Oversight Panel Report Grim, Tough, Inviting
Americans are being formally invited to participate in discussingthe ongoing federal program to stabilize the country’s economy. The invitation is by the five-member panel Congress created to oversee the program’s implementation. The panel also issued its first report yesterday, signed by the panel’s Chair, Harvard Law Professor Elizabeth Warren, plus AFL-CIO Associate General Counsel Damon Silvers and New York Superintendent of Banking, Richard Neiman. (One panel member, Rep. Jeb Hensarling of Texas, voted against issuing the report and the fifth panel seat is vacant.) The report contemplates asking ten tough questions about the program that give a sense of its tenor:
1. What is Treasury’s Strategy?
2. Is the Strategy Working to Stabilize Markets?
3. Is the Strategy Helping to Reduce Foreclosures?
4. What Have Financial Institutions Done With the Taxpayers’ Money Received So Far?
5. Is the Public Receiving a Fair Deal?
6. What is Treasury Doing to Help the American Family?
7. Is Treasury Imposing Reforms on Financial Institutions that are taking Taxpayer Money?
8. How is Treasury Deciding Which Institutions Receive the Money?
9. What is the Scope of Treasury’s Statutory Authority?
10. Is Treasury Looking Ahead?
The report’s further tenor can be gleaned from its Introduction, which is very sobering indeed, and excerpted below (with footnotes omitted and emphasis added).
Introduction from TARP Oversight Panel Report
The U.S. and the global economy have been in a steadily accelerating downward spiral since the early spring of 2007. The American family is at the epicenter of this crisis.
The headlines may belong to the financial markets and mega-institutions, but the recession has visited every household in the country. The crisis affects Americans’ ability to pay their bills, to secure their retirement, to continue their educations, and to provide for their families.
The unemployment rate is the highest it has been in fourteen years. In the last three months, 1.2 million Americans lost their jobs; 533,000 in November, 2008 alone. Service sector employment levels, in particular, fell far faster than expected last month.
One in ten mortgage holders is now in default, unable to make payments on their homes. More than 200,000 families and small businesses filed for bankruptcy protection in the last two months.
Middle and lower-income families have watched nervously as reductions in state funding threaten college access and affordability. Retail sales continue to fall, credit card defaults are rising, and savings rates hover at zero. Shrinking retirement funds have left millions of retired people to wonder how they will pay basic expenses and millions more to wonder if they must continue working until they die.
A short summary of the economic history of the past few months is grim.
• Credit, when it is available, has become dramatically more expensive for all borrowers, and some worry it will get even more expensive next year.
• U.S. stock markets have lost more than 40% of their value over the past year, and markets elsewhere in the world have also declined sharply.
• In September, the federal government took control of the two largest mortgage financing intermediaries, generally known as Fannie Mae and Freddie Mac.
• All three major U.S.-based auto companies have told Congress they face the threat of imminent bankruptcy.
• The largest U.S. commercial bank, Citigroup, and the largest U.S. insurance company, AIG, have both received substantial infusions of capital from the U.S. government, with AIG under threat of imminent bankruptcy.
• Two major investment banks, Bear Stearns and Merrill Lynch, have disappeared in mergers. One major investment bank, Lehman Brothers, has filed for protection under the bankruptcy laws. The two largest remaining investment banks, Goldman Sachs and Morgan Stanley, have transformed themselves into bank holding companies.
• The largest thrift savings banks, Washington Mutual and IndyMac, have been taken over by their regulator.
• The Federal Deposit Insurance Corporation has placed 171 banks, with combined assets of $116 billion, on the problem list as of September 30, 2008.
In response to the financial crisis, Congress passed the Emergency Economic Stabilization Act of 2008, authorizing the Treasury Department to commit up to $250 billion in taxpayer dollars, to be followed by another $100 billion and another $350 billion if warranted. . . .
From the passage of the Emergency Economic Stabilization Act of 2008 to the present date, Treasury has used its authority under the Act to provide 87 banks with $165 billion in exchange for preferred stock and warrants. Treasury further used its authority to provide AIG with $40 billion in exchange for preferred stock and warrants, and to provide Citigroup with a further $20 billion in preferred stock and warrants. As part of a program to guarantee approximately $306 billion in Citigroup’s troubled assets, Treasury receives $4 billion of Citigroup preferred stock and warrants. Together, these disbursements constitute approximately $1,900 per American family, or almost 3% of the typical family’s pre-tax income.