WASHINGTON — Taxpayers are increasingly exposed to losses and the government is more vulnerable to fraud under Obama administration initiatives that have created a federal bank bailout program of “unprecedented scope,” a government report finds.
In a 250-page quarterly report to Congress, the rescue program’s special inspector general concludes that a private-public partnership designed to rid financial institutions of their “toxic assets” is tilted in favor of private investors and creates “potential unfairness to the taxpayer.”
The report, which examines the six-month old, $700-billion Troubled Asset Relief Program, is scheduled for release today.
Using blunt language, Inspector General Neil Barofksy offers recommendations to protect the public and takes the Treasury to task for not implementing previous advice. The report also commends Treasury and the Federal Reserve for creating some safeguards.
The report’s warnings about the public-private plan’s potential for losses echoes alarms raised by some lawmakers and economists, but Barofksy has significant credibility in Congress and his views are likely to carry ample weight.
Overall, the report says the public-private partnership — using Treasury, Federal Reserve and private investor money — could total $2 trillion. The financial markets responded positively to the program when the Obama administration announced it last month, but the administration is still putting final touches on its implementation.
“The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives,” the report says.
We've only just begun to see the problems that are going come out of the TARP program. If something has a smaller chance of success than it has of fraud and abuse, what do you think is going to happen?
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