Bailout

In Cut and Paste Job, Treasury Admits It Still Doesn't Know What Banks Are Doing With Bailout Money

Zachary Roth | December 31, 2008, 5:13PM

Earlier this month, as we noted at the time, the congressional oversight panel for the financial bailout released a report on how the Treasury is spending the $700 billion in taxpayer money Congress gave them.

In its report, the panel, chaired by Harvard Law professor Elizabeth Warren, asked several basic questions about the Treasury's activities, for which it had not yet been given enough information to provide conclusions. These included "What is Treasury's Strategy?" "Is the Strategy Working?" And "What Have Financial Institutions Done with the Taxpayers' Money?"

Now -- not coincidentally, at a time when most people are distracted by thoughts of cheap champagne and off-key singing -- the Treasury has responded.

The 13-page riposte is, by and large, an impressive example of using up white space while saying absolutely nothing. But a few excerpts stand out as noteworthy.

First of all, in response to Warren's question of whether the strategy is working to stabilize markets, Treasury says, in part:

Treasury is also monitoring the effects our strategy is having on lending, although it is important to note that nearly half the money allocated to the Capital Purchase Program has yet to be received by the banks. Treasury is executing at a rapid speed, but it will take some time to review and fund all the remaining applications. Clearly this capital needs to get into the system before it can have the desired effect. In addition, we are still at a point of low confidence - both due to the financial crisis and the economic downturn. As long as confidence remains low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans. As confidence returns, Treasury expects to see more credit extended. The increased lending that is vital to our economy will not materialize as fast as anyone would like, but it will happen much faster as a result of deploying resources from the TARP to stabilize the system and increase capital in our banks.

In other words, we originally said this whole bailout was necessary to increase lending, and it hasn't. But it still might "as confidence returns." (The fact that the bailout was supposed to be a key part of restoring confidence doesn't seem to have been considered.)

But now look at this: A few pages later, Treasury responds in part to Warren's question of what the banks are doing with the bailout money by essentially cutting and pasting the very same paragraph:

The CPP began in October 2008 and the money must work its way into the system before it can have the desired effect. Moreover, we are still at a point of low confidence - both due to the credit crisis and due to the economic downturn, during which lending and borrowing levels normally drop. While confidence is low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans. As confidence returns, we expect to see more credit extended. This lending won't materialize as fast as anyone would like, but it will happen much faster as a result of having used the TARP to stabilize the system and to increase the capital in our banks.

Look closely at those two blockquoted paragraphs. It genuinely looks like someone has gone through the second one and altered a few phrases -- "as long as confidence remains low" becomes "while confidence is low" -- so that it's not a word for word replica of the first.

This isn't just an issue of shoddy writing, or even lazy thinking. It suggests that Treasury was so stumped by Warren's question of what banks are doing with the bailout money that it resorted to copying passages from earlier in the report -- passages that have little direct relevance to the question -- to pad out its answer and obscure the fact that it has no idea.

It comes closest to answering the question in this passage, in which it essentially throws up its hands and confesses ignorance:

As the GAO noted in its report, given the number and variety of financial stability actions being put in place by multiple entities, it will be challenging to view the impact of the Capital Purchase Program in isolation and at the institutional level. Moreover, each individual financial institution's circumstances are different, making comparisons challenging at best, and it is difficult to track where individual dollars flow through an organization.

And as for why Treasury hasn't insisted on more reforms from participating banks:

The CPP is a voluntary program for viable institutions. The program was designed to be attractive to financial institutions of all sizes as a mechanism to increase capital in the financial system while also protecting the taxpayer.

In other words, banks wouldn't have done it if they'd had to agree to more regulation. And we didn't want to make them.

Warren's panel is still slated to release a second report on the Treasury's handling of the bailout money -- though whether it will decide that Treasury has adequately responded to the issues raised in its first remains to be seen.

Federal Reerve

Gross Profits: PIMCO Hired To Manage Bailout That Benefited It

Zachary Roth | December 31, 2008, 3:09PM

Over at TPM, we noted earlier today the news that the Federal Reserve has hired four investment firms -- BlackRock, Goldman Sachs, PIMCO and Wellington Management Company -- to manage its mortgage-backed securities purchase program, in which it will buy up $500 billion worth of mortgage bonds, in an effort to boost the housing market.

It'd be nice to know more about why all of these companies were selected, and how much they're being paid -- and we've put those questions to the Fed. But for a number of reasons, one of the four firms, bond giant PIMCO, stands out as a particularly interesting choice.

As of June 30th, 61 percent of PIMCO's holdings -- $500 billion -- were in the very mortgage backed securities that it's now being hired by the Fed to buy back on behalf of US taxpayers, according to a September Bloomberg report that cited data on PIMCO's own website.

That could explain why, as financial blogger Rolfe Winkler pointed out earlier today, PIMCO chief Bill Gross was sounding the alarm in early September about the disastrous fate that would befall the US economy unless the government started buying up troubled mortgage assets.

In a September 4 post on PIMCO's website, Gross warned:

If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.

Within days, the Treasury had done what Gross was asking. In other words, as Peter Cohan, a professor of management at Babson College, put it at the time in a post on Bloggingstocks.com:

Bill Gross, who manages $830 billion, has convinced the U.S. Treasury to use your taxpayer dollars to bail him out of his bad investments.

And Gross seems to have had his eye on the endgame for a while here too. Later that month, he argued in a Washington Post oped that a broader bailout -- what became the TARP -- was also desperately needed, and he seemed to suggest that his own PIMCO would be a perfect candidate to manage the funds.

He wrote (via nexis):

Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. (itals ours)

PIMCO, or the Pacific Investment Management Company, is based in Newport Beach, California.

In an interview shortly afterwards with CNBC's Erin Burnett, Gross presented his willingness to take on that job as a patriotic stand, pledging that PIMCO would work for no fee, "if everybody else worked on the same basis." (It's around the 4:25 mark).

And now the Fed has given him what's essentially the same job.

Will Gross stand by his pledge to work for free? We've called PIMCO to ask, and will keep you posted on what we found out. But given how Gross has made out so far, we're not holding our breath.

Bailout

For Some Culprits In Financial Meltdown, Life Is Still Pretty Good

Zachary Roth | December 30, 2008, 4:19PM

This probably won't come as a surprise. But some of the major culprits in the financial crash -- former CEOs or top execs at banks whose billion-dollar losses helped precipitate the turmoil -- don't seem to be paying much of a price for their catastrophic mismangement.

Dick Fuld, the former CEO of Lehman -- whose collapse in September directly ushered in the broader panic -- is already plotting a comeback. According to the Financial Times, he's thinking about starting a "small advisory boutique to help companies with strategic and financial issues." The venture would "harness [Fuld's] contacts in US companies," says the paper.

Meanwhile, two former Wall Street honchos appear to be living the high-life after seeing taxpayers step in to rescue their troubled firms.

The New York Post reports today that Peter Kraus, a former top executive with Merrill Lynch, just bought a $37 million Park Avenue apartment -- "featuring 11-foot-high ceilings, three fireplaces, three maid's rooms, a library, a gallery and a family room/gym." In September, Kraus got a $25 million golden parachute from Merrill when it was sold to Bank of America, even though he had only started work there that month. B of A received $25 billion in taxpayer money as part of the bailout.

