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« The Angel & The Anti-Christ (Warren Vs. Geithner Video) | Main | Fed Prez Hoenig Breaks From Bernanke: "Let Insolvent Banks Fail" »
Wednesday
Apr222009

TARP Prosecutor Neil Barofsky Gets His Day In The Sun (Video)

Treasury Special Inspector General for the TARP, Neil Barofsky, made public his long-awaited report Tuesday morning.  It's a dense 250 page document that wiped out my entire Tuesday.  Among the more interesting assertions: the Geithner PPIP could facilitate money laundering by organized criminal enterprises; Barofsky and staff are pursuing 20 criminal investigations into various forms of bailout fraud; and a report addendum from Treasury agency lawyers argues that firms participating in the Geithner bank bailout program (PPIP) would likely be subject to compensation restrictions.

Links and video after the jump.

Executive Pay Limits Could Doom Geithner's PPIP (wash po)

The PPIP and Potential For Fraud (forbes)

Fraud Concerns Take Center Stage In Government Circles (housing wire)

Bank Aid Programs Are Open To Fraud (ny times)

Barofsky Worried About Criminal Money-Laundering with PPIP (felix salmon)

20 Criminal Cases Already for TARP (LA times)

Taxpayers Getting Screwed Again (clusterstock)

From Reuters:

The U.S. Treasury's plan to purge toxic assets from banks' balance sheets is vulnerable to fraud and abuse and needs tough rules against conflict of interest, the government's bailout watchdog said on Tuesday.

Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program (TARP), said in a report that subsidies for public-private investment partnerships (PPIP) to buy assets could expose taxpayers to higher losses without corresponding increases in the potential for profit.

"Aspects of PPIP make it inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering," said Barofky's second quarterly report since he took office in December.

He called on the Treasury to impose strict rules to screen investors in such funds and for the disclosure of ownership stakes and all transactions in them. Managers running them should comply with "know your customer" requirements for banks and brokers under anti-money-laundering laws.

The Treasury is accepting, through Friday, asset managers' applications to run public-private investment funds to buy illiquid securities backed by troubled mortgages that are owned by banks. This is part of its plan to sell off up to $1 trillion in toxic assets that are constraining bank lending.

The Treasury is expected to name initial fund managers on May 15, with asset purchases to commence sometime in the ensuing weeks and months.

TAXPAYER RISKS

Barofsky's report called the plan, and a corresponding expansion of a Federal Reserve securities loan program to up to $1 trillion, a "tremendous expansion in the scope, scale and complexity of the TARP."

It warned of higher risks associated with investing in toxic securities, and said taxpayers could suffer bigger losses if public-private investment funds were allowed to finance securities purchases by borrowing from the Fed's Term Asset-Backed Securities Loan Facility.

The taxpayers' subsidies could dilute private investors' financial commitments, or "'skin in the game' and therefore reduce their incentive to conduct appropriate due diligence," the report said.

In a response to a draft of the report, the Treasury's administrator for TARP, Neel Kashkari, said the Treasury will consider the suggestions.

"As you recommendations make clear, there are risks associated with investing in or lending against legacy assets, which is in part why markets for them are currently frozen," Kashkari said in an April 14 letter attached to the report.

Barofsky's report confirmed that his office has opened nearly 20 preliminary and full criminal investigations associated with the $700 billion bailout program. These range from large corporate and securities fraud matters affecting TARP investments to insider trading, public corruption and mortgage modification fraud. It did not disclose any specific cases.

The inspector general's office is now conducting six audits, including one on whether recent bonus payments to American International Group employees complied with government aid conditions and whether Treasury was aware of the full range of compensation plans at the company.

The report said Treasury had committed $590.4 billion of the $700 billion through March 31, but when additional Fed financing commitments and asset guarantees are added in, taxpayers could be responsible for up to $2.977 trillion in total TARP costs.

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Reader Comments (7)

This is starting to feel like amateur hour for aspiring magicians.

Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market. Goldman Sachs, JPMorgan Chase, Citigroup and, on Monday, Bank of America all tried to wow their audiences with what appeared to be — presto! — better-than-expected numbers.

