Protecting the Taxpayers, or the Banks?
Since the Wall Street bailout was signed into law last October, critics of the strategy have often been met with a central reassurance from leaders of the Treasury Department and the Federal Reserve: The taxpayer-funded rescue, these officials have said, is not a bailout at all, but an investment that could very well return the taxpayers more money than they pumped in.
Yet a recent report from the congressional panel charged with overseeing the bailout program reveals that, at least in the program’s initial stages, the returns are nothing to write home about. Indeed, the July 10 assessment found that the 11 small banks that have thus far repurchased their warrants from the Treasury paid just 66 percent of the warrants’ value. (Treasury received the warrants from bailout recipients as collateral to protect taxpayers.)
If similar underpayments were made for all outstanding warrants, the oversight panel warned, taxpayers could lose out on $2.7 billion.
Those figures weren’t lost on some congressional lawmakers, who introduced legislation last week designed to maximize taxpayer profits under the Troubled Asset Relief Program. Sponsored by Rep. Mary Jo Kilroy (D-Ohio), the bill would force the Treasury to sell back all of its warrants through a public auction, rather than through the secret negotiation process currently in place.
“The banks and Treasury are negotiating the repayment of this debt behind closed doors instead of allowing trading in the open market,” Kilroy said in a statement announcing her bill. “We do not know if the current process is producing the benefits we are owed and a market-based approach would remove the secrecy and special interests and maximize the return on the taxpayers’ investment.”
The question that remains, of course, is why isn’t Treasury already doing this?