Barofsky Says TARP ‘Almost Certainly’ Will Bring Loss to U.S.

Neil Barofsky, the special inspector general for the $700 billion U.S. financial-industry bailout, said the program will “almost certainly” result in a loss to taxpayers.

“We need to temper or be realistic about our expectations, a dollar-for-dollar return is just highly unrealistic,” he said yesterday at the Bloomberg Washington Summit. “It’s almost certainly going to be a loss.”

Barofsky, who has been charged by Congress with policing the Troubled Asset Relief Program, also said he’s conducting 65 investigations of possible fraud. The former federal prosecutor has pressed the Treasury Department to be more open about the rescue of companies including insurer American International Group Inc. and automakers General Motors Co. and Chrysler LLC.

“Tens of billions of dollars are likely to be lost on the automotive bailout,” Barofsky said. In addition, some banks that received TARP money are failing, so the aid they received will be wiped out.

Barofsky also said he is working on a review of how the government exercises its rights as a shareholder in the auto companies, Citigroup Inc. and other firms in which it holds large stakes.

“We’re looking into this issue from the perspective of corporate governance,” Barofsky said. “What is the role the United States is playing in the management of these companies?”

Barofsky said his office is set to release an audit next week that looks at whether AIG paid more than necessary to banks including Goldman Sachs Group Inc. after the insurer’s bailout.

AIG Bailout
Lawmakers, frustrated with the cost of an AIG bailout that has expanded three times, have asked why about $50 billion was paid after the initial September rescue to banks that bought credit-default swaps from the firm.

Asked about the potential for fraud in the bailout program, Barofsky said the 65 open investigations range from complex securities matters to routine mortgage-fraud cases.

About half those probes were begun or aided by tips from corporate insiders, victims or the public that came into the office’s fraud hotline, Barofsky said.
“When I first took office, I can’t tell you how many times I’d be having a sit-down and warning about potential fraud in the program and I would hear a response basically saying, ‘Oh, they’re bankers, and they wouldn’t put their reputations at risk by committing fraud,’” he said.

“I think we’ve done a good job of instilling a greater degree of skepticism that what comes from Wall Street isn’t necessarily the Holy Grail,” he said.
‘Extremely Unlikely’

Last month, in a report to Congress, Barofsky said taxpayers are “extremely unlikely” to earn any return on the aid. He said it’s impossible to determine what the actual loss will be because some programs are still being rolled out by the government.

Barofsky praised the Obama administration and Treasury Secretary Timothy Geithner for making TARP contracts available on the Web and for releasing details of the stress tests on the biggest U.S. banks.

In an Oct. 5 report, Barofsky found that the government “lost credibility” after saying that its first round of assistance for banks was only for healthy firms. He said the Treasury had concerns about the finances of Bank of America Corp. and Citigroup, which were both later given additional funds.

Bernanke, Paulson
The inspector also concluded in that report that ex- Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke didn’t illegally pressure Bank of America to complete its acquisition of Merrill Lynch & Co. While Bank of America considered ending the deal last December after Merrill’s losses spiraled, Paulson and Bernanke ...

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