Head of TARP oversight, Elizabeth Warren, had a busy day yesterday with media appearances and testimony before the Joint Economic Committee of Congress. Her panel issued it's regular monthly update on TARP developments and not too surprisingly, she softly criticized the Fed and their economic assumptions utilitzed in the loss analysis. As most of you know, the worst-case assumptions used to evaluate the health of our banks will soon be exceeded by the worsening economy and there remain 19 months (under modeling parameters) for the reality to get even worse.
For these reasons, Warren judiciously called for the Fed to repeat the stress testing periodically (with more realistic unemployment projections and a longer time horizon) as long as toxic assets remain on the im-balance sheets of the institutions being watched. She also criticized the continued lack of transparency surrounding the tests and suggested that the Fed and Treasury make the details of its risk model available to the public for its own evaluation (excellent suggestion, but fat chance).
“Without this information, it is not possible for anyone to replicate the tests to determine how robust they are or to vary the assumptions to see whether different projections might yield very different results,” Warren told the JEC.
She also testified that her panel would examine any and all warrant repurchase transactions for taxpayer fairness. Another part of her testimony was more controversial. The issue of re-using or recycling returned TARP funds for new bailouts of failure was discussed. Though lawmakers from both sides have warned Treasury about any such recycling (and Brad Sherman even called it illegal), Warren said she believes that Geithner has legal grounds for interpretation of the language to allow for re-use of said TARP funds.
This is a very sticky issue and one that might be decided by new legislation. Republican Congressman Jeb Hensarling of Texas has introduced a bill that would make any such recycling illegal beyond the end of this year.
Warren's CNBC appearance from Tuesday morning is after the jump.