When the Treasury Department’s bailout czar provided an update this week on the government’s $700 billion plan to rescue troubled financial institutions.
By User, In Transparency / Secrecy, On October 17, 2008
When the Treasury Department’s bailout czar provided an update this week on the government’s $700 billion plan to rescue troubled financial institutions, he vowed that it would be an “open and transparent program with appropriate oversight.”
The next day, the Treasury Department put out an announcement about a major bailout-related contract with Bank of New York Mellon Corp. that fell short in the transparency department.
The copy of the agreement that was made public had blacked-out paragraphs in the section covering Bank of New York Mellon’s compensation. If the Treasury Department is unwilling to disclose the particulars of that contract — or even the general outline of the compensation scheme — that raises questions about how it will treat disclosure of other bailout transactions.
One thing that the critics and supporters of the bailout agree upon is that transparency is one of the keys to winning public trust in the taxpayer-funded program.
The Treasury Department has not returned our calls requesting more information on the blacked-out sections of text in the contracts it issued to Bank of New York Mellon and another advisor, the law firm of Simpson Thacher & Bartlett LLP.
A spokesman for Bank of New York Mellon said he did not know why the compensation information was redacted and referred our question to the Treasury Department.
The bank has one of the biggest jobs in the federal government’s $700 billion bailouts of troubled financial institutions – running the auctions used to purchase distressed assets, then holding those assets and tracking their disposition.
Its three-year contract clearly comes with a big price tag. But taxpayers have no way of knowing how big until the Treasury Department releases a complete version of the contract.
Bank of New York Mellon’s compensation is covered on the 25th page of a 28-page agreement. The section comes just after a description of the bank’s duties, and just before a section in which the bank promises to safeguard the information it receives through its assignment and to adhere to certain disclosure and conflict of interest rules.
The Treasury Department told other news organizations that the information on the bank’s compensation will be released when other details of the program, such as the hiring of subcontractors, are finalized.
Kevin Heine, a spokesman for Bank of New York Mellon, said the bank does not expect the information to be kept secret.
“I know there has to be some transparency about that at some point,” he said.
The Treasury Department also blacked out the hourly rate that it was paying employees of Simpson Thacher. That firm has a one-year, $300,000 contract to provide advice on the injection of capital into major banks in return for a government ownership stake.
The chart in the contract listed the estimated hours that would be worked by various classes of employees, from partner to legal assistant, but redacted the rate for each category.
The contract that the Treasury Department gave Simpson Thacher was awarded through competitive bidding, although only two firms made proposals. Without the information on the hourly rates, it is impossible for outside observers to say for sure whether the government got a good deal.
These are the types of transactions that BailoutSleuth intends to track to help ensure the transparency of the process. We will continue to examine the fine print of the Treasury Department’s deals and report on what we find.