And back in March, Jimmy Cayne, the ousted CEO of Bear Stearns, bought two adjacent apartments at the Plaza, perhaps New York's swankiest locale, worth $28.24 million. That same month, his collapsed former firm was bought by JP Morgan Chase, with major government backing. Cayne reportedly spent much of his time playing golf and bridge while Bear Stearns was reeling last year.

Next to these characters, the case of Ken Thompson, the former Wachovia CEO, may appear minor. But Thompson, who was forced out of Wachovia after the bank posted a $708 million loss in the first quarter of this year, nonetheless seems to have held onto some of his reputation as a member in good standing of the business elite: he remains on the board of Hewlett Packard. Wachovia has since been taken over by Wells Fargo.

And even Daniel Mudd, the former head of mortgage giant Fannie Mae -- now controlled by the US government -- still seems to have bright career prospects. The Financial Times has reported that he frequently travels to New York City for job interviews.

Bernard Madoff, there's hope for you yet!

AIG

In Ironic Twist, Taxpayers May Be On The Hook For Some Madoff Losses, Via AIG

Zachary Roth | December 30, 2008, 12:22PM

Looks like another victim of the Bernard Madoff mess -- albeit a very minor one -- is the US taxpayer.

In September, as part of its bailout effort, the Treasury Department made an $85 billion loan to insurance giant AIG, and got a 79.9 percent stake in the company.

And AIG appears to be exposed to Madoff's alleged fraud. As part of its homeowners coverage, the company offers a "fraud safeguard" policy, which would seem to cover some Madoff investors.

From the company's website:

AIG Fraud SafeGuard® - Personal financial loss can come in many forms: identity theft, investment schemes, dishonest advisors, forgery, etc. Coverage is available to help protect you and your family. (itals ours)

We're not talking big numbers here. An AIG spokesman told TPMmuckraker that the company had so far received 85 "notices" of claims related to Madoff, which cover up to $100,000. Even if you assume that all those claims will be paid out at the $100,000 maximum (which they almost certainly won't), that only puts the company on the hook for $8.5 million -- pocket change for a firm of AIG's size. The company could yet receive more claims, but the total dollar amount at issue would likely remain relatively small.

Still, Madoff's fall appears to have been precipitated by the spiraling financial crisis -- he was unable, it appears, to meet obligations to the rush of investors spooked by the turmoil and wanting to withdraw their money. So it's ironic that, thanks to that same crisis, we all could technically be on the hook for his alleged crimes.

Bailout

Former FDIC Chair, Now Advising Paulson, Is Looking To Profit From Bailout

Zachary Roth | December 29, 2008, 12:14PM

The New York Times reports that several former government officials who helped organize the savings and loan bailout of the early 1990s are now putting that expertise to use by working as lawyers or lobbyists helping banks get a piece of the financial bailout -- or even by investing in some of the bad assets to be offered for sale.

Much of this, it appears, amounts to little more than an example of the decades-old revolving door between government and private business. But the paper reports that at least one former top government official is advising both the Bush and Obama teams on how to respond to the crisis, while at the same time being involved in efforts to profit from it.

Some of these former federal officials, like L. William Seidman, the first chairman of the R.T.C., are serving as advisers -- sharing ideas with Treasury Secretary Henry M. Paulson Jr. and the transition team for President-elect Barack Obama -- even while they are separately directing investors or banks on how to best profit from this advice.

"It is an enormous market," said Mr. Seidman, who has already joined two such potential money-making efforts and is evaluating proposals to participate in a third. "I am enjoying this."

As the chair of the Resolution Trust Corporation and the FDIC in the early 1990s, Seidman directed the government's disposal of the assets of failed savings and loans. So no one's suggesting that Paulson, and advisers to Obama, shouldn't be able to call on him for advice this time around.

But it would be nice to know more about what kind of ideas Seidman, and others like him, are sharing with current and future policymakers, and how those ideas line up with their own flourishing financial interests. And that's only more true given what we've learned about the inadequate efforts to monitor what the federal government has done with the bailout money and to protect against conflicts of interest.

Bailout

Another Financial Institution Jumps On Bailout Gravy Train

Justin Elliott | December 23, 2008, 12:12PM

Yesterday we told you about the trend of financial institutions jumping on the bailout "gravy train" by acquiring -- or transforming themselves into -- traditional banks, which are eligible for the government's $700 billion TARP program.

Well add one more big institution to the list. The federal government has given preliminary approval to a $2.33 billion injection of gravy into CIT Group less than 24 hours after the firm's application to become a bank holding company was approved.

The AP reports:

Commercial financial firm CIT Group Inc. said Tuesday it received preliminary approval to obtain $2.33 billion as part of the government's $700 billion bank investment program.

The approval comes just hours after the government approved CIT's application to become a bank holding company. ...

CIT recently announced it was raising $300 million through a public stock offer and bolstering its capital through a debt exchange offer as it worked to win approval to become a bank holding company.

You can read the Fed's approval of CIT's switch to a bank holding company here (pdf).

Bailout

With Bailout Money At Stake, It's Hip To Be A Bank

Zachary Roth | December 22, 2008, 10:49AM

Maybe TPMmuckraker will reorganize as a bank to get our hands on some taxpayer money. After all, everyone's doing it.

The Project on Government Oversight (POGO), a good-government group, last week sent a letter to Congressional leaders identifying eight financial institutions that have sought to qualify for funds under the federal bailout program by purchasing banks, to which bailout money is restricted. In a related blog post, POGO accused the companies of "apparently trying to jump on the gravy train."

The details:

- Lincoln National Corporation is in the process of acquiring Newton County Loan and Savings, an Indiana bank.
- Hartford Financial is acquiring Federal Trust Corporation, the parent company of Federal Trust Bank in Florida.
- Genworth Financial is purchasing InterBank FSB in Minnesota.
- CIT Group has converted its Utah Industrial Bank to a Utah State Bank.
- Morgan Stanley was approved as a Bank Holding Company on September 21, 2008.
- GMAC Financial Services has opened GMAC Bank, a Utah chartered Federal Reserve Bank member bank.
- American Express was approved as a Bank Holding Company on November 10, 2008. The company owns American Express Centurion Bank, an industrial loan bank, and American Express Bank FSB, a federal savings bank in Utah.
- Goldman Sachs was approved as a Bank Holding Company in mid-September and opened Goldman Sachs Bank USA in Salt Lake City.

As POGO noted, these institutions "seem to be straying from their business models to become traditional banks."

And it pointed out that in the case of one of these companies, its CEO had recently said they were doing fine:

Kenneth Chenault, American Express's CEO, asserted that the company's "business model is well positioned to generate earnings and excess capital even in an economic environment that is likely to be among the weakest in many years"13 less than a month before becoming a Bank Holding Company and, presumably, applying for TARP funds.

In a sense though, it's hard to blame these companies for trying to get a piece of the action. After all, despite their financing arms, GM and Chrysler aren't banks either, but it looks like their federal bailout will come from the very same TARP funds.

Bailout

Bailout Bill Loophole Could Render Exec Pay Limits Meaningless

Zachary Roth | December 15, 2008, 2:36PM

When Congress was writing the bailout bill back in September, one of the major sticking points was its insistence on including limits on executive compensation for the banks that were going to be taking taxpayer money. The issue nearly derailed the bill, as Treasury argued that such limits would dissuade banks from participating. But Congress eventually won out.

