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Here's Elizabeth Warren's interview with CNBC about her report on the TARP spending.

It's notable mainly for her setting one network anchor straight about the fact that, even though, "money is fungible" it would still be possible to track for Treasury to track its bailout spending.

Warren: You and I could sit here with pencil and paper and come up with a minimum of ten metrics in about ten minutes. If you just hand the money over and say gee moneys money then you won't see whether or not there's been any difference. And if that's the case then it really is just blank checks to financial institutions.

She also has an admirably calm response to Larry Kudlow's sophomoric contention that asking banks to monitor what they're doing with our money is "central planing."

We just highlighted a Bloomberg story in which Joseph Stiglitz and other economists story slammed Treasury Secretary Henry Paulson for not driving a hard enough bargain on behalf of taxpayers when investing the TARP funds.

So it's probably only fair that we post Paulson's response, from an interview Bloomberg TV just conducted with Paulson:

Well, what we were looking to do was not to replicate one off private sector deals. The market was under great stress and the private sector was extracting very, very severe terms and what we were attempting to do, which I think we did successfully was design a program that would be accepted by a large group of healthy banks with terms that replicate what you would get in normal market conditions. And the other point I will make here - this is an investment and I find it highly, highly likely that the taxpayer will get this money and get this money back with a profit because these are preferred, these are - as long as the financial system remains intact and stable, which it will, that these will come back to the taxpayer.

And our objective was not to say how tough a deal can we give to the banks because then what we would have is we would have a - not a program for healthy banks. We would have a failing bank program and it would have a much different complexion. And again, I think history will show that the financial system needed a lot of capital and if you leave it to the banks to say I really need capital, what you're going to get is you're only to get them when they're desperate. And otherwise, what they're going to do is shrink and not play the role we need them to play and pull in their horns. And we needed to get a program that would be accepted by a lot of banks and would provide very much needed capital. So that was the philosophy of the program.

Lately at TPM, we've been wondering about exactly what kind of deal taxpayers got on that whole $700 billion bailout that the Treasury isn't doing much to track.

And along comes Bloomberg with a report that suggests we might not want to know the answer.

The lead data point:

[Treasury Secretary Henery Paulson] invested $10 billion in Goldman Sachs in October, twice as much as [Warren] Buffett did the month before, yet gained warrants worth one-fourth as much as the billionaire.

So Buffett's investors got a better deal than taxpayers. Bloomberg explains:
Paulson left money on the table in three ways, according to [former IMF chief economist Simon] Johnson: accepting fewer warrants than Buffett did; setting the certificates' price trigger, or strike, above market values; and receiving an annual yield on the preferred shares that is half of what Buffett will get for the first five years.

And Bloomberg has some damning quotes about Paulson's investing. Johnson calls them "just egregious," adding: "You want to do it the way Warren does it."

And according to Nobel prize winner Joseph Stiglitz: Paulson said "he had to make it attractive to banks, which is code for 'I'm going to give money away.'"

Stiglitz continued: "In many ways, it's not only a giveaway, but a giveaway that was designed not to work."

And he added: "If Paulson was still an employee of Goldman Sachs and he'd done this deal, he would have been fired."

As for the issue of limits on executive pay, which Congress insisted on including in the TARP, the Warren report says:

While some executives at some financial institutions have voluntarily reduced their compensation, there is no uniform program in place. Treasury has the power to set the "terms and conditions" of any purchase it makes using the TARP funds.

Treasury had opposed the limits from the start, arguing that they would discourage banks from participating in the program.

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...