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The ACLU, which has sued to overturn retroactive immunity for telephone companies that illegally cooperated with the Bush administration's domestic surveillance program, appeared to receive support Tuesday from U.S. District Judge Vaughn Walker, according to Wired. Vaughn said that the law being challenged gave "attorney general carte blanche to immunize anyone" and was unprecedented. The trial began yesterday in San Francisco. (Wired)

President Bush issued an executive order Tuesday loosening the regulation of coal mining waste, a decision that was quickly condemned by environmentalists. Miners had lobbied heavily for the change, but greens say the new rule will endanger "mountains, forests and streams throughout Appalachia." The new law is one of a series of "midnight orders" issued by the president, many of which loosen environmental or labor standards.(New York Times)

Give credit where it's due. The CEOs of Ford, GM, and Chrysler said Tuesday they would accept $1 salaries in return for federal bailout funds. (Ford CEO Alan Mulally told the Wall Street Journal earlier, "I think I'm ok where I am.") Two weeks ago, the auto executives retreated home with their tails between their legs after their decision to fly private jets to Washington doomed their bid for federal funds. This time they drove or flew commercial. (CNN)

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In the sequence of posts below, we've tried to pick out the most interesting parts of the GAO report on the Treasury's administration of the bailout money. But we were working fast, so we might have missed stuff.

So if you feel like it, as usual, please review it yourself and let us know what else you find. It's here...

The GAO report sheds light on another interesting angle to the conflict of interest problem with Treasury's administering of the bailout.

The department has hired outside private contractors to administer parts of the bailout program, notes GAO. Given the reports we've seen about Treasury lacking staff -- and lacking the right staff -- to implement the program, that may be a good move.

But as the report explains, outside contractors aren't subject to the conflict of interest rules that govern Treasury staff. As a result, Treasury asked the contractors to identify potential conflicts. There were many:

From the report:

In their responses to Treasury's requirements, six of the eight service providers selected as of November 25, 2008, identified potential or actual sources of conflict. According to our review, the identified conflicts generally involve organizational conflicts of interest, though some also involve personal conflicts of interest:

Five contractors indicated that they either already had clients or could have clients who were receiving TARP assistance. • One contractor indicated that a potential conflict of interest would arise if it received information proprietary to multiple clients with competing investment interests. • One company identified conflicts regarding troubled assets owned either directly by the company or by clients that were eligible for assistance under TARP.


Treasury also asked contractors to explain how they would work with Treasury to avoid such conflicts. And it sounds like some didn't exactly go the extra mile in that regard.

The submitted plans provided few details, however, on how the companies would notify and communicate with Treasury if conflicts were identified during the course of performance:

• Two firms' plans indicated that they would either maintain an "open dialog" or would "work in good faith" with Treasury should conflicts of interest emerge. • Two other plans did not describe how the firms would address conflicts of interest or how they would notify Treasury. By comparison, one plan indicated that the company would provide information on conflicts of interest to Treasury in its weekly reports and offer recommendations for addressing each issue.
This section of the report concludes, not reassuringly:
Treasury relies on its financial agents and contractors to disclose conflicts of interest. Treasury officials stated that while under current procedures, they might not know if an agent or contractor did not disclose a conflict, they believed that the consequences for nondisclosure were sufficiently severe to deter such behavior. Finally, Treasury has noted in its solicitations that it intends to oversee and enforce compliance with conflict of interest mitigation plans. For example, Treasury noted in one of its solicitations for legal services that it would incorporate the offeror's final negotiated conflict of interest mitigation plan into the contract and then oversee and enforce the contractor's compliance with the plan. At the time we conducted our work, however, Treasury was still in the process of developing an oversight mechanism for enforcing financial agents' and contractors' mitigation plans. (our itals.)

It looks like the limits on executive compensation that Democrats in Congress fought to include in the bailout bill aren't a top priority for Treasury.

From the GAO report:

[A]t this point, the officials have not determined how Treasury will monitor executive compensation compliance. Bank regulators varied in their views about their oversight responsibilities related to compliance with executive compensation requirements and other required terms of CPP. For example, one regulator noted that it would rely on the institution's board of directors to assess compliance, and another regulator stated that it was Treasury's responsibility to provide such oversight. Without a consistent process for monitoring participating institutions, Treasury's ability to identify and address any potential problems in these institutions' compliance with program requirements will be limited.


In other words, Treasury officials aren't even on the same page with each other about how to enforce the limits -- and some think it can be left to the banks, fox-henhouse concerns be damned.

Here's a bit more detail, from page 25 of the GAO report, on what seems like the Treasury's utter aversion to requiring banks to offer any information whatsoever on what they're doing with the billions of dollars of taxpayer money they're getting.

[I]t is unclear how OFS and the banking regulators will monitor how participating institutions are using the capital investments and whether these goals are being met. The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.

... With the exception of two institutions, institution officials noted that money is fungible and that they did not intend to track or report CPP capital separately. ...

The banking regulators indicated that they had not yet developed any additional supervisory steps, such as requiring more frequent provision of certain call report data for participating institutions, to monitor participating institutions' activities.


So it seems to come down to this: the banks won't say what they're doing with the money, and Treasury is too polite to ask.

The authors of the GAO report don't appear impressed by Treasury's efforts to avoid conflicts of interest -- one of the prime concerns raised by some observers, given the number of top Treasury officials who used to work for companies receiving money under the bailout program.

From the report:

Lacking a comprehensive and complete system to monitor conflicts of interest, Treasury runs the risk that it may not be able to ensure that conflicts are fully identified and appropriately addressed.
Doesn't sound too encouraging.

The GAO report makes clear that the urgency of the crisis has meant that oversight procedures have taken a backseat. It concludes in part:

Because TARP is relatively new, and because the crisis makes immediate action imperative, Treasury is operating on a number of fronts concurrently. It is setting up programs and establishing oversight policies and procedures at the same time. As a result, we are seeing some lag in administrative efforts -- for example, internal controls -- as the programs proceed. ...

Treasury has not yet set up policies and procedures to help ensure that [Capital Purchase Program] funds are being used as intended.


And it recommends that those procedures be set up as soon as practicable.

The report is now available online (pdf).

Check out this nugget from page 15 of the GAO report on how Treasury is spending the bailout money:

[Treasury's Office of Financial Stability] has not yet determined if it will impose reporting requirements on the participating financial institutions that could enable OFS to monitor, to some extent, how the financial institutions are using capital infusions.
In other words, Treasury may not force banks even to tell the department how the banks using the billions of dollars they're getting. It's a no-strings-attached deal, it would seem.

More to come...

A just-released report by the Government Accountability Office on how the Treasury Department is using the $700 billion allocated to it by Congress for the financial bailout reaches some discouraging conclusions.

It finds that:

Treasury has yet to address a number of critical issues, including determining how it will ensure that CPP is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments. Moreover, further actions are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control.


We're looking through the report here at TPMmuckraker and will bring you more detail as we find it...

A staffer for the Georgia senator says unequivocally that Isakson isn't blocking a vote on the nomination of Neil Barofsky to be bailout IG.

As for Voinovich of Ohio, a reader reports that a staffer in his office "said that he has not done it as far as they are aware and feel that if he had done it he would have announced that he did it. They said he is pro-oversight and just sent a letter to Pelosi and Reid requesting that a bailout overseer be assigned for the auto industry package."

That's 13 out of 49 largely ruled out. Keep making those calls!

TPMLivewire