Treasury Inspector General Neil Barofsky has released another biting report on his department's mismanagement of the Troubled Asset Relief Program (TARP). This latest assessment will probably make former Treasury Secretary Hank Paulson's retirement a bit less comfortable and Bank of America CEO Ken Lewis' likely court appearances a whole lot more interesting.
Barofsky, whom Mother Jones profiled last week, accuses Paulson of misleading Americans about the precarious state of the financial industry in the immediate aftermath of the bailout. One example he cites is the secretary's assurances on October 14 that the banks were "healthy" and that they'd accepted the TARP funds for "the good of the U.S. economy." The Fed concurs with Barofsky's assessment, but his bosses at the Treasury have attempted to defend Paulson's statements by suggesting that they "must be considered in light of the unprecedented circumstances in which they were made."
Barofsky's report also seems to lend credence to Lewis's claims that the Treasury Department forced Bank of America's troubled merger with Merrill Lynch. As the New York Times notes, Bank of America received only $15 billion of the $25 billion it was eligible for under TARP, with Merrill receiving the other $10 billion. Although the two companies had agreed in principle to the merger when the funds were disbursed in October, their deal had not yet been approved by regulators or shareholders. Bank of America's restricted TARP funding may have been a way to force Lewis into an awkward arrangement with the troubled investment bank and a sign that Treasury already considered the shotgun marriage a done deal.
Although the inspector general's report was primarily intended to address TARP, Barofsky has also raised some troubling questions about both the credibility of Treasury and its role in the ill-fated BofA-Merrill merger. Some of these questions may soon be addressed if Ken Lewis appears in court to address unrelated concerns about bonuses payed to Merrill traders. Stay tuned.