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In places, the panel appears outright angry -- understandably -- at Treasury's stonewalling on key questions:

The Panel's fourth area of inquiry focused on what financial institutions have done with the taxpayer money they received. As indicated in question 1 above, Treasury appears to believe the question is beside the point because their goal for the CPP is to stabilize the financial system and to restore confidence in financial institutions.

This, they believe, will eventually increase the flow of credit. Treasury argues that there are several reasons why the TARP investments will be slow to produce increased lending: (1) The CPP began only in October 2008, and the money must work its way into the system before it can have the desired effect. (2) Because confidence is low, banks will remain cautious about extending credit, and consumers and businesses will remain cautious about taking on new loans. (3) Credit quality at banks is deteriorating, which leads banks to build up their loan loss reserves. For example, Treasury notes that the level of loan loss provisioning by banks doubled in the third quarter from one year ago. Treasury seems to be suggesting these larger trends may be obscuring the effect of TARP funds. The Panel understands the reasons why measurement of banks' use of TARP funds may be difficult.

Nevertheless, the Panel believes such direct measurements at the level of individual TARP recipient firms are important for determining the extent to which the funds are having a direct benefit to businesses and consumers.


And the report highlights Treasury's amazing unwillingness to require banks that get government money to take actions that are in the public interest:
[T]he Panel asked whether Treasury's actions preserved access to consumer credit, including student loans and auto loans at reasonable rates, and whether Treasury was taking action to ensure that public money could not be used to subsidize lending practices that are exploitive, predatory, or otherwise harmful to customers. Treasury answered that its TARP programs to preserve access to consumer credit do not involve encouraging or mandating banks to take consumer-friendly actions with respect to credit cards or other consumer loans. (our itals)

Perhaps the Warren report's starkest expression of frustration with Treasury's lack of information comes in the executive summary:

The Panel's initial concerns about the TARP have only grown, exacerbated by the shifting explanations of its purposes and the tools used by Treasury. It is not enough to say that the goal is the stabilization of the financial markets and the broader economy. That goal is widely accepted. The question is how the infusion of billions of dollars to an insurance conglomerate or a credit card company advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs, and families unable to pay their credit cards. It would be constructive for Treasury to clearly identify the types of institutions it believes fall under the purview of EESA and which do not and the appropriate uses of TARP funds. The need for Treasury to address these fundamental issues of strategy has only intensified since our last report.


Later in the report, a similar theme is picked up:
While Treasury's letter provided responses to some of the Panel's questions and shed some light on Treasury's decision-making process, it did not provide complete answers to several of the questions and failed to address some of the questions at all.

The Warren report also hits Treasury for not doing enough to prevent mortgage foreclosures, as Congress directed -- while giving billions to Wall Street banks:

While the statute contemplates that foreclosure mitigation would be accomplished through the purchase of mortgage-related assets, many believe that Treasury has clear authority to use a portion of the $700 billion to address mortgage foreclosures in other ways. For Treasury to take no steps to use any of this money to alleviate the foreclosure crisis raises questions about whether Treasury has complied with Congress's intent that Treasury develop a "plan that seeks to maximize assistance for homeowners."

More from the report of the Congressional Oversight Panel, chaired by Harvard Law professor Elizabeth Warren, on Treasury's spending of TARP funds:

First a bit of backstory. In its first report issued last month, the panel asked a series of questions about what Treasury was doing with the money -- questions it was unable to answer because the department didn't appear to have adequately tracked its own spending.

Late last month, Treasury issued a response that provided almost no new information whatsoever. As we noted, one paragraph appeared twice, in virtually identical form, in response to two different questions posed by Warren.

Now this new report finds that the problem is a long way from being fixed:

The Panel still does not know what the banks are doing with taxpayer money.


