Watchdog Observes that Bailout has Done Little to Contain Foreclosures

December 16th, 2009

A watchdog body of the government observed that the bailout measure involving $700 billion has done little to contain foreclosures although the financial system has been helped to be stabilized. Millions are now in some state of foreclosure.

This is the latest monthly report on TARP. The Congressional Oversight Panel failed to say categorically whether Treasury Secretary Timothy Geithner should extend it beyond the close of 2009. The bail out fund is 14 months old and has helped to prop up financial bodies and banks, the auto industry and insurance giant AIG. But it has failed to solve the core of the problems plaguing the financial system – the poisonous assets that are still pushing down the balance sheets of the banks. This has led to an acute withdrawing of credit, apart from moral questions being posed regarding the bailout, observed the panel.

In the report the panel observed, “Consequently, the United States continues to face the prospect of banks too big to fail and too weak to play their role adequately in keeping credit flowing throughout the economy. The foreclosure crisis continues to grow.”

In conclusion the report noted that the stability that the markets experienced this current year is not only because of TARP but to an unusual mixture of governmental support coming from the FDIC and Federal Reserve guaranteeing assets. It observed, “The removal of this support too quickly could undermine the economy’s nascent stability.” However it did not specifically say if the Treasury should extend the plan till October 2010.

The Obama administration is planning to extend TARP so as to help the small business group so that they can avail of loans. Other programmes are also being mulled over to give a kick to generation of jobs. Many Republicans are opposed to it. Rep. Jeb Hensarling was the only Republican in the panel. He voted against the approval but gave his nod to the report in general. He is of the opinion that TARP should be shut down. Hensarling said, “One can not help but conclude that TARP is failing its mandate.” He added that the bailout efforts to help General Motors, Chrysler and GMAC were “abuses” while the efforts to mitigate the foreclosure crisis were “misguided.”

The report released by the oversight panel led by Professor Elizabeth Warren of Harvard Law School was also critical of the TARP plan noting that the measures “have not yet achieved the scope, scale and permanence to address the crisis.”