Published: Monday, 20 Jul 2009 | 3:19 PM ET

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The U.S. Treasury Department ignores advice on how to help the public better understand how banks are using hundreds of billions of dollars of taxpayer funds they were given, the government's bailout watchdog said Monday.

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Neil Barofsky, the Special Inspector General for the $700 billion Troubled Asset Relief Program (TARP), said in a report that Treasury has made only limited steps toward implementing recommendations that his office has made.

"It has repeatedly failed to adopt recommendations that SIGTARP believes are essential to providing basic transparency," Barofsky said, noting that Treasury won't even put a value on its TARP portfolio.

"Notwithstanding that Treasury has now retained asset managers and is receiving such valuation data on a monthly basis, Treasury has not committed to providing such information except on the statutorily required annual basis," he said.

Barofsky also said that in the case of so-called public-private partnership funds, which will buy toxic assets from banks using a substantial portion of taxpayer-provided money, Treasury was not willing to make timely disclosures on trading activity, holdings and value of the assets the partnerships will hold.

He sharply criticized Treasury's refusal to do so.

"Not only should this disclosure be required as a matter of basic transparency in light of the billions of taxpayer dollars at stake, but such disclosure would also serve well one of Treasury's stated reasons for the program in the first instance: the promotion of 'price discovery' in the illiquid market for MBS (mortgage-backed securities)," Barofsky said.

• Special Report on the Financial Crisis: Boom, Bust and Blame

"Treasury has indicated it will not require such disclosure," he added.

Because Treasury refuses to take SIGTARP's recommendations, Barofsky said TARP has become a program in which taxpayers are not told what companies are doing with bailout funds they get, don't know the value of their investments and can't assess how their money is used.

He implied that Treasury's bare-knuckled approach to denying taxpayers information was a threat to potential success of the bailout effort.

"In SIGTARP's view, the very credibility of TARP (and thus in large measure its chance of success) depends on whether Treasury will commit, in deed as in word, to operate TARP with the highest degree of transparency possible," Barofsky said.

In its last report in April, SIGTARP said Treasury's plan for purging toxic assets from banks' balance sheets was vulnerable to fraud and abuse. Barofsky said Treasury has adopted some of SIGTARP's suggestions, but not all.

In particular, he noted that Treasury refuses to impose informational barriers or "walls" between fund managers making investment decisions on the part of public-private partnerships and employees of the fund who manage non-PPIF funds.

Barofsky warned Treasury's reputation will suffer.

"Failure to impose a wall...will leave Treasury vulnerable to an accusation that has already been leveled against it—that Treasury is using TARP to pick winners and losers and that, by granting certain firms PPIF manager status, it is benefiting a chosen few at the expense of the dozens of firms that were rejected, of the market as a whole, and of the American taxpayer," Barofsky said.

SIGTARP was one of several oversight agencies set up to monitor the government-led bailout—with taxpayers' funds—of the nation's banking system in the wake of the bursting of a U.S. housing bubble and continuing difficulties with losses on recklessly made loans to so-called subprime borrowers who are still defaulting in huge numbers.

Separately on Monday, two U.S. economic policy makers said in a quarterly report they believe government actions helped stabilize the financial system and prevented a steeper deterioration in availability of credit in the three months between April and June.

But they said it remains hard to gauge the benefits of Treasury's actions during the crisis because of the combined effects of other government measures mixed with a general economic slowdown.

The report was written by the Financial Stability Oversight Board, which is led by Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner and the heads of the Securities and Exchange Commission, the Department of Housing and Urban Development, and the regulator that oversees government-controlled mortgage finance providers Fannie Mae and Freddie Mac.

Officials said tests of the capital cushions held by 19 of the largest banks in the United States had helped improve confidence in big banks and made it easier for them to raise capital.

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