It continues:
The recent refusal of certain private financial institutions to provide any accounting of how they are using taxpayer money undermines public confidence ... For Treasury to advance funds to these institutions without requiring more transparency further erodes the very confidence Treasury seeks to restore

The panel appointed by Congress to track Treasury's use of the bailout funds has released its second report -- and its conclusions are even more worrying than the first.

One excerpt:

It is not enough to say that the goal is the stabilization of the financial markets and the broader economy," the panel wrote in a monthly report published today. "The question is how the infusion of billions of dollars to an insurance conglomerate or a credit card company advances both the goal of financial stability and the well-being of taxpayers, including homeowners threatened by foreclosure, people losing their jobs and families unable to pay their credit cards.


We'll have many more soon...

Ever since New Mexico governor Bill Richardson withdrew his nomination for Commerce Secretary citing an investigation into the company that obtained a contract to advise the state on bond deals, news reports have been making reference to a broader nationwide probe of alleged price-fixing and corruption in the municipal bond industry, which the New Mexico investigation grew out of.

Here at Muckraker, we've started looking into that larger ongoing story, and today the New York Times delivers a helpful takeout on the subject -- though many of the details still remain murky.

As the paper explains, federal and state investigators have over the last few years gathered evidence of what looks like a collusion scheme by financial firms that work with state and local governments on municipal bond deals worth around $400 billion each year.

Explains the paper:

E-mail messages, taped phone conversations and other court documents suggest that companies did not engage in open competition for this lucrative business, but secretly divided it among themselves, imposing layers of excess cost on local governments, violating the federal rules for tax-exempt bonds and making questionable payments and campaign contributions to local officials who could steer them business. In some cases, they created exotic financial structures that blew up.


And crucially, the paper makes clear that this isn't just an isolated case, but rather goes to the very heart of the municipal bond system.
People with knowledge of the evidence say investigators are not just looking at a few bad apples, but also at the way an entire market has operated for years.


A former IRS investigator estimated to the Times that as much as $4 billion has vanished into the system as a result of the schemes.

A source tells the paper about evidence that sheds light on one way in which the scam works. People from firms that have contracted with local governments to help them pick their bankers were taped telling the bankers: "We want you to bid on this deal, but you're not going to get it -- you're going to get the next one. We want you to submit a sloppy bid." Then, in some cases, banks would be paid in cities where they did not work, to reward them for throwing the other contract to a competitor.

Part of the problem appears to be the lack of regulation, especially of companies that have emerged in recent years to advise governments on complex derivatives deals like swaps and options.

The Times explains:
The packages are presented as money-savers to the municipalities, which may want to protect themselves against interest rate changes. But over the last year, as turmoil spread through the credit markets, some of the derivatives have blown up, leaving local governments stuck with unexpected costs.


CDR, the firm that's being investigated in New Mexico, leading to Richardson's withdrawal, is one such company that handles derivatives.

That firm and two that do similar work -- Investment Management Advisory Group, (known as "Image"), and Sound Capital Management -- had their offices raided by the FBI in 2006 as part of the investigation.

The former Treasurer of the city of Phladelphia is currently in jail for accepting illegal payments in exchange for giving city bond business and other contracts to selected companies. CDR and Image appeared frequently in the indictments, and CDR was found to have paid for the Treasurer's trip to the Super Bowl, but neither firm was formally charged.

Financial services companies including JP Morgan Chase, AIG, and Merrill Lynch have been subpoenaed as part of the investigation.

The exact mechanism or mechanisms by which these scams works remains a bit obscure, and may vary from case to case. But the broad picture is clear: financial firms, including some Wall Street powerhouses (at least until recently) are suspected of colluding to rip off state and local governments -- that is, taxpayers -- for billions.

We'll be staying on top of this...

