Click through for the transcript.
—Richard Neiman of the Congressional Oversight Panel on helping the economy
For more about the COP, here is a video they just released to accompany their report called Assessing Treasury's Strategy: Six Months of TARP.
John Hockenberry: Good morning everyone. You may have noticed, but when the financial emergency broke in the middle of the fall campaign last year, the Bush Administration’s strategy was to use money from the Federal Reserve to bail out the banks and help the economy get back in shape. Using that money from the Fed meant that Congress didn’t have to get directly involved. But what Congressional oversight there is of the so-called TARP showed up online last night.
Recording of Elizabeth Warren: The blanket subsidies provided to banks last fall through the capitol infusion plan failed to provide transparency, accountability or clarity.
John Hockenberry: That’s Elizabeth Warren who chairs a panel charged with making sure the Treasury makes the right moves to stabilize the economy, and manages the TARP fund effectively. Joining us to talk about what the panel said when it went online last night and issued a report, the first real congressional oversight report of the government’s behavior with the TARP, Todd Zwillich is here, the Takeaway’s Capitol reporter down in Washington. First of all what is import to note about what the report concluded, and does this really constitute accountability, Todd?
Todd Zwillich: What’s important to note about it, and I know this isn’t as clear as we’d like, the results are mixed. That’s what they say, mixed. The history of this you just described it very accurately, John, up until now especially last fall, when the TARP started just like Elizabeth Warren said, it lacked transparency, lacked accountability, lacked a clear direction that did not do anything to give the market certainty, and the markets function on certainty, and if you don’t have that certainty the report says it just makes the recovery time longer. I would, by the way, recommend everyone to the video on cop.senate.gov [and posted above] you played a cut from it, Elizabeth Warren explains things very clearly, it really helped me understand it, it might help everyone understand where the panel’s coming from. Going forward, their assessment is mixed. They say the Treasury has made certain assumptions and a lot of this is about those toxic assets. We’ve all heard about those, those bad mortgage-backed securities that are sitting on the balance sheets of all the financial institutions and all the banks. There’s a big debate right now about the values of those assets, what are they really worth? So that when Treasury brings in all these private investors, in this new plan to get them to invest in a subsidized way, there’s a big debate about what the actual price is. And the reason that’s important is if they don’t find the real price and they value them too low or they value them too high, it just takes the market all the longer to find the real price and that means a longer recovery time. Nobody really knows the value of those assets right now, and it’s an issue.
John Hockenberry: Todd, have they established a set of standards that the Treasury is going to have to abide by going forward, and is that something we can actually monitor as U.S. citizens?
Todd Zwillich: Well there are standards but the standards don’t necessarily tell you the price and the big takeaway from the report from my reading of it is that they’ve made certain assumptions and they’re playing a game of dice here. If the recovery is short this —this public-private investor plan that the treasury is doing with investors, it could work, if it’s a short recession, they could get us right through it a nice bridge. If it’s going to be a longer recession, they’re playing a game of dice here, that nobody is sure how it will turn out because nobody knows the exact value of those assets. If they don’t get the asset-valuation right of all these trillions of dollars of toxic assets, the recovery could be a lot longer in coming than it would have been if they hadn’t done all this subsidization. These things Elizabeth Warren was talking about that subsidize banks in a non-transparent way, all that does is add a gushiness to the market and uncertainty to the market and all those things combined could make the problem even worse.
John Hockenberry: Todd Zwillich, the Takeaway’s Capitol reporter, it’s all about the economic assumptions in dealing with these various fiscal policies, thanks Todd.
Todd Zwillich: Sure my pleasure.
John Hockenberry: So here’s Elizabeth Warren once again in that video described by Todd Zwillich.
Recording of Elizabeth Warren: In the report, we go over many technical ways to measure whether Treasury's efforts have helped the economy. At this point, we conclude that the evidence of success or failure is mixed.
John Hockenberry: The evidence of success and failure is mixed. Joining us now, Richard Neiman is a member of the congressional oversight panel, is on that same panel with Elizabeth Warren. He joins us here in the studio. Richard, would you agree with Elizabeth Warren that the record is mixed and that this constitutes accountability, what your panel has produced?
Richard Nieman: I think Todd really pointed out to what the issue is. And this really is that there’s a debate about the assumptions underlying the Treasury’s plan. And, in fact, this report in its first paragraph highlights that there’s disagreement among panel members about whether it is appropriate to assess alternatives at this stage. In my view, as long as the assumptions are reasonable under the Treasury’s plan, and the plan is viable, that is the approach we should be perusing.
