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February 11, 2009 > Bush overpaid banks in bailout, watchdog says

Bush overpaid banks in bailout, watchdog says

By Jim Kuhnhenn, Associated Press Writer

WASHINGTON (AP), Feb 06 _ The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a U.S. government watchdog says.

The Congressional Oversight Panel, in a report released Friday, said last year's overpayments amounted to a taxpayer-financed $78 billion subsidy of the firms.

The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.

Financially ailing insurance giant American International Group, which the Treasury Department deemed to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found.

In December, in response to questions from the oversight panel, the department wrote that the value of preferred stock purchased by the government was ``at or near par,'' meaning Treasury paid $1 for every $1 dollar of asset.

``The way the Treasury secretary described it does not fit with the numbers that were produced in our much more extensive valuation analysis,'' panel chairwoman Elizabeth Warren told reporters Friday. ``The secretary of the treasury described it in December that these were par transaction and that is not supported by the numbers.''

The continued scrutiny comes as new Treasury Secretary Timothy Geithner prepares to place the Obama administration's imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures. Geithner plans to unveil the changes Monday.

And while Paulson is gone and Geithner is in charge, the program itself remains in the hands of Neel Kashkari, a holdover from the Bush administration.

In December, Kashkari defended the Treasury purchasing strategy as bank stock prices dropped.

``We're not day traders, and we're not looking for a return tomorrow,'' he said. ``Over time, we believe the taxpayers will be protected and have a return on their investment.''

In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month. Wells Fargo, which received a $25 billion infusion, has already announced it would pay Treasury $371 million in dividends this month.

Reacting to the panel's conclusions, Treasury spokesman Isaac Baker said in a statement: ``Treasury's efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars.''

He said the plan Geithner will announce Monday aims to free up credit, ``while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it's achieving real results.''

``I can understand some gap,'' he said. ``No one is expecting perfection between the price you pay and what you think you're getting. But that's a pretty large disparity.''


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