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Study: Bernanke, Paulson misled public on bailouts
Question of the Day
The Treasury Department, which at times has clashed with the TARP special inspector’s office, took some issue with the audit’s accusation that the agency lacks sufficient transparency.
“While people may differ today on how the contemporaneous announcements about the reasons for selecting the initial nine recipients should have been phrased, any review of such announcements must be considered in light of the unprecedented circumstances in which they were made,” Assistant Treasury Secretary Herb M. Allison Jr., who oversees TARP, said in a written response to Mr. Barofsky.
However, the Federal Reserve generally agreed with the report’s findings.
“An important lesson illustrated by the events that shocked the financial systems over the past two years is that transparency and effective communication are important to restoring and maintaining public confidence, especially during a financial crisis,” wrote Federal Reserve General Counsel Scott G. Alvarez.
The other initial TARP recipients were JPMorgan Chase, Wells Fargo, Goldman Sachs, Morgan Stanley, the State Street Corp. and the Bank of New York Mellon.
The initial nine institutions collectively held more than $11 trillion in banking assets as of mid-2008, or about 75 percent of all assets held by U.S. banks.
Treasury had disbursed about $361 billion of TARP money to more than 650 financial institutions as of July.
The report also concluded that Treasury, the Federal Reserve and the Bush administration last year acted responsibly when they pressed Bank of America to proceed with its planned buyout of Merrill Lynch.
Bank of America Chief Executive Officer Kenneth Lewis told Congress in June that the Bush administration and the Federal Reserve threatened to remove top executives of the bank unless the financial giant merged with the troubled Merrill Lynch for the good of the foundering economy.
Bank of America has received $45 billion in TARP funds, including $20 billion in January to help offset mounting losses at Merrill Lynch.
“Former Secretary Paulson and Chairman Bernanke believed that the already fragile financial system could further destabilize if the acquisition of Merrill Lynch failed,” the audit said.
About the Author
Sean Lengell covers Congress and national politics and can be reached at email@example.com.
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