The federal government has spent more than $4 trillion bailing out the financial sector, but the program relies on an uncertain premise about housing prices and has seen only "mixed" results, a congressional panel said.
The Congressional Oversight Panel, in a 151-page report to Congress, said that government efforts relied on the presumption that housing prices are depressed due to illiquidity in the market and not a deterioration of fundamental value.
If in fact there has been a major correction in the housing market, the panel said, "it is possible that Treasury will need to take very different actions in order to restore financial stability," including the injection of larger amounts of bailout money.
To date, the Treasury Department's Troubled Asset Relief Program has released or committed $590 billion out of the $700 billion originally appropriated. But when adding in programs run by the Federal Reserve and Federal Deposit Insurance Corp., the total value of the effort exceeds $4 trillion.
Since the TARP program began in October 2008, successive administrations have struggled to explain their twin strategies of injecting large amounts of capital into banks in exchange for stock, while lowering interest rates and seeking to spur lending.
In its report, the oversight panel said that recent communication with Treasury, including with Secretary Timothy F. Geithner, suggested that the department's strategy is to revive credit markets and improve liquidity.
Yet this plan, the panel noted, rests on potentially optimistic assumptions about future economic growth. The Treasury Department, it said, had not provided the panel with any details about those assumptions, though it noted that they appeared to be in line with mainstream economic forecasts.
Nevertheless, other observers, including economist Nouriel Roubini of New York University, have been much more pessimistic about the fate of the economy, pointing to potentially enormous losses in the credit and housing markets that would overwhelm current bailout efforts.
The oversight panel offered a range of alternatives for the Treasury to consider, though it was careful to say that it was not making any specific recommendations.
Federal regulators should consider forced liquidation of struggling institutions, it said, noting that such a move would benefit taxpayers and send unmistakable signals to the market that poorly managed banks would not be propped up indefinitely.
"Allowing institutions to fail in a structured manner supervised by appropriate regulators offers a clearer exit strategy than allowing those institutions to drift into government control piecemeal," the report said
The panel also recommended that Treasury "hold management accountable by replacing -- and, in cases of criminal conduct, prosecuting -- failed managers."
The Congressional Oversight Panel, in a 151-page report to Congress, said that government efforts relied on the presumption that housing prices are depressed due to illiquidity in the market and not a deterioration of fundamental value.
If in fact there has been a major correction in the housing market, the panel said, "it is possible that Treasury will need to take very different actions in order to restore financial stability," including the injection of larger amounts of bailout money.
To date, the Treasury Department's Troubled Asset Relief Program has released or committed $590 billion out of the $700 billion originally appropriated. But when adding in programs run by the Federal Reserve and Federal Deposit Insurance Corp., the total value of the effort exceeds $4 trillion.
Since the TARP program began in October 2008, successive administrations have struggled to explain their twin strategies of injecting large amounts of capital into banks in exchange for stock, while lowering interest rates and seeking to spur lending.
In its report, the oversight panel said that recent communication with Treasury, including with Secretary Timothy F. Geithner, suggested that the department's strategy is to revive credit markets and improve liquidity.
Yet this plan, the panel noted, rests on potentially optimistic assumptions about future economic growth. The Treasury Department, it said, had not provided the panel with any details about those assumptions, though it noted that they appeared to be in line with mainstream economic forecasts.
Nevertheless, other observers, including economist Nouriel Roubini of New York University, have been much more pessimistic about the fate of the economy, pointing to potentially enormous losses in the credit and housing markets that would overwhelm current bailout efforts.
The oversight panel offered a range of alternatives for the Treasury to consider, though it was careful to say that it was not making any specific recommendations.
Federal regulators should consider forced liquidation of struggling institutions, it said, noting that such a move would benefit taxpayers and send unmistakable signals to the market that poorly managed banks would not be propped up indefinitely.
"Allowing institutions to fail in a structured manner supervised by appropriate regulators offers a clearer exit strategy than allowing those institutions to drift into government control piecemeal," the report said
The panel also recommended that Treasury "hold management accountable by replacing -- and, in cases of criminal conduct, prosecuting -- failed managers."
published April 9, 2009, 0 Comments
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