Posted on 04/21/2009 2:15:30 AM PDT by FromLori
reasury Secretary Timothy Geithner faces a slew of questions about his plans to shore up banks while a watchdog agency warns that Obama administration initiatives could increasingly expose taxpayers to losses.
Geithner is scheduled to testify Tuesday before the Congressional Oversight Panel for the government's $700 billion financial rescue program.
Meanwhile, the rescue program's special inspector general concluded in a 250-page quarterly report to Congress that a private-public partnership designed to rid financial institutions of their "toxic assets" is tilted in favor of private investors and creates "potential unfairness to the taxpayer."
Still, Inspector General Neil Barofksy, using blunt language, offered a series of recommendations to protect the public and took the Treasury to task for not implementing previous advice.
Overall, the report said the public-private partnership -- using Treasury, Federal Reserve and private investor money -- could total $2 trillion. "The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," the report stated.
In particular, the report cited funds that would be used to purchase troubled real estate-related securities from financial institutions. Under plans unveiled by Treasury, for every $1 of private investment, Treasury would invest $1 and could provide another dollar in a nonrecourse loan. That money could then leverage a loan from another government fund backed mostly by the Federal Reserve, a step that Barofsky said would dilute the incentive for private fund managers to exercise due diligence.
Barofsky recommended that Treasury not allow the use of Fed loans "unless significant mitigating measures are included to address these dangers."
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