Congress demands answers on bailout

Key lawmakers blasted Treasury Wednesday for its handling of the $700 billion financial rescue plan, saying it lacks appropriate measures to ensure the bailout is working.

At a hearing held by the House Financial Services Committee, committee chairman Barney Frank, D-Mass., accused Treasury of failing to address its obligation to address foreclosures and enforce lending obligations on banks.

"Refusal so far to use money for that purpose [of foreclosures] undermines the intent of the bill," said Frank. "What troubled me was when Treasury was asked by the Government Accountability Office, 'What are you doing to ensure banks are lending,' they appeared to be saying, 'We're not going to try to find that out.' "

The hearing serves as a follow-up to two reports on how Treasury has conducted its bailout program, including the Congressional Oversight Panel's report on the Troubled Asset Relief Program submitted to Congress Wednesday, as well as a Government Accountability Office report delivered to lawmakers last week.

Congressmen on both sides of the aisle used the scathing reports as a launching pad, lambasting Treasury for a general lack of clarity about its strategy as well as a dearth of measures that ensure banks are using the bailout funds for their intended purposes.

Addressing Treasury's bailout point man Neel Kashkari, the committee's ranking member Spencer Bachus, R-Ala., said taxpayers have a right to know how their tax dollars are being used.

"The taxpayer has the right to expect that you use the same standard of care as when you were working for Goldman Sachs and answering to your shareholders and investors," Bachus said. "The detailed explanations we've received from the GAO stand in stark contrast to the lack of information we've received from Treasury or financial institutions that received funds from TARP."

Rep. Maxine Waters, D-Calif., said she has "seen nothing" from Treasury that that gives her confidence in their ability to manage the bailout. Rep. Carolyn Maloney, D-N.Y., called the program "a dismal failure."

In testimony, Rep. Bill Pascrell Jr., D-N.J, said, "TARP funds have been greatly mismanaged to date and they have not been made to help consumers purchase the goods that they need."

The committee is also hearing testimony from Kashkari, Acting Comptroller General Gene Dodaro and two members of a congressional oversight panel: Harvard law professor Elizabeth Warren and Rep. Jeb Hensarling, R-Texas.

The oversight panel report said that the Treasury Department must do more to rescue struggling homeowners and ensure that the money it's using to bail out banks is working, according to a draft report by a congressional oversight panel released Wednesday.

The GAO report said Treasury has yet to address "critical" oversight issues to ensure the plan is working, including the need for more staff, better management, an improved transition effort and facilities to ensure banks are using bailout funds effectively.

On Monday, the Senate confirmed a former federal prosecutor, Neil Barofsky, whose job it will be to ensure that the program is not tainted by corruption.
First batch of funds running dry

With just $15 billion of the first $350 billion of TARP funds left unallocated, some political analysts expect Paulson to ask for the second half of the $700 billion bailout.

But to get the remaining balance, Paulson will have to convince Congress the financial sector needs it -- and that the Treasury will use the funds appropriately. That may be difficult with the increasing criticism the Treasury has faced from lawmakers.

After the Emergency Economic Stabilization Act was signed into law Oct. 3, Paulson immediately received $250 billion with which to work. The next $100 billion came on Oct. 14, when President Bush asked Congress for the next batch of funding.

Thus far, the bulk of the first $350 billion has been allocated for capital investments in banks. Of the $250 billion allocated, the Treasury has sent out more than $161 billion in checks to 52 banks in exchange for preferred shares and a high dividend.

Treasury has also sent $40 billion to American International Group (AIG, Fortune 500) as part of the insurer's $152 billion bailout, allocated $20 billion for an additional capital investment in Citigroup (C, Fortune 500) and set aside $20 billion to backstop losses from a separate Federal Reserve plan to buy up debt backed by consumer loans.