- The Washington Times - Wednesday, April 22, 2009

WASHINGTON (AP) - It’s a mixed bag out there in the financial sector. Bank lending has declined, mortgage refinancing has improved. And despite a watchdog agency’s warnings about the government’s bank rescue effort, investors rally at the news that banks might indeed be better off.

But as recipients of government assistance, banks and other institutions seeking to be rescued aren’t taking anything for granted.

The top 10 beneficiaries of the government’s $700 billion financial bailout spent about $9.5 million on federal lobbying during the first three months of the year.

No wonder. Government regulators are putting banks through “stress tests,” lawmakers are contemplating new regulations and the Obama administration has put two major automakers on a short leash.

Treasury Secretary Timothy Geithner testified Tuesday that “the vast majority” of banks have more capital than they need. That appeared to be enough to boost investor confidence about the outcome of the stress tests.

But in Washington, oversight groups did not seem so easily cheered, criticizing aspects of the government’s Troubled Asset Relief Program.

“The sense of fear and uncertainty has not gone away, but it’s been joined by a new sense of anger and frustration,” Elizabeth Warren, the head of the rescue program’s Congressional Oversight Panel, told Geithner. “People are angry that, even if they have consistently paid their bills on time and never missed a payment, their TARP-assisted banks are unilaterally raising their interest rates or slashing their credit lines.”

Another panel member, Rep. Jeb Hensarling, R-Texas, put his reservations this way: “Mr. Secretary, I take some comfort in your testimony that we share a number of goals. I take a little less comfort that there are policies in place to necessarily achieve some of those goals.”

And Neil Barofsky, the rescue program’s special inspector general, issued a report that said new public-private investment partnerships envisioned by Treasury are vulnerable to fraud and increase taxpayers’ exposure to losses.

The report was fodder for bipartisan criticism. “The farther officials push this misguided intervention, the more likely it appears that taxpayers will ultimately foot a massive bill for these mistakes,” said Rep. Darrell Issa of California, the top Republican on the House Committee on Oversight and Government Reform.

“While there has been a lack of adequate accountability thus far, we can and must reverse course and begin to account for the TARP money,” added Rep. Maurice Hinchey, D-N.Y., a member of the Joint Economic Committee.

Geithner said the new plan is “better than the alternatives,” noting it would let taxpayers share the risk with the private sector while at the same time letting private industry use competition to set market prices for the assets.

“We need a financial system that is not deepening or lengthening the recession,” he said. “Meeting this obligation requires actions by the government; it requires the government to take risks.”

The treasury secretary said that while most banks have more than enough capital to satisfy federal regulators, a combination of factors _ including worries about the broader economy and the crushing weight on their balance sheets of bad loans and other toxic securities _ was feeding “uncertainty about the health of individual banks.”

In his testimony, Geithner reiterated his view that private sector participants in the new public-private investments should not fall under the executive compensation limitations that apply to recipients of bailout funds. Barofsky’s report, however, cited a Treasury’s general counsel view that private investors that double as managers of the investment fund “would not be passive investors and could be subject to the executive compensation restrictions.”

The issue is potentially ticklish because the compensation question could determine who is willing to take part in the program. Treasury is still devising rules to govern those transactions.

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