An inspector general tasked with overseeing the government’s bank bailout program says the Treasury Department misled the public last year and raised doubts about the fairness of its payouts to the nation’s biggest banks.
In a report released Monday, Special Inspector General Neil M. Barofsky alleged that federal officials made bad statements about the health of major institutions that received the first round of massive funding under the government’s $700 billion Troubled Asset Relief Program, the New York Times reported.
The report singled out a statement last Oct. 14 by former Treasury Secretary Henry M. Paulson Jr., who said the big banks were “healthy” and accepted the bailout funds for “the good of the U.S. economy,” so they could continue to extend consumer and business lending even as credit markets tightened.
But the fact was that Paulson and his fellow regulators were gravely concerned that some of those banks would not survive the downturn, Barofsky wrote.
The Federal Reserve and the Treasury were given the opportunity to include their reactions to Barofsky’s conclusions in the report. While the Fed generally agreed with the inspector general’s concern over the public statements, the Treasury criticized his judgment. The official’s public pronouncements “must be considered in light of the unprecedented circumstances in which they were made,” the Treasury said.
The report also suggested that TARP regulators were inconsistent in how they distributed the money, especially in the already-controversial merger of Merrill Lynch and Bank of America.
Under the bailout rules, all institutions were eligible for a capital infusion of as much as $25billion. Yet Bank of America and Merrill were counted as a single institution – BoA was given only $15 billion initially, since Merrill was already set to receive $10 billion. That arrangement was set by regulators even before the companies’ boards and shareholders had approved a full merger.
BoA had to wait until the following January to receive Merrill’s more modest share of the bailout dollars.
Adding to the perceived inconsistency was the fact that when Wells Fargo merged with Wachovia, Wells received both banks’ combined funds at the outset.
But Barofsky reserved the lion’s share of his anger for the Treasury’s glossing statements about the bailout recipients’ health.
“Statements that are less than careful or forthright – like those made in this case – may ultimately undermine the public’s understanding and support,” his report said. “This loss of public support could damage the government’s credibility and have long-term unintended consequences that actually hamper the government’s ability to respond to crises.”
In a report released Monday, Special Inspector General Neil M. Barofsky alleged that federal officials made bad statements about the health of major institutions that received the first round of massive funding under the government’s $700 billion Troubled Asset Relief Program, the New York Times reported.
The report singled out a statement last Oct. 14 by former Treasury Secretary Henry M. Paulson Jr., who said the big banks were “healthy” and accepted the bailout funds for “the good of the U.S. economy,” so they could continue to extend consumer and business lending even as credit markets tightened.
But the fact was that Paulson and his fellow regulators were gravely concerned that some of those banks would not survive the downturn, Barofsky wrote.
The Federal Reserve and the Treasury were given the opportunity to include their reactions to Barofsky’s conclusions in the report. While the Fed generally agreed with the inspector general’s concern over the public statements, the Treasury criticized his judgment. The official’s public pronouncements “must be considered in light of the unprecedented circumstances in which they were made,” the Treasury said.
The report also suggested that TARP regulators were inconsistent in how they distributed the money, especially in the already-controversial merger of Merrill Lynch and Bank of America.
Under the bailout rules, all institutions were eligible for a capital infusion of as much as $25billion. Yet Bank of America and Merrill were counted as a single institution – BoA was given only $15 billion initially, since Merrill was already set to receive $10 billion. That arrangement was set by regulators even before the companies’ boards and shareholders had approved a full merger.
BoA had to wait until the following January to receive Merrill’s more modest share of the bailout dollars.
Adding to the perceived inconsistency was the fact that when Wells Fargo merged with Wachovia, Wells received both banks’ combined funds at the outset.
But Barofsky reserved the lion’s share of his anger for the Treasury’s glossing statements about the bailout recipients’ health.
“Statements that are less than careful or forthright – like those made in this case – may ultimately undermine the public’s understanding and support,” his report said. “This loss of public support could damage the government’s credibility and have long-term unintended consequences that actually hamper the government’s ability to respond to crises.”
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