But in each case, investors spotted the attempts at sleight of hand, and didn’t buy it for a second.

http://www.nytimes.com/2009/04/21/business/21sorkin.html?em
Apr 22, 2009 at 2:18 AM | Registered CommenterDailyBail
I.M.F. Puts Losses From Crisis at $4.1 Trillion

http://www.nytimes.com/2009/04/22/business/global/22fund.html?em
Apr 22, 2009 at 2:19 AM | Registered CommenterDailyBail
Must read article. Outstanding graph on housing by city.

For Housing Crisis, the End Probably Isn’t Near

http://www.nytimes.com/2009/04/22/business/economy/22leonhardt.html?_r=1&ref=patrick.net
Apr 22, 2009 at 2:20 AM | Registered CommenterDailyBail
In Grim Job Market, Student Loans Are a Costly Burden

http://www.nytimes.com/2009/04/18/your-money/student-loans/18student.html?em
Apr 22, 2009 at 2:21 AM | Registered CommenterDailyBail
"The inspector general's office is now conducting six audits ..."

Notice Barofsky's idea of an audit is sending letters to TARP recipients, asking how much they received, what they did with it, and analyzing the responses. TARP recipients are neither required to respond or be truthful in their responses. Subpoenas or sending in the FBI for raids would have been more appropriate and more credible in the findings.

" 'As you recommendations make clear, there are risks associated with investing in or lending against legacy assets, which is in part why markets for them are currently frozen,' Kashkari said in an April 14 letter attached to the report."

With Kashkari involved, no doubt all recommendations will be ignored and wheel-barrels full of billions in cash hauled out to GS getaway trucks. The convenient thing about Treasury not tracking disbursement of TARP is that no one will be the wiser of skimming. Have you ever seen the movie Casino?
Apr 22, 2009 at 12:38 PM | Unregistered Commenterspideydouble
Note:

Elected lobbyist "public servant" buffoons committed $700 billion in borrowed future tax receipts, but unelected Fed and Treasury officials have ballooned that amount to $3tn in additional commitments and guarantees. Amazing how this works. It doesn't matter what legislation is passed when Fed and Treasury can commit unlimited future tax receipts without recourse. Reason enough to put them all before a firing squad for high treason.
Apr 22, 2009 at 12:47 PM | Unregistered Commenterspideydouble
Kneale: New Threat to Banks: Bad COP
TOPICS:Congress | Toxic Assets | Timothy Geithner | Banking | TARP | Barack Obama
COMPANIES:JPMorgan Chase and Co
By: Dennis Kneale, CNBC Media & Technology Editor | 22 Apr 2009 | 11:58 AM ET Text Size
Read what this dumb ass wrote and you know just how BIASED CNBC is towards pushing stocks at all cost and screwing taxpayers....This guy is a shill, a clown, and has no idea that the end result of this whole fiasco will CRUSH the taxpayer and in the end his precious stock market further. DUMB ASS!


Dennis Kneale
CNBC Media &
Technology Editor
A daunting litany of ills imperils U.S. banks, from toxic assets to rising loan defaults. After the irritating spectacle that played out in Washington yesterday, we can add a new threat: the Congressional Oversight Panel tracking TARP.

This became all too clear when the COP—as in, Bad Cop—summoned Treasury Secretary Timothy Geithner for an update on the Troubled Assets Relief Plan. Moments after the session began, the real purpose became clear: Grandstanding enemies of the banks and Big Business were there to deliver a fingerwagging lecture to Geithner, interrupting him at will and telling him how to do his job.

The onstage dressing-down began with the panel’s chairwoman, Elizabeth Warren, a Harvard law professor who for years has crusaded against banks for charging high interest rates on credit cards. Smug and clearly enjoying her Warholian 15 minutes of fame, she appeared on Comedy Central’s “The Daily Show” last week, trading yucks with host Jon Stewart, the erudite, uber-liberal Wall Street basher.

Yesterday, she opened the hearing by declaring: “People are angry because they are paying for programs ... that have no apparent benefit for their families or the economy as a whole, but that seem to leave enough cash in the system for lavish bonuses and golf outings. None of this seems fair.” Nice shot, Lizzie!
Apr 22, 2009 at 1:48 PM | Unregistered CommenterAin't Bullshittin'

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