Special Inspector General for the Troubled Asset Relief Program (SIGTARP)

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SIGTARP stands for the "Office of the Special Inspector General for the Troubled Asset Relief Program". It was established by the Emergency Economic Stabilization Act of 2008 (EESA). Under EESA, the Special Inspector General has the responsibility, among other things, to conduct, supervise and coordinate audits and investigations of the purchase, management and sale of assets under the Troubled Asset Relief Program (TARP). SIGTARP's goal is to promote economic stability by assiduously protecting the interests of those who fund the TARP programs - i.e., the American taxpayers. This is achieved by facilitating transparency in TARP programs, providing effective oversight in coordination with other relevant oversight bodies, and through robust criminal and civil enforcement against those, whether inside or outside of Government, who waste, steal or abuse TARP funds. The Special Inspector General, Neil M. Barofsky, was confirmed by the Senate on December 8, 2008, and was sworn into office on December 15, 2008. [1]

Barofsky and His Exit

Neil Barofsky finished an over two-year term serving as Special Inspector General for the Troubled Asset Relief Program in March 2011 and had some choice words about the program and political gamesmanship that infused the TARP process.[2] American Banker.com reported that Barofsky said the government would never admit to the failure of the program:

"Hamp is fixable, but this Treasury Department will never fix it," he said in an exit interview. "This Treasury Department is so content with the wretched, shameful status quo. They refuse to even acknowledge that the program is a failure. Is it too politically damaging to acknowledge the truth? Is this about protecting the banks? Is this about foaming the runway of the foreclosure crisis for the banks? Was that what this program was always really intended to do, to stretch out the foreclosure crisis? "These are questions that are demanded to be asked because of the refusal to acknowledge and fix the program. They are fair questions. I don't know the answers, but by not being transparent and not being straightforward, Treasury invites those questions."[3]

The Obama administration's Home Affordable Modification Program (HAMP) that Barofsky said is fixable has come under a little less scrutiny then TARP, but still has major flaws. The Huffington Post reported that "HAMP was initially funded with $50 billion in Wall Street bailout money and $25 billion from taxpayer-owned Fannie Mae and Freddie Mac. Struggling homeowners are supposed to be eligible for the program if they live in their home, owe less than $729,750, and their mortgage payments amount to more than 31 percent of their monthly income -- and they have to prove it. Qualified borrowers who successfully make three months of reduced "trial" payments are supposed to be put into five-year "permanent" modifications. It often doesn't work out that way, as mortgage servicers lose paperwork and homeowners discover that the foreclosure process has moved faster than the trial process."

Barofsky also said in the American Banker article that the Treasury has no strategy for dealing with the 150 banks that are behind on their Tarp dividend payments."There is no articulated exit strategy with what to do with banks that are struggling," he said. "The closest thing you have is the Small Business Lending Fund." Congress authorized that fund last September, allowing some banks to convert up to $30 billion in Tarp funds. "It's a Tarp bailout in a lot of ways," Barofsky said of the lending fund."

What is the solution?

"Barofsky sees Dodd-Frank, the reform law enacted last July, as the antidote to Tarp. Where Tarp solidified "too big to fail" by protecting all the major financial institutions, Dodd-Frank gives regulators the power to take them over and unwind them according to "living wills" that they must keep up to date. Barofsky is skeptical that this system will work. He said Congress should have adopted the Brown-Kaufman amendment and imposed size and growth limits on banks. While it is possible that a combination of Dodd-Frank and tougher Basel III capital rules can tame "too big to fail," Barofsky said "it is a very difficult path, and what we have seen so far doesn't give you a lot of hope or encouragement."[4]

Key reports, testimony and findings




AIG Counterparty Payments

On November 17, 2009, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) released a report[5] saying that Timothy Geithner -- then the head of the Federal Reserve Bank of New York and now the nation's Treasury Secretary -- was responsible for billions of tax dollars in overpayments to major Wall Street firms, most notably Goldman Sachs.

From the report,

[T]he refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counterparties, including the emphasis that their participation in the negotiations was purely "voluntary," made the possibility of obtaining concessions from those counterparties extremely remote.

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