The acronym SIGTARP has a military air about it. And, to be sure, Neil Barofsky at the Office of the Special Inspector General for the Troubled Asset Relief Program sees serious dangers in the operation of the US Treasury’s umbrella bailout plan.
In his latest rather scathing report to Congress, some serious measures are called for to guard against fraud and protect taxpayers’ interests - as well there might be, since up to $3,000bn of government and private funds is at stake.
Extracts from the core recommendations:
Use of Funds: SIGTARP continues to recommend that Treasury require all TARP recipients to report on their actual use of TARP funds… Simply put, the American people have a right to know how their tax dollars are being used.
The announced expansion of TALF to permit the posting of MBS as collateral poses significant fraud risks…Treasury should require significantly higher haircuts for all MBS, with particularly high haircuts for legacy RMBS.
Aspects of PPIP make it inherently vulnerable to fraud, waste, and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering.
Interaction Between PPIP and TALF… greatly increasing taxpayer exposure to losses with no corresponding increase of potential profits…Such an expansion could cause great harm to one of the fundamental taxpayer protections in the original design of TALF by significantly diluting the private party’s personal stake, the “skin in the game,” and therefore reduce their incentive to conduct appropriate due diligence.
Mortgage Modification Program: To prevent fraud in the mortgage modification program, SIGTARP has recommended that Treasury build certain fraud protections into the mechanics of the program, including requiring third-party verification of residence and income, conducting a closing-like procedure in which identities of participants are confirmed, and delaying modification incentive payments to servicers.
Full 250-page report available here.
Related links:
Tarp investigator seeks evidence of book fiddling - FT
Fannie chief favourite to head Tarp - FT
