While banks recovered quickly and the Dow is around 14,000, he said last week, “the economy is still sputtering for millions of Americans whose livelihoods were devastated by the financial crisis.” He added: “The legal and regulatory framework that Geithner leaves behind for preventing a future financial crisis inspires little confidence, especially amid scandals emerging almost weekly at banks too big and complex to manage, regulate, police and fail.”
How did Treasury favor the banks? Consider its answer to the foreclosure mess. After promising to help four million borrowers, its Home Affordable Modification Program at last count had helped about one-quarter of that number.
One reason for this is that the program was flawed from the start.
First, the Treasury made the program voluntary, awarding funds to participating banks but failing to penalize those that did not. The program was all carrot, no stick.
Worse, the initial plan didn’t require the banks to write down second liens they may have held — like home equity lines — from borrowers whose original loans were modified. This let the banks put their interests ahead of both borrowers and those who held the first mortgages.
Unwinding the Troubled Asset Relief Program was another area where the department fell short. Eager to trumpet the success of TARP and other bailout programs, for example, Treasury boasted last spring that taxpayers would likely make money on them.
Such a claim, said Dean Baker, co-director of the Center for Economic and Policy Research, should “immediately discredit the teller.”
Treasury’s accounting for TARP and the other programs didn’t factor in the below-market rates the recipients paid on these loans. “We did them an enormous favor,” Mr. Baker said in an interview last week, “at a time when liquidity commanded an incredible premium.”
Neither, critics say, was Treasury transparent about TARP or willing to provide data to Congress on the program’s progress. “Under Secretary Geithner’s leadership, Treasury consistently overstated the results of its actions, painting a rosier picture than reality,” said Senator Charles E. Grassley, the Iowa Republican who is the ranking Republican on the Senate Finance Committee. “Without the special inspector general, the public wouldn’t have a clear, numbers-driven point of view on TARP.”