Or at least it appeared to have. The Washington Post reports today that Treasury succeeded in getting a rather important loophole added in to the bill at the eleventh hour. It said that the pay limits would apply only to banks that participated in the bailout under the original plan in which Treasury would purchase the banks' troubled assets. Since the department quickly switched to a different approach, in which it simply injects equity into banks, the pay limits no longer apply.

"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles Grassley, the ranking Republican on the Senate Finance Committee, told the Post.

Questioned by the Post, Treasury insisted it has "all the remedies available to us for a breach of contract," should banks refuse to abide by the limits.

But legal experts appear to disagree.

David M. Lynn, former chief counsel of the Securities and Exchange Commission's division of corporation finance, said courts have sometimes placed limits on the government's ability to impose penalties if there was no fair warning.

"Treasury might find its hands tied down the road," said Lynn, who is also co-author of "The Executive Compensation Disclosure Treatise and Reporting Guide."

It seems fair to conclude that there is strong internal resistance at Treasury to instituting the pay limits in a serious way. In addition to fighting Congress's efforts to impose them in the first place -- then adding the loophole which the Post highlights, there also some at Treasury who support a voluntary system of compliance, according to a finding of the recently released GAO report on the department's bailout spending, which we highlighted at the time.

And more broadly, Treasury appears uninterested in requiring banks to track what they do with the taxpayer money they're getting. And the House last week passed an amendment to the auto bailout bill that would require banks to say more about what they're doing with the bailout money -- a second bite at the apple after the rush to pass the bailout legislation in September.

Chuck Schumer

Schumer Helped Block Regulation Of Ratings Agencies

Zachary Roth | December 15, 2008, 12:03PM

We told you last month about the role of the credit ratings agencies in helping to cause the financial crisis. A major part of the problem, in a nutshell, is that the major ratings agencies -- Moody's, Standard & Poor's, and Fitch -- are paid by the institutions (often investment banks) who are issuing the bonds. That gives the agencies a clear incentive to produce favorable ratings, or risk seeing the banks hire a different ratings agency that's willing to offer a better rating.

But over the weekend, in a profile of Sen. Chuck Schumer, the New York Times revealed that the veteran New York Democratic lawmaker -- who, with seats on both the finance and banking committees, has built a reputation as a key ally of the financial sector, a major industry in his home state -- played a major role in stymieing efforts to fix that problem.

Here's what happened:

In 2006, Christopher Cox, the Bush-appointed chair of the Securities and Exchange Commission -- and hardly a left-wing proponent of heavy-handed government regulation -- became convinced that the conflict of interest problem needed to be addressed.

A plan to give the SEC more regulatory authority "drew broad, bipartisan support," says the Times. But it was opposed, of course, by the ratings agencies themselves ... who turned to Schumer.

"They knew Schumer would support them," one former Moody's executive told the Times. "He was their go-to guy."

The paper adds: "While the Manhattan-based agencies were not significant campaign donors to Mr. Schumer or the Senate campaign committee, their lobbyists and many of their clients were."

As an alternative to Cox's plan, Schumer advocated a largely voluntary approach in which regulators would simply encourage the agencies to disclose their ratings methods. "They're making good-faith efforts," Schumer told Cox at a 2006 Senate hearing.

Ultimately, says the Times, Schumer was able to get the measure amended "so that it explicitly prohibited the S.E.C. from regulating the procedures and methods the agencies use to determine ratings."

In other words, he appears to have blocked the crucial part of the legislation. Sean Egan, of Egan-Jones Ratings -- one of the few agencies that largely avoided buying into the mortgage bubble, perhaps in part because it's structured to avoid conflicts of interest -- told the Times: "The bill was eviscerated. You have stripped away basic safeguards for the investors."

And sure enough, under the weak regulatory system that Schumer had helped to ensure, the agencies,as we've seen, offered high ratings to bonds based on risky sub-prime loans, encouraging investors to see them as secure, and ultimately helping to inflate the mortgage bubble.

Schumer claims to have learned from his mistakes. He supported a belated but necessary SEC move earlier this month to meaningfully address the conflict of interest problem, and related issues, saying: "The work at these ratings firms was severely compromised, and the companies were some of the biggest contributors to the current financial crisis."

But had Schumer adopted that position back in 2006, when the SEC did, the ratings agencies might not have wound up as a significant cause of our current financial turmoil.

Bailout

Sign Of The Times? Former Nasdaq Chair Charged With $50 Billion Fraud

Zachary Roth | December 12, 2008, 12:47PM

You might have seen the news that a former chair of the Nasdaq was arrested yesterday for running what federal investigators called a "$50 billion swindle."

Bernard Madoff was turned in by his sons, who said that their father had admitted to them that his investment advisory business was "a giant ponzi scheme," reports the Wall Street Journal.

But a close look at what happened suggests that Madoff's alleged crime may merely have represented an extreme version of the type of financial chicanery that helped cause the current economic crisis.

In a criminal complaint, an FBI agent wrote that Madoff, 70, had:

deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars.

Madoff's firm, Bernard L. Madoff Investment Securities, serves primarily as a middleman between buyers and sellers of shares. But an offshoot of the company manages investments for hedge funds and other institutions, as well as wealthy individuals. According to a civil complaint filed by the SEC, the alleged fraud was run through this investment business.

The steady returns that this business provided appear to have caused skepticism over the years. The Journal reports:

A number of traders suggested [Madoff's] firm could be buying shares for its own account just before it filled orders for customers, an illegal act called front-running. In 2001, Mr. Madoff told Barron's that charges of front-running were "ridiculous."

An executive in the securities industry, Harry Markopolos, contacted the SEC's Boston office in May 1999, urging regulators to investigate Mr. Madoff. Mr. Markopolos continued to pursue his accusations over the past nine years, he said in an interview on Thursday, and according to documents he sent to the SEC that were reviewed by The Wall Street Journal.

"Bernie Madoff's returns aren't real and if they are real, then they would almost certainly have been generated by front-running customer order flow from the broker-dealer arm of Madoff Investment Securities LLC," Mr. Markopolos wrote to the SEC in November 2005.

The criminal complaint filed by the FBI quotes two employees -- believed to be Madoff's sons -- as saying that Madoff was "cryptic" about the activities of the company's investment arm, and kept the investment offices on a separate floor.

Things appear to have come to a head earlier this month, when Madoff told one of his sons that "clients had requested approximately $7 billion in redemptions, that he was struggling to obtain the liquidity necessary to meet those obligations."

[On Wednesday] the sons met with Mr. Madoff ... at his Manhattan apartment, the complaint says.

...At the apartment, Mr. Madoff confessed that his business was a fraud and that he was "finished." He said he had "absolutely nothing," that "it's all just one big lie," and that it was "basically, a giant Ponzi scheme." He told them the firm was insolvent, according to the complaint.

In other words, Madoff got himself into a situation where he didn't have enough money to pay back investors -- jut like those Wall Street banks we just bailed out. That's not to say that the charges against Madoff aren't serious -- it's only to point out that they're not unconnected to the broader economic turmoil.

Madoff, who is said to have started his business with $5000 he saved from working as a lifeguard at Rockaway Beach, didn't enter a plea during a court hearing last night. A preliminary hearing is scheduled for Jan. 12, 2009.

