(Paulsen Changes Plans with Bailout Money.. Mortgage/Foreclosure Assistance May not Be on the Top of the List..)

Anger, doubt aired in financial bailout hearing

WASHINGTON (AP) – Dec. 12, 2008 – Lawmakers and a watchdog charged with overseeing the government’s $700 billion financial sector rescue plan peppered the Treasury Department with pointed queries Wednesday in a bipartisan display of skepticism over the management and direction of the program.

Members of the House Financial Services Committee challenged the administration in the final weeks of the Bush presidency, complaining that the Troubled Asset Relief Program has not held banks accountable, has failed to devote money to reducing foreclosures and has used an erratic strategy.

Some lawmakers maintained that they had been misled by Treasury Secretary Henry Paulson into believing the money would be used to buy up bad assets from financial institutions, which in turn would free up lending. Instead, the Treasury is now injecting capital directly into banks.

“We’ve been lied to,” said Rep. Davis Scott, D-Ga. “We’ve been bamboozled.”

At the same time, the Congressional Oversight Panel for Economic Stabilization, an entity created specifically to monitor the program, issued a report Wednesday that echoed many of the same questions posed during the House committee’s hours-long hearing.

The tough reviews illustrated the difficulty Paulson might have if he seeks access to the second half of the $700 billion fund. All but $15 billion of the first $350 billion has been allocated in the two months the program has been in place.

Neel Kashkari, director of the Treasury office that oversees the bailout program, told lawmakers that Paulson has made no determination about whether to request the remaining money. He said the Treasury Department is keeping President-elect Barack Obama’s economic team informed of developments.

Under persistent questioning, Kashkari defended the work of the program even as he conceded that its degree of success was difficult to measure.

“The (financial) system is fundamentally more stable than it was when Congress passed the legislation,” he said. Pressed by Rep. Maxine Waters, D-Calif, to put more resources into reducing foreclosures, he said, “Imagine how many foreclosures we would have if we had allowed the financial system to collapse.”

At least two lawmakers quizzed Kashkari about retention payments made to top executives by troubled insurer AIG. The company has received billions of dollars in government help, including $40 billion from the Troubled Asset Relief Program. In a recent letter to Rep. Elijah E. Cummings, D-Md., AIG CEO Edward M. Liddy said 168 employees were scheduled to receive retention payments ranging from $92,500 to $4 million.

“Is $3 million a year bonus, a $3 million bonus, is that excessive to a company owned 80 percent by the United States government and as to which over $125 billion of taxpayers’ money has been invested?” Rep. Donald Manzullo, R-Ill., said.

“It is excessive for a failing institution, yes,” Kashkari replied. But he said he was not familiar enough with the AIG payments to determine whether they met Treasury compensation standards.

With Federal Reserve Chairman Ben Bernanke predicting foreclosures this year will reach about 2.25 million, Democrats also have been insisting that the Treasury devote more effort to halting the rise in mortgage failures.

“In the macroeconomic sense, foreclosure reduction is an essential part of getting us out of the problem we’re in,” said Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman. “The refusal so far to use the money to that purpose has been, I think, a violation of the intent and undermines the ability to get the votes in this Congress to do things in the future.”

The 37-page oversight report offers no specific conclusions, but the questions suggest sharp disagreements with Paulson’s stewardship of the program and echo some of the criticism raised in a Government Accountability Office audit of the program last week.

Gene Dodaro, acting comptroller general of the U.S., told lawmakers Wednesday that the GAO concluded that the government must toughen its monitoring of the bailout fund to ensure that banking institutions limit their top executives’ pay and comply with other restrictions. The auditors said the Treasury Department had no mechanism in place to track how institutions are using taxpayer money that the government injected into the banking system.

“What is Treasury’s strategy?” asked the oversight panel, which is chaired by Harvard Law School professor Elizabeth Warren. “Is the strategy working to stabilize the markets?” and “Is the strategy helping to reduce foreclosures?” The draft presses the Treasury to answer those questions and more.

Rep. Jeb Hensarling of Texas, the panel’s only Republican, declined to sign the report. He said he had raised several concerns with the panel over access to resources and other issues that “have not yet been addressed.”

Warren, a Democratic appointee to the five -member panel, later said that the oversight group has only been constituted for two weeks. She said Hensarling had been invited to every meeting the group held, but that he sent aides instead.

“I don’t want to turn this panel into a partisan divide,” she said. “I’m not clear what the difficulty is. There has been not a single request that he has made that has not been granted.”

Copyright © 2008 The Associated Press, Jim Kuhnhenn (Associated Press Writer.) All rights reserved