Political India: Engaging America

Every now and then news of the United States government exiting specific investments it had made since 2008 under the Troubled Asset Relief Programme (TARP) has trickled out of the Treasury. First, it was banking majors such as Goldman Sachs and Morgan Stanley which made hasty bids to repay TARP funds and resuscitate their market reputations. Next auto majors such as Chrysler carved a slower, more painful path out of government ownership.

In most cases, the message coming out of the Treasury was that the federal government's return on the taxpayer dollar was profitable, no whisper of the costs. All that is about to end.

This week an outspoken government watchdog, the Government Accountability Office (GAO), literally rapped the Treasury and its boss Secretary Tim Geithner on their knuckles for failing to reveal sufficient information about the costs associated with the government's staccato exits from the so-called ‘bailout' investments.

In a report the GAO said, “Although Treasury regularly reports on the cost of TARP programs and has enhanced such reporting over time, GAO's analysis of Treasury press releases about specific programmes indicate that information about estimated lifetime costs and income are included only when programmes are expected to result in lifetime income.”

In other words, the Treasury has not been adequately revealing programme-specific cost information to the public for any TARP programs that were going to impose a heavy cost on the exchequer with little revenue to offset that cost. For example, the GAO noted, the Treasury issued a press release for its bank investment programs, including its Capital Purchase Program aimed at injecting capital into financial institutions — and in these cases most, if not all, of the programmes would result in lifetime income, or profit.

However, the GAO added, “Press releases for investments in AIG [the American International Group, a TARP-supported insurance corporation], a programme that is anticipated to result in a lifetime cost to Treasury, did not include programme-specific cost information.” Although press releases for programmes expected to result in a cost to Treasury provide useful transaction information, they exclude lifetime, program-specific cost estimates, the GAO complained.

With many TARP programs continuing to be in various stages of unwinding and some programmes, such as those seeking to address the foreclosure crisis, remaining active, the Treasury may jeopardise market stability if it proceeds any further down this opaque path, the GAO's report suggests. It cautions that even as late as September, 2011, about half of Treasury's 116 contracts remained active, along with 14 of the 17 financial agency agreements.

That wasn't the last word from the GAO either, for it also issued a parting shot on the timing of the market exits themselves. The GAO said that the Treasury had articulated “broad principles for... exiting TARP programs as soon as practicable and seeking to maximise taxpayer returns, goals that at times conflict.”

It again cited the case of AIG, which back in 2009 had caused a cloud of controversy over Secretary Geithner after one of his staff, Neil Barofsky, criticised the use of $62.1 billion of the funds to prop up several banks insured by AIG. The GAO said that to now unwind the AIG investments required the Treasury to actively manage the timing of its exit as it balances its competing goals. “Consequently, the timing of Treasury's exit from TARP remains uncertain,” the watchdog said.