Few weeks back I talked about The Geithner Put and raised my concerns about the plan. So finally, it’s official now that The U.S. Treasury’s plan to purge toxic assets from banks’ balance sheets is vulnerable to fraud and abuse and needs tough rules against conflict of interest, the government’s bailout watchdog said on Tuesday. Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program (TARP), said in a report that subsidies for public-private investment partnerships (PPIP) to buy assets could expose taxpayers to higher losses without corresponding increases in the potential for profit.
He goes on to say (not all in order, only what I considered key I posted here)-
Aspects of PPIP make it inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering,” said Barofky’s second quarterly report since he took office in December.
It warned of higher risks associated with investing in toxic securities, and said taxpayers could suffer bigger losses if public-private investment funds were allowed to finance securities purchases by borrowing from the Fed’s Term Asset-Backed Securities Loan Facility.
The taxpayers’ subsidies could dilute private investors’ financial commitments, or “‘skin in the game’ and therefore reduce their incentive to conduct appropriate due diligence,” the report said.
The report said Treasury had committed $590.4 billion of the $700 billion through March 31, but when additional Fed financing commitments and asset guarantees are added in, taxpayers could be responsible for up to $2.977 trillion in total TARP costs
Hopefully this does bring stricter rules or scrutiny into play. You may want to read my earlier post where I laid my thoughts in simple way.
And by the way if you would like to know how The Wall Street has influenced government machinery, pls read the quiet coup by Simon Johnson, former chief of International Monetary Fund. It’s a roughly 10-11 page long read, so make sure you grab a cup of coffee and read it. A must read.
Have fun and profitable Trading, OP