Bailout

Bailout Oversight: Too Little, Too Late?

Zachary Roth | December 11, 2008, 5:09PM

Remember back in September when Congress blocked the Bush administration's initial effort to ram through a bailout bill that would have given Treasury Secretary Hank Paulson virtually unlimited authority to spend $700 billion however he saw fit?

Among the measures that Congressional Democrats successfully held out for -- against the wishes of the White House -- were meaningful oversight mechanisms that would allow Congress and others to track what the Treasury Department is doing with all that money.

That seemed like a victory for taxpayers at the time. But now, over two months later, we've learned a bit about what those oversight mechanisms have been able to provide. And there's real reason to question whether in fact they were designed adequately for the task in the first place.

"It's a mess," Eric M. Thorson, the Treasury Department's inspector general, told the Washington Post last month. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

Perhaps the single biggest obstacle to adequate oversight of Treasury is how little oversight Treasury itself is exercising over the bailout funds, whether through indifference or an inability to hire qualified staff. In the first report issued by the Congressional Oversight Panel (COP) -- the main oversight mechanism that Congress fought to include in the bailout bill, over Paulson's objections -- the authors made clear that they were concerned about Treasury's lack of tracking mechanisms: "Treasury cannot simply trust that the financial institutions will act in the desired ways; it must verify." But COP also suggested that it was prevented from going further by the fact that Treasury wasn't keeping extensive enough records of its allocation of funds to be able to provide much more information.

A different overseer, the Government Accountability Office -- which functions as the investigative arm of Congress -- drew similar, albeit somewhat firmer, conclusions about Treasury's handling of the bailout money. Its preliminary report last week found a litany of problems, perhaps most fundamentally that there were no procedures to ensure that bailout funds are used as intended.

Just as important, the system of oversight doesn't appear to have been set up under conditions that would have allowed it to function effectively. With just three paid staff members (who started only this week -- two days before the panel's first report was to be released), COP was still struggling to get office space as it was preparing the report. Warren confirmed in an email to TPMmuckraker that "time constraints" had played a role in limiting the scope of the report's conclusions, saying that the panel met for the first time only two weeks ago.

Congress dragged its feet in naming the panel's members: although the bailout bill was passed in early October, they weren't named until mid-November. And it hasn't helped that Senate GOP leader Mitch McConnell still hasn't named a replacement for Sen. Judd Gregg, who stepped down last week as one the panel's two Republicans, saying he was too busy.

Still, at least GAO and the Congressional panel have been in place long enough to offer those reports. The single person who's most directly responsible for overseeing Treasury's bailout spending, Special Inspector General for the bailout, Neil Barofsky, was only confirmed this week. That's because one unnamed Republican senator -- it now seems all but certain that it was Kentucky's Jim Bunning -- placed a hold on Barofsky's nomination.

Congress may be talking belated steps to fix the problem. The Senate yesterday passed a bill that would let Barofsky investigate any use of bailout funds that he deems questionable, and hire auditors for the job. And the House has passed an amendment to the auto bailout bill that would require banks to say more about what they're doing with the TARP money.

Still, it appears that the rush to take action affected not just Treasury -- which was clearly scrambling to set up the bailout program without adequate record-keeping -- but also Congress, which failed to ensure that the oversight system it set up was designed as effectively as it needed it to be. And much of the damage may already have been done.

Bailout

Bailout Overseer: We're Still Trying To Get Office Space

Natalie Sherman | December 10, 2008, 4:55PM

Elizabeth Warren, the Harvard Law professor who chairs the Congressional Oversight Panel, which is monitoring the Treasury's spending of the bailout money, appeared this afternoon before a House commmitee to testify about the report -- better characterized as a set of questions -- the panel released this morning.

And from what Warren said, it doesn't appear that oversight of the billions of dollars at stake is being treated by either Treasury or Congress as a top priority.

Warren told the committee that the panel's four members had met for the first time just two weeks ago, and were still "struggling" to find office space. She added that all the members of the panel are serving part-time.

"Well, that raises the question of whether this can really be taken seriously," said Rep. Melvin Watt (D-NC), echoing fears about the strength of the oversight mechanisms are in place.

Congress authorized the creation of a five-member panel in the Oct. 2 bailout bill, but progress has been slow-going. Appointments were not announced until Nov. 14, and the panel remains one member short. (Sen. Jud Gregg, a New Hampshire Republican who was originally named to the position, stepped down Dec. 1.) The panel has little authority to do more than request information and report back to Congress about it.

In addition to Warren the other three members of the panel are Rep. Jeb Hensarling (R-TX), Richard Nieman, the state superintendent of banks for New York, and Damon Silvers, an associate general counsel of the AFL-CIO .

Bailout

Oversight Board To Treasury: What's Going On?

Versha Sharma | December 10, 2008, 12:16PM

A four-person oversight panel for the Treasury's $700 billion bailout released a bewildered preliminary report this morning looking into how Treasury is spending its billions of dollars of taxpayer money.

U.S. stocks have declined 40 percent this year, 12 of the nation's largest financial institutions are teetering on the brink of bankruptcy, and 171 banks are on the Treasury's "problem list." Since Congress approved the bailout in October, the Treasury has allocated some $335 billion, but some of the most fundamental questions about where that money went remain unanswered.

"It is unclear" the report -- written by a panel led by Harvard Law professor and bankruptcy expert Elizabeth Warren -- says at one point, and it continues that way for some time, wondering "What is Treasury's Strategy?" "Is the Strategy Working?" What Have Financial Institutions Done with the Taxpayers' Money?" Or as Rep. Paul Kanjorski (D-PA) put it at a hearing of the House Financial Services Committee this morning: "We're like mad scientists in an economic laboratory trying to make the right potion to solve this problem."

The most strongly worded section appears on page 20, when the panel charges Treasury with administering "the TARP program without seeking to monitor the use of funds provided to specific financial institutions." It adds: "Treasury cannot simply trust that the financial institutions will act in the desired ways; it must verify."

The panel also raises questions about how Treasury is deciding which institutions get money.

Critics have repeatedly wondered how much power the Treasury's oversight mechanisms actually have -- and the report's inconclusiveness suggests that it's not sure either.

Take this excerpt, in which the panel says it will develop standards to measure the program's success, a request also put forward in the Government Accountability Office report from last week.

The Oversight panel intends over time to make its own assessment of the effectiveness of the TARP program in achieving the objectives set forth by Congress. The Oversight Panel would be greatly assisted in its effort if Treasury did the same.

Let's hope the next reports from the panel, due out Jan. 10 and 20, contain more teeth. In the meantime we await the new website for the congressional oversight panel (or in a moment of wishful thinking, COP for short) with baited breath.

Bailout

Congress Slams Fannie, Freddie

Zachary Roth | December 9, 2008, 5:10PM

The House Oversight committee held hearings today on the role of Fannie Mae and Freddie Mac in the housing crisis and financial meltdown. And, no surprise, committee members didn't exactly heap praise on the troubled mortgage giants.

Committee chair Henry Waxman: "The CEOs of Fannie and Freddie made reckless bets that led to the downfall of their companies. Their actions could cost taxpayers hundreds of billions of dollars."

