The $700 billion bailout program has contributed to economic stability but has also had significant costs to the federal government's credibility and increased moral hazard in the financial industry, a Treasury Department watchdog said.
In a quarterly report to Congress, Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, said the bailout "played a significant role in bringing the system back from the brink of collapse." At the same time, he criticized the Treasury Department's lack of transparency and wondered whether the program wouldn't encourage reckless behavior by financial institutions in the future.
"The American people's belief that the funds went into a black hole, or that there was a transfer of wealth from taxpayers to Wall Street, is one of the worst outcomes of this program, and that is the reputational damage to the government," Barofsky told USA Today.
Barosfky noted in his report that the Treasury Department had been "less-than-accurate" in reporting on its initial investments in nine large financial institutions, and numerous critics and oversight panels have pressed the department for more information about how it decided to distribute bailout money. The charge that "Treasury is just too closely aligned with the interests of Wall Street are only reinforced by Treasury's failures of transparency," Barofsky said.
The inspector general also raised concern about moral hazard - the fear that the government's willingness to bail-out banks that ran into trouble because of reckless investments would encourage similar risk-taking in the future.
"The firms that were 'too big to fail' last October are in many cases bigger still, many as a result of Government-supported and -sponsored mergers and acquisitions," Barofsky wrote. "Absent meaningful regulatory reform, TARP runs the risk of merely re-animating markets that had collapsed under the weight of reckless behavior."
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