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Gambling, Washington-Style

Posted In: Bailout, Banking Crisis, Financial Sector, U.S. Government, U.S. Treasury Dept.

Had to pop some Tums before sitting down to write this post. Read it, and you’ll understand why. From MarketWatch this morning:

At its high point, the federal government was guaranteeing or insuring $4.3 trillion in face value of financial assets, according to a report released Friday by the Congressional Oversight Panel. “The Panel found that Treasury took an aggressive stance in protecting taxpayer interests, and the Panel did not identify any major flaws with their implementation of the guarantee programs. Even so, these programs carried significant risk. In many cases, the American taxpayer stood behind guarantees of high-risk assets held by potentially insolvent institutions,” the report said.

From the Congressional Oversight Panel’s website:

The Congressional Oversight Panel’s November oversight report, “Guarantees and Contingent Payments in TARP and Related Programs,” finds that the income of several government-backed guarantee programs will likely exceed their direct expenditures, and that guarantees played a major role in calming financial markets. These same programs, however, exposed American taxpayers to trillions of dollars in guarantees and created significant moral hazard that distorts the marketplace.

The extraordinary scale of these guarantees, the significant risk to taxpayers, and the corresponding moral hazard leads the Panel to conclude that these programs should be subject to extraordinary transparency. The Panel specifically identified the guarantee of Citigroup assets under AGP — the largest single guarantee offered to date — and strongly urges Treasury to provide regular, detailed disclosures about the status of the assets backing up this guarantee. Treasury should disclose greater detail about the rationale behind guarantee programs, the alternatives that may have been available and why they were not chosen, and whether these programs have achieved their objectives. This should include an analysis of why Citigroup and Bank of America.

You can read the entire November oversight report here.