About two months ago I discussed the "Oversight Panel" that's supposed to hold the Treasury Department accountable for what it does with the $700 billion. Specifically, the panel had just issued its first report (on Dec. 10), which was a list of 10 tough but unanswered questions they had sent to Treasury.
In the time since, the panel has moved from asking tough questions to doing what it takes to get serious answers -- by which I mean they have so far conducted themselves as surrogates of the taxpayer, instead of toadies to the political establishment.
Specifically: This week the panel released its monthly report for February, titled "Valuing Treasury’s Acquisitions." It explores in detail one of their original 10 questions, namely "Is the public receiving a fair deal?"
The short answer is, Not Even Close. In January Treasury did send replies to the questions, but with language that can most generously be described as brief, perfunctory, and vague. In media interviews about its monthly report, panel Chair Elizabeth Warren said that then-Secretary Henry Paulson had said taxpayers were getting a "par" deal, meaning that the assets purchased under TARP had been priced accurately.
Now, given that Paulson had been the CEO of Goldman Sachs, one would suppose that he knows something about how to price financial assets. Even so, the Oversight Panel decided to check Paulson's math anyway: they hired a top international evaluations firm "to perform the evaluation."
In a highly detailed analysis, the valuation firm came back with a piece of simple math. For every $1 the Treasury spent, it received financial assets worth 66 cents.
Except, of course, that in the case of TARP funds, we ain't talking "cents" on the "dollar." No sir. What we are talking about is, paying $254 billion for assets worth $176 billion -- or, an overpayment of $78 billion. So much for knowing something about how to price financial assets -- it's only taxpayer money anyway.
And who knows? Maybe by paying inflated prices for financial assets, the Treasury has found a way to fight
deflation (whether it means to or not). If so, there's probably more "deflation fighting in disguise" to come -- don't forget that the second half of the $700 billion in funds was just released. In the meantime, I'll be pulling for and reading the reports from the Oversight Panel.
Not that they (or the TARP money they follow) can change the economic trends unfolding before our eyes. Talk of changing that trend is even less an option for individual investors. Instead, the key is to see that trend for what it is and be prepared -- that IS an option, right now.
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