Congressional Panel Overseeing U.S. Bailout Criticizes Treasury

By Robert Schmidt

Dec. 10 (Bloomberg) -- An oversight committee set up by Congress criticized the U.S. Treasury for not using the $700 billion financial bailout to help average Americans, and questioned its commitment to stem home foreclosures.

The panel, which met for the first time about two weeks ago, issued a report faulting the department for not having a comprehensive plan for stabilizing financial markets and urging it to more clearly explain its efforts. The group’s chairwoman, Harvard Law Professor Elizabeth Warren, is scheduled to testify before the House Financial Services Committee today.

“Households that are struggling with debts -- mortgages, student loans, credit cards, car loans, payday loans and other credit devices -- are at the center of the current crisis,” the report said. “For Treasury’s disbursements to be effective in the context of the broader economic downward spiral, Treasury must have a strategy that addresses this underlying problem.”

While the findings are likely to further inflame critics of Treasury Secretary Henry Paulson’s efforts to unfreeze credit markets, they have split the oversight panel along party lines, raising concerns about the group’s legitimacy and effectiveness. Paulson is under fire for abandoning his original plan to buy toxic mortgage assets, instead using most of the funds for boosting capital in banks.

Representative Jeb Hensarling of Texas, the lone Republican appointee on the four-member oversight committee, issued a statement saying he voted against the report. “The jury is still out” on whether the panel “will eventually be an effective vehicle” for monitoring the Troubled Asset Relief Program, Hensarling said yesterday.

Divided Panel

“I have to ensure that every panel member has the resources and the rights necessary to conduct effective oversight,” he said, adding that he had raised “concerns” with his fellow committee members that weren’t addressed.

Hensarling is also scheduled to appear at today’s hearing, along with Warren, Treasury Assistant Secretary Neel Kashkari and an official from the Government Accountability Office.

The congressional panel is one of several layers of oversight called for in the legislation. It is supposed to have five members, three named by Democratic lawmakers and two by Republicans. Earlier this month, Republican Senator Judd Gregg of New Hampshire quit the group, citing the pressure of his legislative activities.

The bailout already has its own inspector general, confirmed this week by the Senate, and is subject to GAO audits. A committee headed by Federal Reserve Chairman Ben S. Bernanke is also charged with watching over the TARP.

Finding a Role

Warren and some other members of the panel met recently with top staff at the Fed and Treasury in an effort to determine what role the group would have in watching over the rescue plan.

While officials who attended the sessions said the committee was struggling to define its mission, its new report paints its work broadly.

“Most importantly, we are here to ask the questions that we believe all Americans have a right to ask,” the panel said. “Who got the money, what have they done with it, how has it helped the country and how has it helped ordinary people?”

The report is required under the rescue law passed Oct. 3. The group’s criticism follows a GAO review last week that called for the Treasury to tighten its oversight of the program.

Paulson has allocated $335 billion of the funds so far. Lawmakers have said they may try to block the Treasury from using the second half of the $700 billion. Paulson hasn’t yet asked for the money and officials say it’s unclear whether he will do so before President George W. Bush’s second term ends next month.

“I would be a very hard person to convince that this crowd deserves to have their hands on the next $350 billion,” Senate Banking Committee Chairman Christopher Dodd told reporters on Dec. 4 in Washington. “I am through with giving this crowd money to play with.”

To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net.