GOP Rep. Darrell Issa: "Outright fraud and greed wasn't isolated to just Wall Street. Fannie and Freddie shared in this disgrace as it drove much of the poor decision making that have led us to where we are today."

From the Wall Street Journal:

Lawmakers cited thousands of documents collected by the committee that Waxman said "show that the companies made irresponsible investments" that destabilized the firms and forced the government to put the companies in conservatorship in September.

Specifically, the panel released a June 2005 presentation made by former Fannie CEO Daniel Mudd that suggested the firm should move away from the traditional mortgage market in order to take advantage of the growing subprime and non-prime loan businesses.

"If we do not seriously invest in these 'underground' type efforts and the market changes prove to be secular, we risk: becoming a niche player; becoming less of a market leader; becoming less relevant to the secondary market," the presentation slides say.

Fannie, the slides continue, could "meet the market where the market is" by accepting higher risk and more volatile earnings

Daniel Mudd, CEO of Fannie Mae, offered this defense to the committee: "We couldn't afford to make the bet that the changes were not going to be permanent," he said.

John Thain

On Second Thought, Merrill CEO Will Forgo Yearly Bonus

Zachary Roth | December 9, 2008, 9:11AM

That didn't take long.

Yesterday, as we noted, the Wall Street Journal reported that Merrill Lynch CEO John Thain was seeking an annual bonus of as much as $10 million -- after seeing his company lose over $11 billion this year.

New York Attorney General Andrew Cuomo and Senate Majority Leader Harry Reid were both quick to express their outrage, noting that Bank of America, which has completed a deal to buy Merrill, received $15 billion from the bailout fund this fall. And Merrill's board appeared reluctant to go along.

And sure enough, at the company's board meeting yesterday afternoon, Thain announced that he, along with other senior execs, would forgo bonuses this year, "given current economic and market conditions."

Given the level of outrage that Thain's request had provoked so quickly, the board's apparent opposition, and the broader public mood against excessive CEO pay, Thain may have seen the writing on the wall.

And given that he got a $15 million bonus when he joined the firm last fall, we think he should be fine.

Bailout

Reid, Cuomo, Blast Merrill CEO's Request for $10-Million Bonus

Zachary Roth | December 8, 2008, 2:47PM

The news that John Thain, the CEO of Merrill Lynch, has requested a $10 million bonus isn't sitting well with some prominent political figures.

A statement from Senate Majority Leader Harry Reid notes that in October, Merrill received $10 billion in bailout money. Reid then declares:

The TARP program, from which Merrill Lynch has taken billions of taxpayer dollars, was designed explicitly to limit executive compensation, bonuses and golden parachutes. While American families struggle to keep their jobs and their homes, I question the chutzpah of asking for a $10 million taxpayer-subsidized bonus. Americans deciding which bills to pay this month just to make ends meet do not want their hard-earned money even indirectly spent rewarding executives from banks that are largely responsible for the economic crisis. I sincerely hope that Merrill Lynch rejects this request.

Meanwhile, New York Attorney General Andrew Cuomo, who is conducting an investigation of executive pay on Wall Street, has written a letter to Merrill board members that makes similar points. Cuomo writes:

Paying executives at Merrill millions each in "performance" bonuses in this context [of a taxpayer-funded bailout of Wall street firms] would be oxymoronic to say the least and certainly a thumb in the eye to taxpayers. Enough is enough.

Bailout

Gingrich's Ties To Fannie, Freddie Go Even Deeper

Zachary Roth | December 8, 2008, 2:26PM

Earlier today we reported that Newt Gingrich had recently been on Fox denouncing Democatic lawmakers for ties to Fannie Mae and Freddie Mac -- despite himself having worked as a consultant for Freddie back in 2006, helping to fight off potential regulation.

But it turns out that the Newt-Freddie relationship goes even deeper.

A July 1999 story in the American Banker, a banking trade publication (via Nexis), reports that the former House Speaker had recently been hired by Freddie "to provide strategic counsel on a range of issues," according to a company spokesman.

The same story adds that Gingrich's former chief of staff, Arne Christenson, was hired that year by Fannie Mae as senior vice president for regulatory policy.

Just to remind you, Gingrich is the guy who was saying in September:

what you have today is that the rich in Wall Street and the powerful at Fannie Mae and Freddie Mac had so many politicians beholden to them that, in fact, nobody was going to check them. And so they got away with things that were absolute bologna, and it's a tragedy.

Bailout

Merrill Chief Wants $10-Million Bonus For Presiding Over $11-Billion Loss

Zachary Roth | December 8, 2008, 1:06PM

Talk about tone deaf!

Merrill Lynch chief John Thain wants a bonus of as much as $10 million, reports (sub. req.) the Wall Street Journal.

Merrill's compensation committee is, not surprisingly, said to be objecting, pointing out among other things that, due to the dire economic situation, other firms like Goldman Sachs -- which did better than Merrill -- are forgoing bonuses this year.

Merrill has lost almost $12 billion this year, and is about to be taken over by Bank of America. Its shares have fallen fom $50 when Thain took over late last year to $13.04 at close of trading Friday.

It looks like Thain -- who was a major fundraiser for John McCain's campaign and was described by USA Today as a member of McCain's "team" -- is a practitioner of the bargaining strategy in which you begin with a maximalist offer as a starting point for negotiation:

A few months ago, when the board began seriously considering 2008 bonuses, a proposal was presented to the compensation committee by Merrill that Mr. Thain should be paid in excess of $30 million, according to people familiar with the matter. That number has since come down in recent talks with various board members and Mr. Thain has recently indicated to committee members that $5 million to $10 million is more reasonable.

The Journal notes some evidence in Thain's favor:

Mr. Thain's decision to sell Merrill likely salvaged billions of dollars for shareholders and saved a huge number of jobs at the firm, even though thousands of positions will be eliminated following the takeover.

Mr. Thain's quick moves won him respect on Wall Street, especially in contrast to top executives at Lehman Brothers Holdings Inc. and Bear Stearns.

Still, to Americans hit by the mortgage crisis that Merrill and other Wall Street firms helped set the stage for, those points may not carry much weight.

Bailout

Gingrich Slammed Pols "Beholden" to Fannie and Freddie -- But Shilled For Freddie Himself

Zachary Roth | December 8, 2008, 11:27AM

We already knew Newt Gingrich doesn't lack for chutzpah. But this looks like a whole new level...

Back when Congress was debating the bailout package this fall, Gingrich was bravely sounding the alarm about the nefarious influence wielded in Washington by mortgage giants Fannie Mae and Freddie Mac.

Here he is talking to Bill O'Reilly on Fox News in late September:

One of the provisions that I wanted to put into any kind of financial package is that no company that gets money from the Treasury in this process be allowed to hire a lobbyist. I mean, what you have today is that the rich in Wall Street and the powerful at Fannie Mae and Freddie Mac had so many politicians beholden to them that, in fact, nobody was going to check them. And so they got away with things that were absolute bologna, and it's a tragedy.

Gingrich was particularly vocal about some Democratic politicians' ties to Fannie and Freddie:

In Dodd's case, he is the largest single recipient of money from Freddie Mac and Fannie Mae. Barack Obama was No. 2. The fact is that to have Dodd preside over writing this bill, I think, is absolutely disgusting. I am appalled that Harry Reid appointed him to sit in there. But it is the nature of politics up there right now. And I think it's very, very bad for the country.

