When someone shares with you something of value, you have an obligation to share it with others.
Monday, 9 February 2009
Treasury Overpaid
A government watchdog has concluded that the federal government gave financial institutions a US$78 billion (S$117.4 billion) subsidy last year by overpaying for stocks and other assets as part of its massive Wall Street rescue program.
A government watchdog has concluded that the federal government gave financial institutions a US$78 billion (S$117.4 billion) subsidy last year by overpaying for stocks and other assets as part of its massive Wall Street rescue program.
In a report scheduled for release Friday, the Congressional Oversight Panel for the bailout funds found that in some cases the government paid dramatically more than the actual value of the stocks at the time of the transactions.
Financially ailing insurance giant American International Group, deemed by the Treasury Department to be too big to be allowed to fail, received US$40 billion from the Treasury for assets valued at US$14.8 billion, the oversight panel found.
The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program (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.
The misgivings come as new Treasury Secretary Timothy Geithner is preparing to place the Obama administration’s imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures. Mr. Geithner plans to unveil the changes on Monday.
In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid US$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 US$25 billion infusion, has already announced it would pay Treasury US$371 million in dividends this month.
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 ‘healthy’ financially but in need of capital to make loans.
Two other transactions went to AIG and to Citigroup under programmes designed to help companies that were 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 US$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, it concluded that the government in effect paid US$78 billion more than the actual value of the asset 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’.
Reacting to the panel’s conclusions, Treasury spokesman Isaac Baker said in a statement: ‘Treasury’s efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars.’
He said the plan that Mr. Geithner will announce on Monday aims to free up credit, ‘while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it?s achieving real results.’
Senate Banking Chairman Chris Dodd said the overpayment was sure to ‘raise eyebrows’. ‘I can understand some gap,’ he said. ‘No one is expecting perfection between the price you pay and what you think you’re getting. But that’s a pretty large disparity’.
Another fund watchdog urged the Obama administration to be clearer about the true value of the nearly US$300 billion the Treasury has infused into more than 300 institutions through purchases of assets such as preferred stock.
‘Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the very substantial portfolio that it now manages on behalf of the American people,’ said Neil Barofksy, the special inspector general for the rescue program.
Senator Richard Shelby of Alabama, the Banking Committee’s top Republican, complained that Treasury had set up a ‘disorderly approach,’ and Dodd called for ‘a sharp change in the direction of this program under new management’.
1 comment:
Treasury Overpaid
AP
7 February 2009
A government watchdog has concluded that the federal government gave financial institutions a US$78 billion (S$117.4 billion) subsidy last year by overpaying for stocks and other assets as part of its massive Wall Street rescue program.
In a report scheduled for release Friday, the Congressional Oversight Panel for the bailout funds found that in some cases the government paid dramatically more than the actual value of the stocks at the time of the transactions.
Financially ailing insurance giant American International Group, deemed by the Treasury Department to be too big to be allowed to fail, received US$40 billion from the Treasury for assets valued at US$14.8 billion, the oversight panel found.
The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program (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.
The misgivings come as new Treasury Secretary Timothy Geithner is preparing to place the Obama administration’s imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures. Mr. Geithner plans to unveil the changes on Monday.
In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid US$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 US$25 billion infusion, has already announced it would pay Treasury US$371 million in dividends this month.
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 ‘healthy’ financially but in need of capital to make loans.
Two other transactions went to AIG and to Citigroup under programmes designed to help companies that were 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 US$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, it concluded that the government in effect paid US$78 billion more than the actual value of the asset 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’.
Reacting to the panel’s conclusions, Treasury spokesman Isaac Baker said in a statement: ‘Treasury’s efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars.’
He said the plan that Mr. Geithner will announce on Monday aims to free up credit, ‘while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it?s achieving real results.’
Senate Banking Chairman Chris Dodd said the overpayment was sure to ‘raise eyebrows’. ‘I can understand some gap,’ he said. ‘No one is expecting perfection between the price you pay and what you think you’re getting. But that’s a pretty large disparity’.
Another fund watchdog urged the Obama administration to be clearer about the true value of the nearly US$300 billion the Treasury has infused into more than 300 institutions through purchases of assets such as preferred stock.
‘Treasury needs, in the near term, to begin developing a more complete strategy on what to do with the very substantial portfolio that it now manages on behalf of the American people,’ said Neil Barofksy, the special inspector general for the rescue program.
Senator Richard Shelby of Alabama, the Banking Committee’s top Republican, complained that Treasury had set up a ‘disorderly approach,’ and Dodd called for ‘a sharp change in the direction of this program under new management’.
Post a Comment