If At First It Fails, Try, Try Again?
Posted by Kevin on January 15th, 2009
The Chairman of the House Financial Services Committee, Rep. Barney Frank (D-Massachusetts), has sponsored new legislation that would allegedly make the TARP (Troubled Asset Relief Program) more accountable to the American people. Despite the title of his bill, Rep. Frank’s “TARP Reform and Accountability Act of 2009″ (H.R. 384) provides neither reform nor accountability to the TARP. That’s unfortunate, because both are desperately needed.
Though Rep. Frank’s bill does not authorize the release of the remaining $350 billion of TARP funds, the purpose of the bill is to help ensure that congressional efforts to stop the release of the remaining funds fail. House Republican leaders today issued an analysis warning that “passage of H.R. 384 may facilitate the discharge of the final tranche by establishing guidelines for spending the next $350 billion for those Members concerned with how the first tranche was spent.”
There are several concerning elements of Rep. Frank’s Bill, most notably among them (From the “Statement of Republican Policy” issued Jan. 15, 2009):
1. There is a danger that the provisions in H.R. 384 place the TARP on a slippery slope to a “command-and-control” economic model. For example, the bill provides for government observers to attend the meetings of the boards of directors of assisted institutions and at the committees of such boards while any funds from TARP remain outstanding.
2. The bill provides for the expenditure of up to $100 billion (and no less than $40 billion) to implement foreclosure mitigation programs that require taxpayers to subsidize the bad decisions of irresponsible lenders, investors, and borrowers, and have not been demonstrated to be effective in keeping borrowers in their homes or stemming the tide of defaults and delinquencies.
3. H.R. 384 attempts to “fix” the “Hope for Homeowners” program (P.L. 110-289), and make it a more attractive option for lenders and borrowers. But in doing so, the bill abandons key safeguards in the original legislation that were designed to protect taxpayers from bearing huge losses when mortgages re-worked under the program default. For example, H.R. 384 strikes the payment of upfront premiums paid to the Federal Housing Administration for providing the government guarantee (and sharply reduces the required annual premium), increases the permissible loan-to-value ratios, and cancels the government’s share of the profits in the event of long-term home price appreciation.
There has been a plethora of criticism from other quarters as well concerning the Frank bill and the larger effort by Democratic congressional leaders to ensure the remaining $350 billion in taxpayer funds is released.
The Wall Street Journal editorial page:
Congress…seems eager to use TARP II to bail out any and all industries that have powerful enough patrons. The car makers are already in line for a bigger chunk, and Barney Frank’s draft bill orders Treasury to line up community banks for a taste — whether they pose a larger risk to the banking system, or not.
Democrats are also insisting that as much as $100 billion go to prevent more home foreclosures, though this will have little impact on housing prices. The evidence from the last two years is that foreclosure mitigation often merely delays a reckoning because many of these homeowners never could afford the home in the first place. Meanwhile, Mr. Frank, the Dr. Kevorkian of capital injections, wants to impose new management and compensation restrictions on any institution that gets TARP money, whether it is well-managed or not. The bankruptcy “cramdown” now streaking through Congress will also impose more losses that will destroy more bank capital.
Larry Kudlow of CNBC’s “Kudlow & Company”:
The TARP debate has unsettled banks big-time, and investors are now pulling out left and right. If some of TARP is passed for the next $350 billion, conditions will be very onerous: dividend limits, restraints of stock buybacks for bank mergers, the usual ranting about compensation and bonuses and airplanes, and even a retroactive clawback of past executive bonuses. Private investors don’t much like the idea that the House and Senate banking committees are gonna run our biggest lenders.
Freedom Works:
It is most disturbing that in addition to the clear lack of direction given to the Treasury Secretary along with very broad powers, there has been a pronounced lack of transparency in the TARP. The very public that funded this endeavor has no way of knowing how or where money was spent. Members of the news media have had to resort to lawsuits in order to obtain any details regarding these funds. Even more troubling is that the Treasury Department itself has admitted it has no way of knowing how the allotted funds were spent by organizations that received a government bailout. There has been a severe dearth of accountability and openness throughout TARP, leaving taxpayer monies open to abuse, waste, and fraud.
The solution Democrats seem to be embracing when it comes to the TARP program is this: if the initial $350 billion didn’t work, surely an additional $350 billion with more government mandates will do the trick! All this just goes to prove Ronald Reagan’s adage: “Government is like a baby’s alimentary canal, with an appetite at one end and no responsibility at the other.”
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