Now, one of the major reasons that Fannie and Freddie had "so many politicians beholden to them", of course, is that they hired people to work those politicians and to make public arguments that dovetailed with Fannie and Freddie's interests. And one of the people they hired, it turns out, was Gingrich.

The Associated Press reports today that in 2006, Freddie Mac paid the former House Speaker $300,000 to help fight off potential regulation. "Gingrich talked and wrote about what he saw as the benefits of the Freddie Mac business model," says the wire service.

So, in Gingrich world: Democratic politicians getting campaign contributions from Fannie and Freddie -- bad! Republican lobbyists getting paid by Fannie and Freddie to make the case against regulating the mortgage giants: good!

It's nice to be Newt...

Bailout

Source: Senators Assume Bunning Placed Hold On Barofsky Nomination

Zachary Roth | December 4, 2008, 3:54PM

A Senate staffer has confirmed to TPMmuckraker that the hold placed on the nomination of Neil Barofsky to be inspector general for the bailout has now been removed.

Politico had reported the removal of the hold earlier today, as we noted.

So now the focus is squarely on the identity of the GOP senator who placed the hold. And it now seems pretty clear, as we suspected from the start, that it was Jim Bunning of Kentucky.

According to the Senate staffer we spoke to, senators are working on the assumption that Bunning was responsible. And the staffer described a highly semantic argument that a Bunning aide made when asked about the issue, which would appear to only add to the evidence that Bunning was responsible.

The staffer said that a Bunning aide, speaking to an aide to another senator, tried to make the argument that technically, no hold had been placed, because there had been no request for unanimous consent on the floor of the Senate. A "UC request" would need to be made before calling for a voice vote on the issue, and it's at that point that the hold would officially go into effect. But in this case, Chris Dodd, the chair of the banking committee, had already been informed by the GOP cloakroom that one GOP senator wanted a hold put on -- which was what prompted Dodd to issue the statement that first revealed the existence of the hold.

The culprit is under no obligation, the Senate staffer said, to ever come clean. So we may never get official confirmation -- and the more important fact is that a vote on Barofsky's nomination is now set to proceed, probably by tomorrow, according to the staffer.

But at this point, the mystery seems all but cleared up.

Bailout

Schumer: Barofsky Hold Removed

Zachary Roth | December 4, 2008, 12:53PM

Politico reports:

The anonymous hold on Neil Barofsky, the Bush administration's TARP special IG, was lifted late Wednesday, according to Chuck Schumer. That clears the way for (sic) quick voice vote on his nomination.

The government watchdog group POGO had also written on their website this morning that the hold had been lifted.

Still no confirmation on whether Kentucky GOPer Jim Bunning was behind it. But we've posted his photograph anyway.

Bailout

New Rules For Credit Ratings Agencies

Zachary Roth | December 3, 2008, 2:01PM

We told you last month about the under-reported role of the credit ratings agencies in helping to cause the financial crisis. The problem, in a nutshell, is that the major ratings agencies -- Moody's, Standard & Poor's, and Fitch -- are paid by the insurers (often investment banks) who are issuing the bonds. That gives the agencies a clear incentive to produce favorable ratings, or risk seeing the banks hire a different ratings agency that's willing to offer a better rating.

So it's worth noting that the Securities and Exchange Commission today adopted new rules designed to protect against that conflict of interest.

The Associated Press has the rundown on the new rules:

Among other things, the conflict-of-interest rules ban the rating agencies from advising investment banks on how to package securities to secure favorable ratings. Gifts over $25 from clients also will be prohibited.

Rating agencies will be banned from making ratings in cases where the agency made recommendations to the company issuing securities or the investment bank underwriting them concerning the corporate structure, assets or activities of the issuing company.

In addition, rating agencies will be required to disclose statistics on all their upgrades and downgrades for each asset type. They also will have to disclose how much verification they performed on the quality of complex securities, such as those underpinned by mortgages, student loans or auto loans, in determining ratings for them.

Investors will receive detailed information on the ratings process for complex securities, thereby exposing potential conflicts of interest for the agencies, SEC officials said.

The SEC commissioners also voted to propose and open to public comment other rules that would require rating agencies to disclose in interactive electronic format the ratings history information for all of their assessments that companies issuing the securities pay them to do.

But the AP adds that the rules don't go far enough for some critics of the agencies, who want "new requirements to govern how the rating agencies are paid and to provide for the suspension of their licenses if they engage in unfair practices."

The Senate investigations committee has launched a probe of the ratings agencies. And we're going to be doing our own digging, so you'll hear more on this...

Bailout

More Evidence That Bunning Is GOP Senator Blocking Barofsky Nomination

Zachary Roth | December 3, 2008, 11:39AM

It's looking more and more like -- as we suspected -- Kentucky GOP senator Jim Bunning is the guy who placed the anonymous hold on the nomination of Neil Barofsky to the crucial post of special inspector general for the bailout.

Bunning's spokesman, Mike Reynard, wouldn't return any of our several calls on the subject. But the Associated Press appears to have reached him. It reports:

Republican Sen. Jim Bunning of Kentucky, a member of the Senate Banking Committee who opposed the bailout bill, has said he had "serious concerns" with Barofsky's nomination, though he has praised his experience. Bunning spokesman Mike Reynard would not comment on whether Bunning had placed the hold.

We'll let you draw your own conclusions...

Bailout

Top Dems React To GAO Report

Zachary Roth | December 3, 2008, 11:29AM

Looks like top Congressional Democrats didn't find yesterday's GAO report on how Treasury is implementing the bailout program any more encouraging than we did.

In a statement, Speaker Nancy Pelosi said:

The GAO's discouraging report makes clear that the Treasury Department's implementation of the (rescue plan) is insufficiently transparent and is not accountable to American taxpayers."

And Rep. Barney Frank, who chairs the House Financial Services Committee, agreed, saying in his own statement:

The American people received two kinds of news about the TARP program - bad and worse news.

The bad news was confirmation by the GAO in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law - to increase lending. The much worse news is Treasury's response that it does not even have the intention of doing so.

Frank added: "A public hearing on the issues raised by the GAO report is now essential."

Bailout

GAO Report: Now It's Your Turn

Zachary Roth | December 2, 2008, 5:10PM

In the sequence of posts below, we've tried to pick out the most interesting parts of the GAO report on the Treasury's administration of the bailout money. But we were working fast, so we might have missed stuff.

So if you feel like it, as usual, please review it yourself and let us know what else you find. It's here...

Bailout

Bailout Contractors Hired By Treasury Not Subject To Conflict Of Interest Rules

Zachary Roth | December 2, 2008, 4:56PM

The GAO report sheds light on another interesting angle to the conflict of interest problem with Treasury's administering of the bailout.

The department has hired outside private contractors to administer parts of the bailout program, notes GAO. Given the reports we've seen about Treasury lacking staff -- and lacking the right staff -- to implement the program, that may be a good move.

But as the report explains, outside contractors aren't subject to the conflict of interest rules that govern Treasury staff. As a result, Treasury asked the contractors to identify potential conflicts. There were many:

From the report:

In their responses to Treasury's requirements, six of the eight service providers selected as of November 25, 2008, identified potential or actual sources of conflict. According to our review, the identified conflicts generally involve organizational conflicts of interest, though some also involve personal conflicts of interest:

Five contractors indicated that they either already had clients or could have clients who were receiving TARP assistance.

