Fraud probes dog US bank bailout

Tuesday, April 21, 2009 at 9:43 PM Posted by Beijing News


US watchdogs for a 700-billion-dollar banking rescue said Tuesday they had launched nearly 20 fraud probes, fueling fresh attacks on the government's costly bailout of Wall Street.

Treasury Secretary Timothy Geithner said most US banks were in good shape despite the economic crunch, but promised tighter conditions for any new Treasury assistance as his team finalizes "stress tests" of leading lenders.

"Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators," he told the Congressional Oversight Panel, which oversees the Troubled Asset Relief Program TARP.

Grilled by the panel's expert members on potential problems associated with the TARP bailout package, Geithner stressed: "I believe in the value of transparency, accountability and oversight."

Neil Barofsky, the special TARP inspector-general, said in a quarterly report to Congress that his office had so far launched "almost 20 preliminary and full criminal investigations."

He wrote that details would not be released "unless and until public action is taken."

But he said the cases "include large corporate and securities fraud matters affecting TARP investments, tax matters, insider trading, public corruption, and mortgage-modification fraud."

The report also detailed six audits, including one into Bank of America's acquisition of Merrill Lynch with the help of Treasury funds and another into lavish bonuses paid by bailed-out insurer American International Group.

Geithner said Treasury officials estimate there is "at least 109.6 billion dollars" still available from the original TARP funds, which were rushed through by Congress last October to prevent a system-wide industry failure.

Another 25 billion dollars will be paid back over the next year from capital injected into commercial banks, giving the government a total of 134.6 billion to dispense if needed, the Treasury chief said.

He told the oversight panel that "we cannot allow doubts about the viability of major institutions to undermine the financial system as a whole."

"The US government must continue those policies critical to sustaining confidence in the core of the system."

But the panel's chairwoman, Harvard Law School professor Elizabeth Warren, noted significant public discontent with the TARP scheme.

"People are angry because they are paying for programs that haven't been fully explained and that have no apparent benefit for their families or the economy as a whole, but seem to leave enough cash in the system for lavish bonuses and golf outings," she said.

"None of this seems fair."

Republicans said the Barofsky report vindicated their complaints about the TARP, passed under the previous administration of George W. Bush.

House of Representatives Minority Leader John Boehner said "taxpayers have every right to be outraged."

The Financial Stability Plan unveiled in February seeks to attract private capital to take over banks' toxic assets, and offers financial help for embattled US homeowners.



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