John Hockenberry: Do you think the assumptions are correct? So, short recession?
Richard Nieman: The critical assumption underlying the plan, and it goes right to the price of those assets, is do the current prices reflect the value of those securities? Or, is there a liquidity discount built into that that does not represent the fundamental value?
John Hockenberry: What strategy should the banks use in bailing out the banks. Should it be a direct subsidy? Should it be market forces tweaking here and there like the Fed traditionally does? Or something fundamentally different?
Richard Nieman: Well, I think the approach that you see and they’ve taken is an extremely comprehensive approach along a number of factors, both private and public, including a great deal of focus on the foreclosure problem that gave rise to the crisis in the first place.
John Hockenberry: Let’s say I’m an angry tax payer. I watch Lou Dobbs every night and I think that the government isn’t watching the store and my money is being given to a bunch of rich people. It’s a war on the middle class. We’ve got to shut this thing down. What is this panel doing to help me, Richard?
Richard Nieman: Now, remember the panel, we have no direct authority over how that Treasury operates the program.
John Hockenberry: Now that’s only making me madder.
Richard Nieman: Well… but what we can do, and we do understand the anger of the American public, is to provide, to ask the critical questions. And that’s what the report does. Asks the question: what is the strategy? Is it reasonable? Is it viable? How can we measure the effectiveness?
John Hockenberry: Now that sounds great, but you are even at odds with your chairman on the panel as to what to do. If you can’t come to consensus within the panel, how is that accountability?
Richard Nieman: I think the importance of this panel is that it brings together a variety of individuals with different backgrounds, with different philosophical viewpoints, and different political view points. The power of the panel is in where we can reach a consensus. I think the fact that there, I think if you see supplemental statement that I issued as part of that report, in fact, I was joined for the first time joined by former Senator Sununu who also gave acknowledgement that the Treasury’s plan is viable plan and that’s where the focus of this panel should be.
John Hockenberry: Should the Treasury go back to Congress and ask for more money? Right now the amount of obligation is $3 trillion that they’ve signed the government up for may not be enough, according to some economists.
Richard Nieman: I think that’s premature. I think the focus and we do have here where the funds have been out laid, from the Fed, the Treasury and the FDIC, but the focus should really be on the various elements of the plan. I think the American public, we can be part in this, this takes time to work. We won’t see this in a month, we won’t see this in two months, but a plan we’ve already begun seeing improvements in the commercial paper market, in bank borrowings. This has to be given a chance, but we have to keep the pressure on. Treasury has to do a better job in disclosing and clarifying and setting out the metrics as to why, how we can measure this is working.
John Hockenberry: OK. Let’s say again I’m a taxpayer and I’m walking down lower Manhattan with a sandwich board on, talking about my anger over AIG bonuses. Name three things on the website from your panel that are more important that the AIG bonues for me to look at as a U.S. taxpayer?
Richard Nieman: We should look at total lending. The availability of the…These are complex issues and AIG bonuses and compensation are easy to understand. What is complex and takes more time to understand is the impact on the financial system. What we tried to address in October is that we were at a precipice; we were at the risk of a financial collapse. We averted that through those actions. And, now, it’s up to us to continue to focus on expanding the focus on expanding the economy, to get the banks lending. A large portion of credit availability in this country is the result of securitization market, lending of non-bank lenders and that’s where an important part of a Treasury’s program through the Federal Reserve is to restart that market.
John Hockenberry: And you think it is restarting?
Richard Nieman: The efforts now, parts of those programs are in the early stages, but that’s what we’re going to be focused on.
John Hockenberry: Now, it is a mixed bag, according to the Chairman. The TARP has failed, or the Treasury has failed to provide transparency, accountability or clarity. I’m wondering what the most important mission of your panel is, to provide an educational function for taxpayers, or to sting the Treasury when it’s done wrong?
Richard Nieman: We have to play a critical role. There are some real questions out there that have to be asked. Such as, what’s the impact of banks who want to redeem those securities? What’s the impact of mark to market accounting? Do we have the right number of managers in the PPIP [Public-Private Investment Plan] program?
John Hockenberry: He’s got the questions. American taxpayers, of course, will need answers. Richard Nieman is a member of the congressional oversight panel, looking at the TARP’s administration. He’s also the New York State Superintendent of Banks.