Bush government paid too much for bank stocks: watchdog
The Bush administration paid tens of billions of dollars too much for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a U.S. government watchdog says.
The Congressional Oversight Panel, in a report released Friday, said last year's overpayments amounted to a taxpayer-financed $78 billion US subsidy of the firms.
The findings added to the frustrations of legislators already wary of the $700-billion rescue plan, known as the Troubled Asset Relief Program, or TARP.
Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former treasury secretary Henry Paulson.
Financially ailing insurance giant American International Group, which the Treasury Department deemed to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found.
Not 'equivalent value'
"Now, there could be lots of policy reasons that Treasury might decide that it wanted this money to be in the banks," panel chairwoman Elizabeth Warren said Friday morning on CBS.
"But our question is the one we put to secretary Paulson, and that is, 'Are you putting it in and getting back assets that are worth equivalent value?' He told us yes; our independent investigation said no."
The misgivings come as new Treasury Secretary Timothy Geithner prepares to place the Obama administration's imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures.
Geithner plans to unveil the changes Monday.
And while Paulson is gone and Geithner is in charge, the program itself is still in the hands of Neel Kashkari, a holdover from the Bush administration.
In December, Kashkari defended the Treasury's purchasing strategy.
"We're not day traders, and we're not looking for a return tomorrow," he said. "Over time, we believe the taxpayers will be protected and have a return on their investment."
In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month.
Wells Fargo, which received a $25-billion infusion, has announced it will pay Treasury $371 million in dividends this month.
Transactions examined
The oversight panel examined 10 transactions, including eight made under a capital purchase program designed to put liquidity into the banks in hopes of easing credit.
That money went to banks considered financially healthy but in need of capital to make loans.
Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies facing serious financial difficulties.
Overall, the panel and the analysts it retained to conduct the valuation study found that the Treasury used taxpayers' money to pay $62.5 billion more than the value of assets in the 10 transactions it examined.
By extrapolating to the more than 300 institutions that received money, the panel concluded that the government in effect paid $78 billion more than the value of the assets at the time.
"Treasury chose to offer 'one size fits all' pricing in order to encourage all institutions to participate, and in so doing disregarded apparent differences in their financial condition," the report states.
"A consequence is that Treasury effectively offered weaker participants greater subsidies than it offered to stronger participants."