By Silla Brush – 01/31/10 12:01 AM ET
The $700 billion bailout program for the financial industry has so far done little to boost bank lending, aid small businesses or reduce home foreclosures, a top government watchdog said in a report.
Neil Barofsky, the special inspector general over the Troubled Asset Relief Program (TARP), said in a report that while the bailout has helped stabilize the financial system, many of the program’s original goals have not been met.
“Lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury,” Barofsky wrote in the report. “The TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation.”
The Obama administration is urging Congress to pass an additional fiscal stimulus measure, or “jobs bill,” early this year to help bolster the economy. Lawmakers are anxious about the economy weighed down from 10 percent unemployment and ongoing weakness in the housing market.
Senate Democrats are split about whether they should use TARP money that has been repaid from some of the largest banks to help support new programs to boost lending to small businesses. Republicans want the repaid money to go toward paying down the $1.35 trillion deficit.
Barofsky questioned if the government has started to lose its leverage over the nation’s largest banks now that they have repaid more than a combined $100 billion. The banks have seen their financial health improve significantly and they have continued to pay lavish bonuses to employees.
Meanwhile, Congress is debating new regulations on the financial industry, including beefed up consumer protections, new limits on the multi-trillion dollar derivatives market and a new mechanism to disolve large failing firms so that taxpayers are not on the hook for future bailout money. The House passed legislation in December, but the Senate has yet to act and the Senate Banking Committee continues to draft legislation behind the scenes.
Without major changes, Barofsky said it’s unclear if the TARP program could ever be deemed a success.
“It is hard to see how any of the fundamental problems in the system have been addressed to date,” Barofsky wrote.
The report argues that the financial industry believes now more than ever that the government will bail out systemically important firms. And the government efforts to support the housing market risk reinflating a market bubble.
“Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” the report says.
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