Bailout Watchdogs to the Rescue?

| Thu Jun. 11, 2009 12:17 PM PDT

What’s worrisome about the bailout repayments is that banks might buy back their government-held warrants on the cheap. If the ten big banks that have been in the headlines this week after the Treasury announced they could pay their way out of TARP get discounts like multiple smaller banks before them, taxpayers will be on the losing end...again.

But there's good news: Two bailout watchdogs, the Special Inspector General for TARP (SIGTARP) and the Congressional Oversight Panel, announced today in a letter to the Senate that they intend to zero in on the sale of warrants in order to protect taxpayers and shed some much needed light on these transactions.

 

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According to the letter, the Congressional Oversight Panel has begun an analysis to estimate “a reasonable range of values” for the warrants. (Valuing these warrants fairly is key to maximizing returns to taxpayers—something the Treasury hasn’t done that well to date.) The COP and Special Inspector General will then use these values to scrutinize the Treasury’s negotiation process as it sells its warrants back to banks. The results, the letter said, will come out with the panel’s July monthly report.

But will it be too little too late? Last month, Treasury Secretary Geithner said he wanted to sell the warrants "as quickly as we can." Geithner added, "What I’m reluctant to do is have the government be in a position where we hold these investments for a long period of time, longer than is desirable, in the hopes that we’re going to maximize value." 

It's not entirely up to Geithner though. The Emergency Economic Stabilization Act of 2008, the law that created the bailout, says the Treasury must do all it can to maximize returns to taxpayers. And in this case, that means wait. Even skeptical economists like Paul Krugman predict that the U.S. could emerge from the current recession by the fall, so Geithner won't have to wait long. Hopefully with oversight from these watchdogs and a little bit of patience, taxpayers will finally get a fair deal.

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