An Account of Accountability

BBC NEWS has become a useful source for stories that give the lie to Treasury Secretary Henry Paulson's promises that his $700 billion bailout package would be judiciously applied and scrupulously monitored. The first story that clearly demonstrated that this money had more to do with maintaining business as usual than with digging the United States (and, consequently, the world) out of economic crisis surfaced last October, when PNC Financial Services decided to use its piece of the pie to buy up failing bank National City, thus demonstrating that, even when money was not flowing as readily as it should, the not-so-enlightened self-interest of consolidation took priority over economic wellness. Today BBC News Economic Reporter Steve Schifferes is back on the scent; and this time his source is none other than our own GAO (Government Accountability Office). According to Schifferes' report, the GAO has come up with a veritable laundry list of potential (and probably actual) abuses; and, at the top of this list, is a failure to monitor whether or not banks are complying with requirements on (you guessed it) executive pay, an abuse that was admirably bipartisan in getting members of both houses of Congress bent out of shape.

Equally important is the matter of Paulson making a major strategy change almost before he had finished counting the money given him to dispense. Now there is nothing inherently wrong with being flexible about changing strategy, particularly considering the extent to which the "confidence game" nature of the economic system entails a high level of volatility. Nevertheless, if our honorable legislators agreed on anything, it was that $700 billion was a lot of money; and they represented the American public well with their concerns that it not be applied recklessly. This is where Schifferes' account of the GAO report becomes interesting:

And it says the US Treasury failed to address "critical issues" when it changed the goals of the rescue plan.

Congress approved the controversial bail-out package in early October.

At that time, US Treasury Secretary Henry Paulson said that the $700bn would be used to buy up troubled mortgage assets from the banks.

But shortly afterwards, he decided that the money would be better spent by providing additional capital directly to the banks.

So far, over $150bn has been invested by government in the purchase of preferred shares, including taking a $115bn stake in eight major national banks, and smaller stakes in 44 other banks.

The Treasury's said its objective was to stabilise the financial system and increase the flow of funds for lending.

But the GAO report says that the Treasury "has no policies or procedures in place for ensuring the institutions... are using the capital investments in a manner that helps meet the purposes of the act."

The GAO pointed out that the major banks had told them that the government investment would not be viewed any differently from other capital, and used to "strengthen their capital base, make acquisitions, and lend to individuals and businesses."

And it questions whether the Treasury has even been able to monitor the actions of the banks.

It also points out that no bank had been refused access to funds.

On the basis of Schifferes' report, it would appear that the Treasury Department has yet to respond with anything other than shallow rhetoric. Meanwhile, it is clear from the Change.gov Web site that the new Administration has its own agenda for how this money should be applied, assuming that any of it is left by January 20. Nevertheless, that could turn out to be a pretty big assumption, prompting many of us to ponder once again just how much damage the Bush Administration can do before Inauguration Day. Once again we are on the turf of what Patricia Williams called "a failure to govern at all;" and there are any number of ways in which this no-so-benign neglect can erupt into more unpleasant consequences over the next six weeks, even if they do happen to coincide with the Holiday Season!