Rep. Dennis Kucinich (D-Ohio) has some questions this week about how far the Obama administration is going to ensure that Wall Street banks are spending bailout funds as Congress intended.
In a memo (pdf) issued today, Kucinich, who chairs the House Oversight and Government Reform Committee’s domestic policy subpanel, goes after the Treasury Department for allowing some of the largest bailed out banks to process what the congressman calls “questionable transactions.”
Kucinich cites an $8 billion loan to “public sector entities” in Dubai from Citigroup, which has received $25 billion in funds under the Troubled Asset Relief Program; a $7 billion investment in China Construction Bank Corporation by Bank of America, another $25 billion recipient of TARP funds; and a $1 billion venture by J.P. Morgan, yet another $25 billion TARP beneficiary, into India’s finance industry.
Such moves, Kucinich argues, are part of the larger problem that Treasury has failed to monitor TARP funds “to prevent their use for perks for company management, loans to foreign governmental authorities, investments in outsourcing jobs held by Americans, investments in foreign company operations overseas, and the repurchase of company common stock, or any other potential example of waste and abuse.”
Under existing agreements between Treasury and TARP recipient financial institutions, Treasury has broad contractual authority to scour company books in search of, among other things, waste and abuse by TARP recipients. But in practice, Treasury is not doing so. In the absence of statutory or regulatory definitions of waste and abuse or explicit conditions for use of TARP funds – either promulgated in term agreements by Treasury under its broad authority, or prescribed by Congress in EESA – Treasury’s oversight will not find them and cannot enforce them.
In pointing out the absence of statute, Kucinich might have found the cause of his own concerns. That is, the Treasury might be bound to prevent TARP “waste and abuse,” but it has no authority to tell the banks where to spend their bailout money. The original TARP bill, remember, was purposefully weak on this front because policymakers — heeding the Bush administration — said they didn’t want to micromanage the affairs of the industry. Similarly, efforts to rein in executive compensation were dropped because of concerns that the restrictions would scare away industry “talent.”
As we’ve written before, lawmakers who assumed that the banks would use the extra capital to thaw the frozen domestic credit markets are learning the hard way that banks exist to make money, not to perform heroic deeds. They aren’t altruists, or patriots, or environmentalists, or humanitarians. They’re businesses, and they’ll do whatever they think will yield the greatest profits for shareholders. If that means overseas investments, then that’s where the TARP funding will go — Kucinich memo or none.
The lesson here might not be that TARP funds are being abused, but that our financial stability — both for individual Americans and the country as a whole — hinges on the decisions of an industry that has a moral obligation to neither.
Legislation that set stricter guidelines on TARP spending passed the House in January, but Senate Democrats never took it up, instead choosing to trust Treasury Secretary Tim Geithner to manage the funds more responsibly than his predecessor.
He hasn’t gotten great reviews so far.
Writing in Florida’s Sun Sentinel yesterday, University of Maryland economist Peter Morici called the Treasury’s effort to fix the banks “simply inadequate.”
“No solution to preserve private banking can be found without halting the freefall in housing prices,” Morici wrote. “That will require an aggregator or bad bank to purchase about $2 trillion in mortgage-backed securities from banks.”
Geithner, Morici adds, “has other plans whose motivations only the gods above Mount Olympus can divine.”
Kucinich, Morici and other anxious observers may get more answers this week. Kucinich’s subcommittee is scheduled to hold a hearing Wednesday on waste and abuse under TARP. Leading the panel of witnesses will be Neel Kashkari, the Bush administration’s pick to manage the $700 billion bailout.
Maybe Kashkari will know what hole these many billions of dollars have fallen into, because no one else seems to have a clue.
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