Bailout Lacks Oversight Despite Billions Pledged

Barney Frank (D-Mass.), chairman of the House Financial Services Committee, welcomes the change in the bailout program's focus to injections of capital. (By Lauren Victoria Burke -- Associated Press)

Some Republican lawmakers have said they are also concerned that Democrats may avoid acting on the nomination so that Barack Obama can choose his own special inspector general after he becomes president. But people familiar with the matter said Barofsky, the leading candidate for the position, would be palatable to the incoming administration because he supported Obama.

In the meantime, Thorson is trying to oversee the program in addition to his other responsibilities. Treasury Secretary Henry M. Paulson Jr. asked him to take on those duties. Thorson has a few dozen people working on the program, but none are doing so full time. He said there should be at least 100 people in the new special inspector general's office.

Lawmakers from both parties have criticized the White House for not moving more quickly to name an appointee.

"Considering how taxpayers' money around Washington isn't respected, a day shouldn't go by without having an inspector general checking on it," said Sen. Charles E. Grassley (R-Iowa), the ranking member on the Finance Committee.

Tony Fratto, deputy White House press secretary, declined to comment on the nominee or when he or she would be named but said there is adequate scrutiny of the bailout.

"No program in the history of the federal government has had more layers of oversight and reporting and transparency," he said.

For their part, lawmakers have yet to nominate the five-member Congressional Oversight Panel, though leaders of both parties said they hoped they would be named by the end of the month and start work by December. People familiar with the matter said possible nominees included current and former government and industry officials, though some had to recuse themselves because of conflicts of interest.

The panel's mandate is to look at the use of Paulson's authority and the impact of the program on the financial markets and mortgage crisis.

Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, said his concerns about oversight diminished after the Treasury program's focus shifted from purchases of financial firms' troubled assets to capital injections into companies. "The concern was they'd be buying assets and we wouldn't know the price," Frank said. The revised bailout program "doesn't have the conflicts of interest and the other things people were concerned about."

The delays in selecting both the special inspector general and the congressional oversight panel have prevented the release of a detailed oversight report required in the legislation. Under the law, the congressional panel was required to release a report 30 days after the bailout program began, a deadline that has passed. It is supposed to issue a more elaborate report on the financial regulatory process by Jan. 20, a deadline congressional aides said will be nearly impossible to make.

The special inspector general is supposed to release a report within 60 days of his confirmation. Though Thorson, the Treasury inspector general, is not required to prepare a report, he said he might feel obligated to issue one if the Senate does not confirm a special inspector by Monday.

The Government Accountability Office, the investigative arm of Congress, is also required by the legislation to conduct oversight of the program. The agency's mission is to look at the overall performance of the initiative and its effect on the financial system.

The GAO has dedicated about 20 people to look at the bailout and has office space at the Treasury Department. Agency officials said they expect to issue a brief report on the program, as mandated by the legislation, within the next month.

The legislation also created a body called the Financial Stability Oversight Board, whose five members include Paulson and Federal Reserve Chairman Ben S. Bernanke. But it has no staff of its own, and few expect that policymakers can conduct oversight of themselves. "It's sort of a joke in terms of oversight," a congressional aide said.

Staff writers Lori Montgomery and Dana Hedgpeth contributed to this report.