Pay Limits May Apply To Toxic-Asset Relief Program, Report Says
Special Inspector General Neil Barofsky calls for better reporting on use of taxpayer funds.
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Tuesday, April 21, 2009
Treasury Department lawyers have determined that firms participating in a $1 trillion program to relieve banks of toxic assets could be subject to limits on executive compensation, contradicting the Obama administration's previous public position, according to a report to be released today by a federal watchdog agency.
The disclosure comes amid a congressional investigation into whether the administration is abiding by a law limiting lavish pay for executives at firms that have benefited from the $700 billion bailout for the financial system.
Speaking last month about the initiative to buy toxic assets, Treasury Secretary Timothy F. Geithner said, "The comp conditions will not apply to the asset managers and investors in the program."
But Treasury lawyers have told the special inspector general for the federal bailout that executives involved with that initiative and another $1 trillion consumer lending program "could be subject to the executive compensation restrictions," according to the report from Special Inspector General Neil M. Barofsky.
The Treasury's general counsel's office said in an April memo attached to the report that pay for employees of the Federal Reserve Bank of New York could also be limited because of their role in running the consumer lending program.
The 247-page report by the special inspector general criticizes the Treasury Department for failing to adequately oversee the bailout program, which now includes 12 programs that could involve nearly $3 trillion in public and private funds.
As of last month, $590.4 billion had already been spent from the $700 billion fund allocated to Treasury by Congress, the report found.
The inspector general noted that the bailout office's compliance division has only about 10 employees to oversee 500 financial firms.
"The current resource commitment for this vitally important function appears plainly inadequate," the report concludes.
The report also says the department has not hired a firm to manage the assets acquired from bailed-out companies nor developed an investment strategy.
Barofsky's report raised concerns about potential conflicts of interest and money laundering in the program to buy toxic assets, and renewed his call for the administration to require bailout recipients to report on their use of taxpayer funds.
"Time is running short to address these shortfalls," Barofsky said in an interview. "The time is now for a comprehensive oversight and compliance framework."
Barofsky's report revealed that his office has opened almost 20 criminal investigations, including those into large corporate and securities fraud related to bailout investments, tax issues, insider trading, public corruption and mortgage-modification fraud.
In response to the report, Neel Kashkari, head of the bailout program, defended the government rescue plan.
"Our actions must be in the long-term interest of taxpayers, considering both the potential risks to taxpayers of action and also the potential risks to taxpayers of inaction," Kashkari wrote. "We believe our programs strike the right balance."