Scientists at the Food and Drug Administration have taken the unusual step of writing a letter to the Obama transition team to complain about misconduct at the agency. The group of nine scientists claim that agency managers have used intimidation to hasten approval for medical devices that are not necessarily safe or effective. (Associated Press)

Senate Democrats are set to push for greater regulation over coal dumps after a Tennessee facility ruptured in December. It has recently come to light that thousands of facilities across the nation are under no regulation whatsoever. Accidents have serious environmental consequences and cleanups are very expensive. (Associated Press)

The new Congress has acted quickly to preserve certain Bush administration records, asking a federal judge to force documents pertaining to U.S. attorney firings to stay at the White House. Should the White House turn the documents over to the National Archives, they could take longer to retrieve for the ongoing investigation into the firings. Subpoenas have been issued for the documents. (Associated Press)

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As regular Muck readers know, we've been tracking the transparency -- or lack thereof -- of the Federal Reserve's program to buy up $500 billion worth of mortgage-backed securities in an effort to boost the housing market.

And today it's worth focusing on the issue of conflicts of interest.

The four outside investment firms hired by the Fed to manage the program -- Blackrock Inc., Goldman Sachs, Wellington Management, and PIMCO -- began buying up assets this week. So one assumes that the conflict of interest provisions that the Fed has said it has in its contracts with the four companies must be firmly in place by now.

But the Fed still is telling us almost nothing about what those crucial provisions entail. A department spokesman did not respond to a call from TPMmuckraker requesting information on what the Fed is doing to guard against conflicts of interest among the investment firms managing our money.

So far, all we know on the subject is what the Fed told us in a fact sheet posted last month on its website:

What measures will the Federal Reserve take to ensure that an investment manager implementing the MBS program will not have an unfair advantage relative to other market participants due to the information it receives about the MBS program?

Each investment manager will be required to implement ethical walls that appropriately segregate the investment management team that implements the Federal Reserve's agency MBS program from other advisory and proprietary trading activities of the firm. The New York Fed will monitor each investment manager's compliance with this requirement.


What sort of "ethical walls"? How will they work? How will the Fed monitor each investment manager's compliance? (After all, the Treasury doesn't appear to be taking its duty to monitor similar conflicts with TARP money all that seriously).

We're still in the dark.

It bears repeating: this isn't an abstract issue. The potential for these firms to improperly use, in their other investment work, the information they've been granted access to is enormous. Relatedly, the Fed's broader stonewalling on the structure of the contracts (or anything to do with the contracts whatsoever!) means we have no guarantee that the firms are being incentivized to get taxpayers the best possible deal.

In that same conversation with Senate Judiciary chair Pat Leahy, we also asked about the bizarre jab recently thrown by Leahy's Republican counterpart on the committee, Arlen Specter, who likened Attorney General nominee Eric Holder to Alberto Gonzales.

Leahy shook his head, almost amusedly, and said "a number of Republicans" have told him privately that "there's no way we could vote against Eric Holder -- there's no way we could explain it."

In other words, Specter's apparent crusade against Holder may turn out to be a lonelier effort than it might appear.

We just talked to Senate Judiciary chair Patrick Leahy (D-VT) as he left the official electoral vote count that designated the president-elect, and asked him something that's been on our mind here at TPMmuckraker: How much resources/time will Congress have to address the ongoing lawsuits against Harriet Miers and Josh Bolten for their failure to provide testimony and documents in the U.S. Attorney firings scandal?

The House officially voted to continue its legal efforts yesterday, but Leahy admitted that he was unsure about a timeframe for action in the Senate.

"I don't know," he said. "I actually raised the same question to my staff today."

Leahy explained that several senior members of his staff have taken a leave to help with Barack Obama's transition, a factor that could delay significant action for a time.

In October, Leahy's committee released a report on the firings saga which found that senior White House officials, including Karl Rove, helped compile the list of US Attorneys to be removed, and that former Attorney General Alberto Gonzales participated in a "cover up" to conceal the fact that the firings were politically motivated.

That report accompanied contempt resolutions, against Rove and White House chief of staff Josh Bolten, passed by the committee last year. Rove and Bolten have refused to testify or turn over documents to the committee.

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