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TARP Inspector Calls for Greater Oversight, Reports on PPIP

A report released on Tuesday by the Special Inspector General's Office for the Troubled Asset Relief Program (TARP) is calling for greater oversight of the administration's financial rescue efforts. The ""250-page document"":http://www.sigtarp.gov/reports/congress/2009/April2009_Quarterly_Report_to_Congress.pdf says the U.S. Treasury should take steps to better safeguard taxpayer dollars and ensure programs are less susceptible to fraud and more transparent.
So far, the U.S. Treasury has spent $590.4 billion of the $700 billion allocated by Congress to support the nation's financial recovery. But according to the inspector general's report, the Troubled Asset Relief Program (TARP) now includes 12 separate, often interrelated programs that could tally up to $3 trillion when you factor in Treasury funding, Federal Reserve loans, FDIC guarantees, and private money - that's roughly the equivalent of last year’s entire federal budget.
In his report, Special Inspector General Neil Barofsky focused particular attention on the administration's newest initiative, the Public-Private Investment Program (PPIP).
Treasury Secretary Timothy Geithner has championed the argument that uncertainty about the value of legacy mortgage assets is hindering financial institutions from raising private capital, and he has expressed high hopes that PPIP will help put a price tag on these distressed assets.
But Barofsky warns that the toxic-asset plan is ripe for fraud, waste, and abuse. He said that because many of these assets have recently been illiquid, the government risks overpaying for them. He also said subsidies to the private participants could expose taxpayers to higher losses, without increasing their potential profit.
Barofsky also noted that many of the participants from the investment community, such as hedge funds, are unregulated and internal oversight and compliance among them varies widely. In addition, he said, interrelationships between the market participants can be extremely complex. He called for stringent screening of investors, mandatory disclosure of ownership stakes and actions taken by the funds, and tough conflict-of-interest rules to be put into place.
He also said the Treasury Department's legal team has told him companies participating in PPIP ""could be subject to the executive compensation restrictions"" - contradicting previous promises by the administration that they would not.
Overall, Barofsky's report said the public-private partnership — including funds from the Treasury, Federal Reserve, and private investors — could total $2 trillion. The sheer size of the program and the extreme leverage being provided to the private equity participants mean that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives, the report stated.
Barofsky also revealed in the report that his office has opened 20 criminal investigations and six audits surrounding TARP activities, including corporate and securities fraud related to bailout investments, tax issues, insider trading, public corruption, and mortgage modification fraud.
In response to the report, Neel Kashkari, who is currently head of the TARP rescue program, defended the actions taken by the government and his office, the Treasury.
Kashkari said, ""Our actions must be in the long-term interest of taxpayers, considering both the potential risks to taxpayers of action and also the potential risks to taxpayers of inaction. We believe our programs strike the right balance.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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