• One contractor indicated that a potential conflict of interest would arise if it received information proprietary to multiple clients with competing investment interests.

• One company identified conflicts regarding troubled assets owned either directly by the company or by clients that were eligible for assistance under TARP.

Treasury also asked contractors to explain how they would work with Treasury to avoid such conflicts. And it sounds like some didn't exactly go the extra mile in that regard.

The submitted plans provided few details, however, on how the companies would notify and communicate with Treasury if conflicts were identified during the course of performance:

• Two firms' plans indicated that they would either maintain an "open dialog" or would "work in good faith" with Treasury should conflicts of interest emerge.

• Two other plans did not describe how the firms would address conflicts of interest or how they would notify Treasury.

By comparison, one plan indicated that the company would provide information on conflicts of interest to Treasury in its weekly reports and offer recommendations for addressing each issue.

Treasury relies on its financial agents and contractors to disclose conflicts of interest. Treasury officials stated that while under current procedures, they might not know if an agent or contractor did not disclose a conflict, they believed that the consequences for nondisclosure were sufficiently severe to deter such behavior. Finally, Treasury has noted in its solicitations that it intends to oversee and enforce compliance with conflict of interest mitigation plans. For example, Treasury noted in one of its solicitations for legal services that it would incorporate the offeror's final negotiated conflict of interest mitigation plan into the contract and then oversee and enforce the contractor's compliance with the plan. At the time we conducted our work, however, Treasury was still in the process of developing an oversight mechanism for enforcing financial agents' and contractors' mitigation plans. (our itals.)

Bailout

Regulator: Banks Can Enforce Exec Pay Limits Themselves

Zachary Roth | December 2, 2008, 4:21PM

It looks like the limits on executive compensation that Democrats in Congress fought to include in the bailout bill aren't a top priority for Treasury.

From the GAO report:

[A]t this point, the officials have not determined how Treasury will monitor executive compensation compliance. Bank regulators varied in their views about their oversight responsibilities related to compliance with executive compensation requirements and other required terms of CPP. For example, one regulator noted that it would rely on the institution's board of directors to assess compliance, and another regulator stated that it was Treasury's responsibility to provide such oversight. Without a consistent process for monitoring participating institutions, Treasury's ability to identify and address any potential problems in these institutions' compliance with program requirements will be limited.

In other words, Treasury officials aren't even on the same page with each other about how to enforce the limits -- and some think it can be left to the banks, fox-henhouse concerns be damned.

Bailout

Bailed Out Banks: "Money Is Fungible" So Don't Ask What We're Doing With It

Zachary Roth | December 2, 2008, 3:59PM

Here's a bit more detail, from page 25 of the GAO report, on what seems like the Treasury's utter aversion to requiring banks to offer any information whatsoever on what they're doing with the billions of dollars of taxpayer money they're getting.

[I]t is unclear how OFS and the banking regulators will monitor how participating institutions are using the capital investments and whether these goals are being met. The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.

...

With the exception of two institutions, institution officials noted that money is fungible and that they did not intend to track or report CPP capital separately.

...

The banking regulators indicated that they had not yet developed any additional supervisory steps, such as requiring more frequent provision of certain call report data for participating institutions, to monitor participating institutions' activities.

So it seems to come down to this: the banks won't say what they're doing with the money, and Treasury is too polite to ask.

Bailout

GAO: Treasury "May Not Be Able To Ensure That Conflicts Are Fully Identified."

Zachary Roth | December 2, 2008, 3:47PM

The authors of the GAO report don't appear impressed by Treasury's efforts to avoid conflicts of interest -- one of the prime concerns raised by some observers, given the number of top Treasury officials who used to work for companies receiving money under the bailout program.

From the report:

Lacking a comprehensive and complete system to monitor conflicts of interest, Treasury runs the risk that it may not be able to ensure that conflicts are fully identified and appropriately addressed.

Bailout

GAO: Treasury Not Ensuring That Bailout Money Is Being Spent As Intended

Zachary Roth | December 2, 2008, 3:39PM

The GAO report makes clear that the urgency of the crisis has meant that oversight procedures have taken a backseat. It concludes in part:

Because TARP is relatively new, and because the crisis makes immediate action imperative, Treasury is operating on a number of fronts concurrently. It is setting up programs and establishing oversight policies and procedures at the same time. As a result, we are seeing some lag in administrative efforts -- for example, internal controls -- as the programs proceed.
...

Treasury has not yet set up policies and procedures to help ensure that [Capital Purchase Program] funds are being used as intended.

And it recommends that those procedures be set up as soon as practicable.

The report is now available online (pdf).

Bailout

Treasury May Not Make Banks Report Back On How They're Spending Bailout Money

Zachary Roth | December 2, 2008, 3:29PM

Check out this nugget from page 15 of the GAO report on how Treasury is spending the bailout money:

[Treasury's Office of Financial Stability] has not yet determined if it will impose reporting requirements on the participating financial institutions that could enable OFS to monitor, to some extent, how the financial institutions are using capital infusions.

More to come...

Bailout

GAO: "Treasury Has Yet To Address A Number Of Critical Issues" On Spending Bailout Money

Zachary Roth | December 2, 2008, 3:19PM

A just-released report by the Government Accountability Office on how the Treasury Department is using the $700 billion allocated to it by Congress for the financial bailout reaches some discouraging conclusions.

It finds that:

Treasury has yet to address a number of critical issues, including determining how it will ensure that CPP is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments. Moreover, further actions are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control.

We're looking through the report here at TPMmuckraker and will bring you more detail as we find it...

Bailout

Barofsky Hold: Not Johnny Isakson, And Probably Not George Voinovich

Zachary Roth | December 2, 2008, 10:06AM

A staffer for the Georgia senator says unequivocally that Isakson isn't blocking a vote on the nomination of Neil Barofsky to be bailout IG.

As for Voinovich of Ohio, a reader reports that a staffer in his office "said that he has not done it as far as they are aware and feel that if he had done it he would have announced that he did it. They said he is pro-oversight and just sent a letter to Pelosi and Reid requesting that a bailout overseer be assigned for the auto industry package."

That's 13 out of 49 largely ruled out. Keep making those calls!

Bailout

Barofsky Hold: Not Orrin Hatch, Or Bob Corker...So Where Does That Leave Us?

Zachary Roth | December 1, 2008, 4:05PM

Staffers for both GOP senators have told our readers unequivocally that it wasn't Hatch or Corker that placed the hold on the nomination of Neil Barofsky to be inspector general for the bailout money.

So what have we learned so far?

Seven senators' offices have said unequivocally that they're not responsible: Coburn, Dole, Allard, Coleman, Warner, Hatch, and Corker.

In addition, staffers for four more -- Shelby, Sessions, Inhofe, and Bond -- have given versions of "not to my knowledge", meaning these senators probably aren't prime suspects, though they can't be definitively struck from the list.

That leaves 38 more from whom we've yet to hear anything. (Remember, until January there are still 49 GOP senators.)

Meanwhile, we've left two messages with the office of Jim Bunning, the Kentucky GOP senator who during a recent hearing expressed his opposition to Barofsky's appointment, but have heard nothing back.

