Money flowing back goes to slush fund

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By Nick Rizzuto

On June 9 President Obama called a press conference where he announced, "Several financial institutions are set to pay back $68 billion to taxpayers."

He said, "It's worth noting that in the first round of repayments from these companies the government has actually turned a profit." The moment was hailed as a policy triumph for the Obama administration, and a sure sign the economy was on the road to recovery.

While Mr. Obama's announcement came as welcomed news, few questioned what would become of the returning funds, as it was rightly assumed that any money or profit would be returned to the general funds from whence it had come in order to pay down the debt. The truth, however, is that the money returned by the banks is finding new life as part of what amounts to a Treasury Department-controlled slush fund.

Former Treasury Secretary Henry M. Paulson Jr. had said of the Troubled Asset Relief Program that the Treasury Department "has no plans to recycle funds from the $700 billion Wall Street rescue package to make more capital injections into financial institutions." Mr. Paulson's position, however, runs in direct contradiction to that of current Treasury Secretary Timothy F. Geithner, who has announced the department will use returned funds to provide aid and loans to small banks. In the end, it seems Mr. Geithner's vision for the returning funds will win out over Mr. Paulson's, and the money will be used to supply smaller banks with cheap loans.

Congressional Democrats have quickly run to defend the practice of TARP fund recycling, and even encourage it. Massachusetts Rep. Barney Frank, chairman of the House Financial Services Committee, was quoted as saying, "I'd like to get it back into Treasury and into debt reduction." He continued, "On the other hand, there was a delay in getting some of the money to community banks, and that's where it could do us the most good."

This is not only an unethical use of taxpayer money; it is also a violation of the legislation that allowed the Treasury the ability to lend it in the first place. The TARP law states, "Revenues of, and proceeds from the sale of troubled assets purchased under this Act, or from the sale, exercise, or surrender of warrants or senior debt instruments acquired under section 113 shall be paid into the general fund of the Treasury for reduction of the public debt." The law allows very little wiggle room for returning cash to be redistributed. The Obama administration is clearly breaking the law.

A handful of fiscal conservatives have sounded the alarm. A bipartisan group led by Utah Republican Sen. Orrin G. Hatch and Arkansas Democratic Sen. Blanche Lincoln have attempted to introduce legislation to prevent the TARP recycling, but, to date, their efforts have been unsuccessful.

The U.S. Treasury Department is now effectively turning itself into a lending institution, and it's doing so without the benefit of the law. Whereas TARP was originally intended to be a temporary emergency measure to prevent the systematic failure of the American banking system, it seems it is now becoming more of a permanent fixture of the Treasury Department.

Instead of being phased out with the retirement of the debt, the money is simply being recycled into new loans for select banks. This will give the executive branch a slush fund with which it can continue lending as it sees fit.

The room for political malfeasance here is broad. Newsweek already reported in March that TARP funds have been recycled into up to $85,300 worth of campaign contributions, including $15,000 to members of the House and Senate banking panels and various members of leadership on both sides of the political aisle. Now these funds can be distributed to new banks without the vigorous congressional oversight to which the original funds had been subjected.

Mr. Obama, who as a senator voted for TARP, ran on a platform that promised transparency, especially on spending. But as the people cry out for the federal government to exhibit a certain amount of fiscal responsibility, it seems that leaders have no intention of relinquishing the temporary power given to them and are willing to run afoul of the law to maintain it. The reuse of these funds has become nothing less than a way for Mr. Obama's administration to take control of the purse strings and turn the Treasury into their own private lending agency.

Nick Rizzuto is the producer of "The Wilkow Majority" on SIRIUS XM Radio.