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‘Treasury Simply Did Not Do What It Said It Was Doing’

Playing off of our story today on yesterday’s TARP oversight hearing, here’s a fascinating exchange between Sen. Richard Shelby (Ala.), the highest ranking member of the Senate Banking Committee, and Elizabeth Warren, who chairs the congressional TARP oversight panel. Prior to this snippet, Warren just told lawmakers that Treasury officials didn’t use risk-adjustment mechanisms when they purchased stakes in the troubled banks:

Shelby: Isn’t that a terrible way to look after the taxpayers money and to make purchases anywhere?

Warren: Well … Treasury simply did not do what it said it was doing … I can’t say that more clearly.

Shelby: In other words, they misled the Congress, did they not?

Warren: Well…

Shelby: The Bush administration — Secretary Paulson, Chairman Bernanke — misled the people — the Congress and the people — of the United States.

Warren: They announced one program and implemented another.

Shelby: Absolutely. They said one thing and two weeks later did another. Is that correct?

Warren: Senator, it’s more than that.

Shelby: No …

Warren: Yes, yes, senator, they did. But it’s more than that. Even in the program that they moved to, in the second program, they described that program one way, and they priced it a different way. They did not price for risk. That’s what markets do.

The result of that pricing, as widely reported today, was that the investments owned by taxpayers were immediately worth $78 billion less than the Treasury paid. That could change, of course. If these banks rebound and stock prices soar, Washington might even find itself in the black on the deal. But if there’s a lesson in there anywhere, it’s that congressional lawmakers might not want to repeat the mistake of providing blank checks to the White House — any White House — without a bit more supervision. Indeed, it’s only part of their job.

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