A new report is backing what critics have been saying about the federal relief effort since the financial system nearly blewup last October — that the nation’s top banks were not sound.
Special Inspector General Neil Barofsky, the watchdog appointed to scrutinize how last year’s $700 billion bailout is being spent, found the government acted properly for the most part in implementing the Troubled Asset Relief Program last October, according to the report obtained by the Associated Press.
However, Barofsky dinged then-Treasury Secretary Henry Paulson and other officials for claiming all of the institutions were on safe ground — when several were on the edge.
Paulson and other officials said at an Oct. 14 press conference that nine banks, which received $125 billion in initial funding, were on solid financial footing.
“These are healthy institutions, and they have taken this step for the good of the economy,” Paulson said at the time.
Paulson had said injecting money into these otherwise healthy institutions was a way to build up their reserves, allow them to resume normal lending to businesses and help stabilize the financial system. A joint statement from The Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. also deemed the initial group to be healthy at the time.
It quickly became clear that such claims were inaccurate. Citigroup and Bank of America required billions more to keep them afloat. What’s more, Merrill Lynch was being forced into a shotgun marriage with Bank of America because of its deteriorating financial position.
Barofsky said the inaccurate assessment undermined support for the TARP program and raised questions about the government’s efforts to get a grip on the financial crisis.
“Statements that are less than careful or forthright — like those made in this case — may ultimately undermine the public’s understanding and support,” the report said.
“This loss of public support could damage the government’s credibility and have long-term unintended consequences that actually hamper the government’s ability to respond to crises.”
The nine institutions, which also include JPMorgan Chase and Wells Fargo, held about 75 percent of the assets of the US banking system at the time.