Ten questions about the Troubled Asset Relief Program

An oversight panel appointed by Congress to watch over the Troubled Asset Relief Program filed its first report today -- and it was almost entirely made up of questions, not answers.

"We are here to investigate, to analyze and to review the expenditure of taxpayer funds," the report's authors wrote. "But most importantly, we are here to ask the questions that we believe all Americans have a right to ask: who got the money, what have they done with it, how has it helped the country, and how has it helped ordinary people?”

"These are the tough questions that people all over the country are asking," Harvard Law Professor Elizabeth Warren, chairman of the panel, told The Washington Post. "This is $700 billion we are talking about. I ask tough questions when I buy a car."

They are also questions reporters should be asking. From the report:

1. What is Treasury’s Strategy? What does Treasury think the central causes of the financial crisis are and how does its overall strategy for using its authority and taxpayer funds address those causes? What specific facts caused Treasury to change its strategy in the last two months? What specific facts changed that made the purchase of mortgage-backed assets a bad idea within days of the request and what specific facts changed again to make guaranteeing such assets a good idea a few weeks later?

2. Is the Strategy Working to Stabilize Markets? What specific metrics can Treasury cite to show the effects of the $250B spent thus far on the financial markets, on credit availability, or, most importantly, on the economy? Have Treasury’s actions increased lending and unfrozen the credit markets or simply bolstered the banks’ books? How does Treasury expect to achieve the goal of price discovery for impaired assets? Why does Treasury believe that providing capital to all viable banks, regardless of business profile, is the most efficient use of funds?

3. Is the Strategy Helping to Reduce Foreclosures? What steps has Treasury taken to reduce foreclosures? Have those steps been effective? Why has Treasury not generally required financial institutions to engage in specific mortgage foreclosure mitigation plans as a condition of receiving taxpayer funds? Why has Treasury required Citigroup to enact the FDIC mortgage principle write down program, but not required any other bank receiving TARP funds to do so? Is there a need for additional industry reporting on delinquency data, foreclosures, and loss mitigations efforts in a standard format, with appropriate analysis? Should Treasury be considering others models and more innovative uses of its new authority under the Act to avoid unnecessary foreclosures?

4. What Have Financial Institutions Done with the Taxpayers’ Money Received So Far? What have the companies who received money from Treasury done with the money? Have the companies used the funds in the way Treasury intended when it disbursed them? How have institutions supported under the Capital Purchase Program used their funds, and they have they leveraged the capital support to increase lending activity? Is this different from the way funds were utilized for institutions who received funds pursuant to the Systemically Significant Failing Institutions plan?

5. Is the Public Receiving a Fair Deal? What is the value of the preferred stock Treasury has received in exchange for cash infusions to financial institutions? Are the terms comparable to those received in recent private transactions, such as those with Warren Buffett and the Abu Dhabi Investment Authority?

6. What is Treasury Doing to Help the American Family? Does Treasury believe American families need to borrow more money? Have Treasury’s actions preserved access to consumer credit, including student loans and auto loans at reasonable rates? What restrictions will Treasury put on credit issuers to assure that taxpayer dollars are not used to subsidize lending practices that are exploitive, predatory or otherwise harmful to customers? What is Treasury doing to ensure that its spending is directed in ways that maximize the impact on the American economy?

7. Is Treasury Imposing Reforms on Financial Institutions that are Taking Taxpayer Money? Congress has told the auto industry to reform its current practices before it could be considered for taxpayer aid and the British are requiring reforms on their banks as a precondition for capital infusions. Has Treasury required banks receiving aid to:

• Present a viable business plan;
• Replace failed executives and/or directors;
• Undertake internal reforms to prevent future crises, to increase oversight, and to ensure better accounting and transparency;
• Undertake any other operational reforms?

8. How is Treasury Deciding Which Institutions Receive the Money? What factors is Treasury using to determine which institutions receive equity infusions, purchase of portfolio assets, or insurance of portfolio assets? Is Treasury seeking to use TARP money to shape the future of the American financial system, and if so, how?

9. What is the Scope of Treasury’s Statutory Authority? What is Treasury’s understanding of the statutory limits on its use of funds? How does Treasury justify its decisions under the Act in relation to its view of these limits? How is Treasury carrying out its statutory mandate regarding credit insurance?

10. Is Treasury Looking Ahead? What are the likely challenges the implementation of the Emergency Economic Stabilization Act will face in the weeks and months ahead? Can Treasury offer some assurance that it has worked out contingency plans if the economy suffers further disruptions?

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