The First Half of TARP Funds Remain Unaccounted

February 13th, 2009

With the first half of the TARP funds ($700 billion) for all practical purposes remaining unaccounted, this time accountability will be required. The first lot has had no impact on the economy. The Treasury Department could not give satisfactory accounting of where the money flowed and what use it came to.

Meanwhile the Senate has given the new President the right to release the balance amount of $350 billion. But a promise had to be made that the money would be spent to further spending operations so as to reduce the number of foreclosures.

Obama went a step ahead. He promised that his government would be more transparent in accountability. His aim was to win the confidence of the man in the streets.

It is not difficult to assess why the banks are desperately in need of money. Foreclosures have blocked the inflow of mortgage payments and increased expenses by way of legal suits and maintenance costs of repossessed houses. This had made them cautious about lending. It was hoped that by pumping money into banks mortgages would again be sanctioned and sale of houses pick up. But this did not happen. There are allegations that the banks are using the money to buy solid banks and to pay their executives.

Big banks have clearly been hurt. The Bank of America got $20 billion from the government recently to help it purchase Merrill Lynch. The bank reported a fourth quarter loss calculating to $2.39 billion. Citibank too suffered losses counting to millions of dollars. Wall Street is whispering about rumours regarding further bank losses.

If the Henry Paulson team had not bungled the handling of the first instalment of the TARP funds, Obama would not have had to underline talks about gaining public confidence. There is no way of knowing what the banks did with the money. Moreover there were no restrictions placed on the banks about remunerating its executives handsomely with salary and perks.

The economic team of Obama has gone a step further than the previous Bush government to pacify the Congress about the use of the second half of the TARP funds. It is a jumbo-sized investment and the public has a right to know what is being done with the taxpayer’s money. The new President will definitely not want to start his presidency by throwing away public money into a black hole.