WASHINGTON (Reuters) - A Senate committee will step up oversight of the government’s unpopular TARP bank bailout program now it is losing one of its watchdogs, a top senator said on Thursday.
The Senate Banking Committee will oversee the $700 billion Troubled Asset Relief Program on an ongoing basis, committee chairman Tim Johnson told reporters after the panel held a hearing to examine the program.
The Obama administration says TARP stabilized the U.S. financial system during its 2007-2009 crisis. Many U.S. citizens are outraged the fund was used to bail out Wall Street banks that helped sparked the crisis and will cost taxpayers a projected $25 billion.
“We will push for tough oversight, so we can better protect consumers, investors and taxpayers,” Johnson said.
Since TARP was created in the fall of 2008, it has been overseen by four oversight bodies, including congressional auditors, a special inspector general and a board that includes the U.S. Treasury Secretary, Federal Reserve Chairman and the head of the Securities and Exchange Commission.
Now one of TARP’s watchdogs, the Congressional Oversight Panel, will end its work early April as mandated by the law.
This comes as the Treasury Department works to unwind stakes in American International Group (AIG.N), General Motors Co (GM.N) and Chrysler Group and battles Republicans to keep a foreclosure prevention plan in place.
Insurer AIG is 92 percent owned by the government. Treasury has said that if it is able to sell its investments in AIG at current market values, taxpayers will “get back every dollar put into AIG and will realize a positive return.”
AIG’s bailout by the Federal Reserve Bank of New York and the Treasury peaked at $182 billion. The insurer has since repaid the Fed $47 billion and repaid Treasury $9.1 billion. It is preparing for a massive stock offering this spring.
However, AIG’s shares have been battered by the recent fall in prices and concerns over insured losses from Japan’s earthquake, whittling away Treasury’s potential profit.
In the Congressional Oversight Panel’s final report this week, it concluded TARP underpinned the view federal authorities will always stop financial firms from failing.
Richard Shelby, the top Republican on the banking committee, took it a step further and said regulators were able hide their failures leading up to the crisis.
“Regulators will have reduced incentives to be tough with big banks if they know that their work has little bearing on whether or not a bank fails,” Shelby said.
At Thursday’s hearing, the congressional panel and TARP’s special inspector general Neil Barofsky reiterated concerns about the administration’s foreclosure prevention program.
Also known as the Home Affordable Modification Program, or HAMP, the administration had initially predicted that it would help up to 4 million at-risk homeowners avoid foreclosure by providing permanent loan modifications.
So far, HAMP has provided loan modifications for about 600,000 homeowners, angering House Republicans, who are trying to kill the program.
“The biggest failure so far is HAMP,” said Barofsky. “There has to be acknowledgment from Treasury that HAMP is failing,” he said.
The Treasury official in charge of TARP defended the program yet again and said it helped provide mortgage servicers with standards that could be applied to all loan modifications.