” the report states.
Now that the unregulated hedge funds have been brought in as central players of Obama’s rendition of the bailout program, the amount of public money at risk has increased even beyond what it was during the Bush administration, bringing the potential for fraud up with it. Even Lawrence Summers, President Obama’s top economic advisor, has felt these economic gap-aggravating effects: one of the largest of the involved hedge funds, D.E. Shaw, included Summers on its payroll last year for the amount of $5.2 million.
Obama's promise of “Hope” rings true for these investors. For taxpayers, it’s a whole different ballgame.
Also Interesting:
Get our Newsletter!
Click here to sign up and stay informed