Maybe our Bluegrass state readers will have more luck...

Bailout

Law Could Force Disclosure Of Mystery Senator's Identity

Zachary Roth | December 1, 2008, 3:45PM

In response to our quest to figure out which GOP senator is blocking the nomination of Neil Barofsky to be inspector general for the bailout money, Paul Blumenthal of the Sunlight Foundation, a good government organization, provides some key background on how these Senate holds work:

We've had our fair share of experience with secret holds, having fought to reveal the identities of those secretly blocking the Coburn-Obama bill (FFATA) and the campaign finance e-filing bill (S. 223). The first thing of note is that secret holds were, for the most part, abolished during the 110th Congress. The Honest Leadership and Open Government Act mandated the disclosure of the identity of a senator secretly blocking a "measure or matter" "not later than 6 session days" after the initiation of the hold.

The Barofsky nomination provides a good example of the loopholes in this mandate of disclosure. If a bill or, in this case, a nomination comes up prior to a long recess, the disclosure of the offending senator's identity will have to wait until the Senate reconvenes for at least 6 session days, not calendar days. So far, since the nomination was blocked, the Senate convened for two session days. While they are expected to convene tomorrow for a pro forma session, it is unknown whether the Senate will convene for four more days by the end of the year.

In other words, if the Senate does end up convening for four more days this session, we could soon find out the mystery senator's identity -- though how that would actually play out in practice remains unknown.

But if, on the other hand, the Senate doesn't meet for four more days this session, we could never know, and the hold could remain in place at least until the new Congress convenes.

Meanwhile, reports from readers continue to pour in -- more soon.

Bailout

Barofsky Hold: Not John Warner...

Zachary Roth | December 1, 2008, 3:27PM

A staffer for the outgoing Virginia senator confirms to a reader that he didn't put a hold on Neil Barofsky's nomination to be bailout IG.

Bailout

Barofsky Hold: Not Norm Coleman...

Zachary Roth | December 1, 2008, 2:13PM

A staffer for Sen. Norm Coleman unequivocally denied to a TPMmuckraker reader that the Minnesota senator is blocking Neil Barofsky's nomination to be inspector general for the bailout, and said that Coleman wants the appointment to go forward.

Bailout

Barofsky Hold: Not Wayne Allard...

Zachary Roth | December 1, 2008, 1:54PM

A staffer for the outgoing Colorado senator has told a reader that Allard isn't blocking Neil Barofsky's nomination to be inspector general of the bailout.

That's six on the record...

Bailout

Barofsky Hold: Not Elizabeth Dole...

Zachary Roth | December 1, 2008, 1:22PM

A member of the recently-ousted North Carolina senator's staff tells a reader that she didn't put a hold on the nomination of Neil Barofsky as inspector general for the bailout.

We've already all but ruled out four other GOP senators: Coburn and Inhofe from Oklahoma, and Sessions and Shelby from Alabama.

Bailout

Barofsky Hold: Readers' Reports Coming In

Zachary Roth | December 1, 2008, 12:35PM

An hour ago, we asked readers to call their GOP senators and ask whether they put a hold on the nomination of Neil Barofsky to a key post overseeing the Treasury Department's use of bailout money.

We've already heard back from readers on four senators...

Sen. Tom Coburn (OK) -- A reader reports that Coburn's office "was absolutely categorical. They publicize all their holds and they have not placed one on Barofsky."

Sen. James Inhofe (OK) -- "His staff said that they 'didn't believe' that the Senator had placed such a hold.

Sen. Jeff Sessions (AL) -- Sessions' legislative director told a reader: "Not to my knowledge."

Sen. Richard Shelby (AL) -- A staffer told our reader: "I don't think so. If he had, I would have heard about it." (Shelby is the ranking Republican on the Senate banking committee, which cleared Barofsky's nomination two weeks ago.)

Keep letting us know what you hear...

Jim Bunning

Is Kentucky GOPer Blocking Barofsky Appointment?

Zachary Roth | December 1, 2008, 12:09PM

Here's one possible suspect in the mystery of which Republican senator put a hold on the nomination of federal prosecutor Neil Barofsky for the key post of special inspector general for the bailout.

During Barofsky's appearance before the Senate banking committee November 19, Kentucky GOP senator Jim Bunning -- who from the beginning has been a staunch opponent of the bailout as a whole -- made clear that he opposed the nomination. Bunning expressed concern about the Treasury's decision last month to change its plan for how to use the bailout money, and about Barofsky's apparent reluctance, at a previous hearing, to question that decision by Treasury.

From the hearing:

Bunning: The bailout law also allows $50 million for your office, and so you will have a very ample amount of resources.

But I have serious concerns with your nomination. The nominee may be a dedicated public servant. He appears to be a skilled prosecutor and a man of integrity. But I wonder why taxpayers should have to pay $50 million to a watchdog who will have nothing to watch. How willing (sic) the IG performs (sic) his statutory role when the secretary has rewritten the law already, less than two months after it was enacted.

...

In his testimony earlier this week, Mr. Barofsky did not question Secretary Paulson's unlikely interpretation of the bailout law. Now, that's the money that is spent; if he does not question it, he will have little to do but watch the preferred stock positions mature.

...

Ultimately, I believe Mr. Barofsky, with his impressive legal skills, can serve the public far better in the Southern District of New York, where he can continue to prosecute mortgage fraud.

To be clear: Bunning, or any other senator, has a perfect right to oppose Barofsky's nomination for the reasons he suggests above. But anonymously preventing a free vote on the issue, especially at a time of such urgency, hardly offers a model of the kind of openness and transparency that Congress is calling for from the Treasury Department.

We've put in a call to Bunning's office, and will let you know what we hear.

Bailout

Senate GOPer Blocking Appointment Of Key Bailout Overseer: We Need Your Help!

Zachary Roth | December 1, 2008, 11:20AM

Last week we noticed that at least one unnamed Republican senator has put a hold on the nomination of Neil Barofsky as the Treasury's Department's special inspector general for the bailout.

This is a crucial post for ensuring that the department spends its $700 billion wisely and without favor -- all the more so because Treasury Secretary Henry Paulson, and the man running the bailout, Neel Kashkari, are both former executives at Goldman Sachs, which has already received $10 billion from Treasury. And no one has seriously questioned Barofsky's personal fitness for the job.

Senators have the right to anonymously put a hold on any nomination to a federal post for any reason whatsoever. But given what's at stake here, it's worth trying to find out who's responsible for the hold, and why. We've put in a call to Senate GOP leader Mitch McConnell's office. But we could use your help too.

So if you live in a state with at least one Republican senator, we're asking you to call their office, tell them you're a constituent, and politely ask whether they put a hold on Barofsky's nomination, and if so, why. Then email us and let us know what you find out -- even if it's a 'no' or an inconclusive answer. If nothing else, your information can help us narrow down the list.

And in case it helps, here's the statement put out by Sen. Chris Dodd, the chair of the banking committee, that first mentioned the hold.

One final point: in Friday's post, we noted a jurisdictional dispute between the Senate banking and finance committees, mentioned in a Washington Post story before the hold was put on, as a possible explanation for the move. But a Hill staffer in a position to know tells us that the issue has been resolved. So you can scratch that idea.

We'll be watching for your emails...