Public anger over U.S. taxpayer bailouts may limit the government’s options in responding to future financial crises, according to a panel led by Elizabeth Warren, a candidate to lead a new consumer watchdog agency.
The Troubled Asset Relief Program’s “unpopularity” may mean the U.S. “will not authorize similar policy responses in the future,” Warren’s Congressional Oversight Panel said in a report today. “The greatest consequence of TARP may be that the government has lost some of its ability to respond to financial crises.”
President Barack Obama is considering installing Warren, a Harvard law professor, at the Treasury, where she would play a leading role in the Consumer Financial Protection Bureau, a person with direct knowledge of the matter said Sept. 14.
Warren, 61, recused herself from work on the panel’s report starting Sept. 10 and didn’t vote on it, panel member Damon Silvers said in a conference call with reporters yesterday. Silvers declined to say the reason for Warren’s recusal. She remains on the panel, Silvers said.
The Treasury Department is winding down TARP as the program reaches its Oct. 3 expiration. The financial-regulatory overhaul signed into by Obama in July bars the Treasury from starting new TARP initiatives and limits the funding available to existing projects.
“Over the last 10 months, Treasury’s policy choices have been increasingly constrained by public anger about the TARP,” the oversight panel said. “The program is now widely perceived as bailing out Wall Street banks and domestic auto manufacturers while doing little” for Americans who are unemployed or in danger of losing their homes to foreclosure.
“Treasury claims that the pain would have been far worse if TARP had never existed, but this hypothetical scenario is difficult to evaluate -- in part due to regrettable omissions in data collection on Treasury’s part,” the panel said.
Congress authorized $700 billion for TARP in October 2008 to prevent a collapse of the U.S. financial system. The program’s capacity shrank to $475 billion under the financial regulatory law. Companies including Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Bank of America Corp. that took funds have since repaid the government.
The Obama administration has estimated TARP’s total losses will be about $105 billion, which primarily covers the cost of housing aid and losses from assistance to automakers General Motors Co. and Chrysler Group LLC, and to insurer American International Group Inc.
The Treasury has received about $16 billion in dividends and interest on its investments in banks, insurance companies and automakers through TARP, according to Treasury data obtained by Bloomberg News.
“Treasury used the tools it had available properly and effectively to stem the deepening financial crisis, at a fraction of the cost originally predicted,” Treasury spokesman Mark Paustenbach said in an e-mail.
The Congressional Budget Office estimates “that costs will be 90 percent lower than the original $700 billion allocated to TARP, and taxpayers stand to earn a profit on the bank program,” Paustenbach said.
--With assistance from Rebecca Christie and Robert Schmidt in Washington. Editors: Kevin Costelloe, Brendan Murray
To contact the reporter on this story: Ian Katz in Washington at Ikatz2@bloomberg.net;
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