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STATEMENT OF SENATOR JOHN McCAIN ON S.J. RES. 5, THE RESOLUTION OF DISAPPROVAL OF RELEASING THE REMAINING TARP FUNDS
January 15, 2009
MR.McCAIN. Mr. President, I will support the resolution before us today and oppose releasing the remaining Troubled Asset Relief Plan (TARP) funds because I have seen no evidence that the additional and substantial taxpayers’ money will be used for its intended purpose. TARP was created to allow the Treasury Department to purchase up to $700 billion in “toxic assets” from financial institutions in order to help homeowners facing foreclosure and to stimulate the economy. The misuse of the first $350 billion of TARP funds combined with the lack of transparency promised by Secretary Paulson should be reason enough to oppose releasing additional funds. No further TARP funds should be released until we are able to impose strict standards of accountability and ensure that the money is spent only as intended by Congress – to purchase mortgage-backed securities and other troubled assets.
Today, in an open letter to Members of Congress, 26 public interest organizations wrote that “(T)he stated purpose of the TARP was to purchase toxic mortgage assets. The TARP was also designed to reintroduce the flow of credit into the market and help stabilize Wall Street. To date, neither has been accomplished.” The letter also states that the Treasury Department “has invaded the free market, propping up some companies to the detriment of others and purchasing stock in banks without requiring accountability or transparency about the use of taxpayer funds.” The signatories included The American Shareholders Association, Americans for Tax Reform, The Center for Fiscal Accountability, The Competitive Enterprise Institute, The Council for Citizens Against Government Waste, The Family Research Council, The National Center for Public Policy Research, and National Taxpayers Union.
There is no doubt that Congress intended that the Treasury Department use the funds provided to assist only financial institutions. But that has not been the case. The language authorizing the TARP program has been interpreted to allow Treasury to change the game plan and use the funds for things outside the scope of Congressional intent. Less than two weeks after enactment of the program, Secretary Paulson changed course and decided instead to use TARP funds to recapitalize banks – a decision that was made with little or no input from Congress, and was an option that was explicitly rejected by Paulson and Bernanke when they were selling the TARP plan to Congress.
In fact, Mr. President, just this morning The Wall Street Journal reported that Bank of America is close to finalizing a deal with the government which will give them billions of dollars in U.S. aid. The lead article on the Journal’s front page states: “(T)he commitment of the funds is further evidence of the banking system’s delicate condition and its hunger for more capital, despite billions of dollars already invested in financial institutions by the government. So far, the U.S. government has already injected $25 billion into Bank of America.”
The Associated Press recently investigated how the TARP funds given to U.S. banks were being spent. An article published on December 22, 2008 reported what they found. It was astonishing. The article, titled “Where’d the bailout money go? Shhhh, it’s a secret” reads partly:
WASHINGTON (AP) — Think you could borrow money from a bank without saying what you were going to do with it? Well, apparently when banks borrow from you they don't feel the same need to say how the money is spent.
After receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending it. Some won't even talk about it.
"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.
Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money, said that while some of the money was lent, some was not, and the bank has not given any accounting of exactly how the money is being used.
"We have not disclosed that to the public. We're declining to," Kelly said.
The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?
None of the banks provided specific answers.
"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.
Some banks said they simply didn't know where the money was going.
"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.
There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks that don't comply.
Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings to the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.”
Mr. President, with no regard for Congressional intent, the Treasury Department has used TARP funds to prop up the banking industry and to guarantee securities backed by student loans and credit card debt. But most troubling to me has been the use of TARP funds to help bail out the domestic auto industry – in direct defiance of Congress. Last month, after extensive discussion and debate, the Senate rejected a plan to pump billions of federal dollars into the domestic auto industry because we saw no evidence of serious concessions from the industry and no assurance of the domestic auto manufacturers’ long-term viability.
At the time I said that, before they ask for assistance, the automakers will need to change dramatically the way they do business if they hope to be on course for long-term profitability. Rather than seeking an unconditional handout from the taxpayer, industry leaders must first consider how they can restructure their business models in order to fix the problem themselves and build more competitive products – including changes in management, renegotiating labor agreements, and reorganizing under the bankruptcy process. And, that they should have been doing so months, if not years, ago.
When I opposed the auto bailout plan last month it was mainly because I felt that the automakers needed to prove to Congress and the American people that they were serious about making the changes necessary to ensure their long-term success before they sought assistance from the taxpayer. Unfortunately, Mr. President, those concerns were ignored by the President when he decided to give away over $17 billion in TARP funds to the domestic automakers with no assurances that they would fundamentally change the way they do business to ensure their viability. I continue to believe that this was a critical mistake.
Mr. President, in their first oversight report on TARP spending, the Government Accountability Office (GAO) was very critical of Treasury stating that they had “failed to address a number of critical issues while implementing the $700 billion financial bailout plan, including how to ensure its efforts are successful.” The report adds that Treasury “has no policies or procedures in place for ensuring the institutions . . . are using capital investments in a manner that helps meet the purposes of the act.”
Additionally, the GAO reported that “Treasury cannot effectively hold participating institutions accountable for how they use the capital injections or provide strong oversight of compliance with the requirements under the act.”
In addition to the GAO, many of my colleagues have been very critical of Secretary Paulson and his handling of the first half of the TARP funds, stating that he has ignored the intent of the bailout legislation because he has done little to address the root cause of the financial meltdown – namely the mortgage market. I understand the anger of my colleagues, indeed, I share it.
Mr. President, it is abundantly clear that there has been a stunning lack of transparency, accountability, and effective management of TARP funds to date. Because of this, I will not support the release of another dime of these funds without first seeing a full and complete accounting of funds already spent or committed as well as the imposition of very strict conditions on the remaining funds as a way to ensure that any expenditures reflect the intent of Congress.