Financial Privacy & Security News

3rd in a series of briefings to the media on the need for greater transparency and accountability in the government’s TARP and other Wall Street bailout programs.

In this issue:
(1) Report on the Bailout report Card
(2) TARP and the Citi: Understanding Citigroup’s Bailout Journey

Updating Congress on U.S. PIRG’s TARP Report Card

U.S. PIRG released a report in February, “Failed Bailout: Lessons for Obama from Bush’s Failures on TARP,” to try to piece together what little was known about the then misnamed Troubled Asset Relief Program (TARP), recommend changes to make the program more accountable and transparent and then develop a simple set of benchmarks to assess progress.

This week, Tax and Budget Reform Advocate Nicole Tichon was asked to testify (her testimony) before the Congressional Joint Economic Committee. Two of the three other witnesses were from the Congressional Oversight Panel on the TARP; the other was from the American Enterprise Institute. Nicole’s testimony updates the Failed Bailout report based on newly available information. Key points of her testimony:

Progress has been made by the Obama Administration regarding accountability and transparency in reporting and the availability of information on the bailout programs and some recipients on the Treasury website. In addition, Congress has enacted strong limits on executive compensation (Pub. Law 111-5). However, taxpayers and consumers would benefit from reporting requirements being applied to ALL bailout recipients, better use of technology, disclosure around strategy changes, implementation of a clearer strategy going forward, and the use of metrics for success.

A number of bills and amendments have surfaced in the House and Senate to improve accountability of the Troubled Asset Relief Program (TARP), but few have made it into law. Congress should take specific action in making TARP transparency and accountability requirements law.  Nicole’s testimony provides details.

Bailout Briefing Drilldown
TARP and the Citi: How Not To Run A Bailout

This week we start a new feature, Bailout Briefing Drilldown to illustrate what happens when a coherent strategy and transparency are both lacking. Our briefing focuses on Citigroup; its bailout is a poster child for lack of transparency and lack of coherent strategy in bailout policies so far. Taxpayers grow exceedingly nervous when billions of dollars are given under multiple programs with distinctly different objectives, and with no apparent end in sight. U.S. PIRG would consider support for a change of course when things aren’t working. However, Citigroup’s story prompts more questions than answers.

10/28/2008. Citigroup begins its journey into the government bailout by receiving a capital infusion of $25 billion as a “healthy” bank in need of liquidity. Citi refers to this infusion as TARP I in its first public report on the TARP Program. Treasury called it the Capital Purchase Program (CPP). Most called it “the bailout.” 

11/23/2008. An agreement is made under the newly created Asset Guarantee Program to “protect losses” on loans and securities, up to $301 billion. This means, according to the Department of Treasury’s Fifth Tranche Report to Congress, that for losses over $39.5 billion, Treasury, the FDIC and Federal Reserve will share the losses. Interestingly, this program is no longer defined directly on the Treasury website, outside of old press releases. The agreement went into effect on January 16, 2009.

12/31/2008. Citigroup receives an additional $20 billion. Citi calls it TARP II; the Treasury Department called it the Targeted Investment Program (TIP), a program “to avoid the loss of confidence in a financial institution [that] could result in significant market disruptions that threaten the financial strength of similarly situated financial institutions and thus impair broader financial markets and pose a threat to the overall economy,” according to the Treasury’s website.  This program has only two participants, Citi and Bank of America. We still call it the bailout.

01/02/2009. The former leadership of the Treasury Department releases guidelines for the TIP program.

02/25/2009. The new Treasury Department announces the Capital Assistance Program (the Capital Purchase Program goes away).

02/27/2009. The government and Citi reach a deal where the government agrees to convert $25 billion of its recently-purchased preferred stock to common stock, giving the government a thirty-six percent share of the firm. This exposes taxpayers to the risks of the market as the preferred stock had a fixed value, and its dividends are paid only after preferred holders are paid. Interestingly, the $3.25 price per share that we paid dipped below a dollar last week, and at press time was hovering around $1.60.

03/06/2009. Citi is trading below $1.00. That’s a loss of $17,307,692,308 to its taxpayer-shareholders.

03/10/2009. Citi’s CEO Vikram Pandit announces that Citi “was profitable in the first two months of 2009 and is having its best quarter in a year and a half,” according to the Wall Street Journal.

The problem: A lack of transparency around the strategy and the creation of ad hoc programs (or even just renaming them) has eroded taxpayer and investor confidence in the decisions that have been made since last fall. The mixed messages from Citi’s CEO on its new-found success days after it is trading for under a dollar demonstrate that now, more than ever, we need greater transparency. We need to be able to ask all bailout participants, “what’s working and what’s not?” and get dependable answers we can rely on.

In U.S. PIRG’s testimony to the Joint Economic Committee hearing on TARP transparency and accountability, we describe how these conflicting, ad hoc programs and results send American taxpayers the wrong message. This Administration didn’t start this journey or cause all of these questions, but it has a great opportunity to shed some light on them. We hope they will.

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U.S. PIRG serves as the federation of non-partisan, non-profit state Public Interest Research Groups. PIRGs are public interest advocacy groups that take on powerful interests on behalf of their members. Website: uspirg.org

Link to PIRG’s Securing America’s Financial Future campaign page
Link to PIRG’s testimony at the Joint Economic Committee on March 11, 2009
Link to Bailout Briefing #2
Link to Bailout Briefing #1