- The Washington Times - Wednesday, July 22, 2009

Two government institutions at the heart of America’s financial-rescue operations took fire from both sides of the aisle Tuesday on Capitol Hill over lack of transparency and accountability.

Members of a House panel blasted the Treasury Department for failing to adopt several recommendations by an independent watchdog to increase openness and public scrutiny of the massive Wall Street bailout program.

“The taxpayers now have a $700 billion spending program that’s being run under the philosophy of ‘don’t ask, don’t tell,’ ” said House Oversight and Government Reform Committee Chairman Edolphus Towns, New York Democrat.

The panel met Tuesday to review a quarterly progress report of the Treasury Department’s $700 billion Troubled Asset Relief Program, or TARP, released Monday by TARP Special Inspector General Neil Barofsky.

Mr. Barofsky’s report rebuked Treasury officials for repeatedly failing to adopt recommendations that his office considers essential to providing “the highest degree of accountability and transparency possible.”

Meanwhile, at a House Financial Services Committee hearing, Federal Reserve Chairman Ben S. Bernanke vigorously fended off efforts to open the Fed’s policy deliberations to congressional scrutiny.

With more than half of the House members as co-sponsors, Rep. Ron Paul, Texas Republican, is pushing legislation that would require far-reaching congressional audits of the Fed.

“The Federal Reserve, in collaboration with the giant banks, has created the greatest financial crisis the world has ever seen,” said Mr. Paul. “The problem with debt must be addressed.”

Mr. Paul has long advocated eliminating the Federal Reserve System because he thinks it is unconstitutional.

Mr. Bernanke pointedly warned Congress not to authorize the Government Accountability Office to review “highly sensitive areas,” including deliberations about raising or lowering interest rates.

“A perceived loss of monetary-policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability,” the Fed chairman warned.

At the nearby TARP hearing, committee members were particularly irked by the Treasury Department’s refusal to adopt Mr. Barofsky’s recommendation that TARP recipients be required to reveal exactly what they do with the bailout money, a practice it has called “meaningless” in light of the inherent “fungibility” of money.

The oversight committee’s top Republican, Rep. Darrell Issa of California, said Congress’ “patience is running out for the transparency promised by the [Obama] administration, promised by Congress and not yet delivered” by the Treasury Department.

Rep. Elijah E. Cummings, Maryland Democrat, said the bailout effort will fail if the public doesn’t think the program is being operated openly and fairly.

“If we can’t show [the public] that we are doing the right thing with their money … we’re going to have problems,” he said. “I don’t see how we can get past this.”

Mr. Towns called for the Treasury Department to make public “full and detailed information” on the use of TARP funds and publish the value of the TARP portfolio on a monthly basis.

“If Treasury doesn’t put this information up on its Web site, this committee will,” he said.

The Treasury Department has committed $643.1 billion of the TARP money and has spent $441 billion.

In delivering his semiannual policy report, Mr. Bernanke insisted that many recent improvements in financial conditions could be traced to the extraordinary policy actions undertaken by the Fed in the face of the worst financial crisis and the deepest economic downturn since the Great Depression.

Nevertheless, the Fed chairman acknowledged that financial conditions remain stressed and that many households and businesses continued to find credit difficult to obtain.

Mr. Bernanke said that economic output should “increase slightly” during the second half of 2009, but he said the unemployment rate will remain stubbornly high at least through 2011.

“The recovery is expected to be gradual in 2010, with some acceleration in activity in 2011,” he said.

The Fed’s latest economic forecast expects the unemployment rate, now at 9.5 percent, to peak at the end of this year near 10 percent. In 2011, the jobless rate is expected to still hover near 8.6 percent.

To fight the worsening recession last year, the Federal Reserve lowered its target overnight interest rate to near zero. The central bank expects to maintain the rate “at exceptionally low levels for an extended period,” the Fed chairman said.

The Fed also has pursued unprecedented policies that have injected trillions of dollars of liquidity throughout the economy, raising fears of inflation once the recovery gains steam.

However, Mr. Bernanke assured the committee that the Fed had been devoting considerable attention to an “exit strategy” to remove this liquidity. In a “smooth and timely manner as needed,” he said, the Fed would withdraw its extraordinary policy measures, which the central bank pursued to “avert the collapse of the global financial system.”

Mr. Bernanke again issued warnings about the need for Congress and the White House to regain control of the budget deficit. Mr. Bernanke repeated his position that the Fed would not monetize the growing federal debt by purchasing excessive amounts of debt issued by the Treasury.

Mr. Bernanke told the committee that “maintaining the confidence of the public and the financial markets requires that policymakers begin planning now for the restoration of fiscal balance.” The nonpartisan Congressional Budget Office estimated last month that cumulative budget deficits from 2009 through 2019 would total $11 trillion, nearly tripling the publicly held federal debt from $5.8 trillion to $17.1 trillion.

Nigel Gault, chief U.S. economist at IHS Global Insight, summarized the Fed chairman’s message to Congress this way: “Our monetary exit strategy is ready. Don’t try to interfere with it. You have your own fiscal exit strategy to worry about.”

Mr. Bernanke’s four-year term as Fed chairman expires at the end of January, and President Obama has not signaled whether he will reappoint him, subject to Senate confirmation.

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