What’s going on with the Troubled Asset Relief Program, or TARP? Wednesday’s hearing of the Government Oversight Committee’s Domestic Policy Subcommittee served as a revelation of how little everyone really seems to know.
The first witness — Neel Kashkari, the interim assistant treasury secretary for financial stability — was on the hot seat for hours. Kashkari is a holdover from the Bush administration in a department where President Obama hasn’t even bothered to fill any of the open senior positions except for secretary of the Treasury.
This was not a hearing dominated by partisan tensions or competing philosophies. It was one of bipartisan confusion and anger, with lawmakers unable to understand why they could not get better answers about what the Treasury Department is doing with bailout money.
Rep. Jim Jordan (R., Ohio), the conservative ranking member of the subcommittee, noted that the Treasury had sold Congress and the American people on the $700 billion TARP bill last year by insisting that it was absolutely necessary to purchase toxic mortgage-based assets from key institutions.
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But with $300 billion of TARP out the door already, Jordan asked, “Am I correct in saying that not one mortgage-backed security has been purchased?”
“Yes, sir,” said Kashkari. The program for purchasing MBSs, he explained, is still being developed. Treasury has so far spent $300 billion to treat
the symptoms of the problem and prevent a complete collapse.
In their questioning, some members revealed an ignorance of the subject matter, but in many cases they still had a point. One by one, they called for increased government micromanagement of TARP-aided businesses. Reps. Dennis Kucinich (D., Ohio) and Dan Burton (R., Ind.) joined in outrage over the fact that Citigroup was sill doing overseas business, despite the bailout. “How does [an $8] billion dollar financing deal to Dubai ease the liquidity crisis in the U.S.A.?” Kucinich asked, referring to one of the loans Citi has made since taking $45 billion in government funds.
Must — or should — Citi stop conducting international business as a condition of its bailout? It seems unreasonable, especially if the foreign business is an integral part of the company’s normal operations. But if the TARP money is supposed to be aiding domestic liquidity, Kucinich and Burton still have a point. Should Citi and Bank of America (which provided $7 billion in financing for the China Construction Bank Company) and JPMorgan (which invested $1 billion in an Indian venture) be taking billions from TARP, then making new loans abroad?
When government gets involved, it gets to make the rules, and it likes to do just that. Rep. Peter Welch (D., Vt.) railed against bailing out “those who had bet wrong on these credit-default swaps” — that is, the people and institutions whom AIG effectively shortchanged, “insuring” them against losses in the bond market, then failing to make good when the losses materialized. Welch even suggested that “AIG should reveal their counter-parties, so that we know where the money goes.”
Rep. John Tierney (D., Mass.) asked, “Why aren’t we using some of our leverage to change the boards of directors?”
Kashkari could only offer the standard, free-market defense: “With investments in almost 500 institutions, and hundreds more in the pipeline, we must ensure that our investments are targeted at stabilizing the economy, but we must also take great care not to try to micromanage recipient institutions. However well-intended, government officials are not positioned to make better commercial decisions than lenders in our communities.”
Few lawmakers, particularly among the Democrats, accept this line of thinking. And why should they, when they’re not even talking about a free market? As institutions accept more and more government money, their justification for economic freedom begins to vanish. As Welch pointed out, “AIG is 80 percent Treasury-owned. So in a sense,
we are AIG.”
Many banks were worried about circling sharks before the bailout. If they took government money to stay afloat, maybe they should start worrying instead about the circling lawmakers.
— David Freddoso is a National Review Online staff reporter and author of The Case Against Barack Obama.
