The government's $700 billion bailout of the financial system helped prevent an all-out panic last fall but hasn't met many of the targets Congress set out, a watchdog panel says.
"Congress set goals for (the bailouts) that went well beyond short-term financial stability, and by that measure problems remain," said panel chair and Harvard Law school professor Elizabeth Warren.
The programs funded by the bailout — including bank capital injections, foreclosure relief and automaker rescues — were uneven in their success, the panel says. But it also noted that there is broad consensus that the programs helped avert a possible economic calamity.
The findings are part of a sweeping review of a year's work by the panel Congress created to oversee the Troubled Asset Relief Program, or TARP. It discusses the relative strengths of the diverse programs funded by TARP and evaluates them against standards Congress set.
The Treasury Department said in a statement that "by every measure, TARP has succeeded in achieving its primary goal of economic stabilization."
"Confidence in our financial system has improved, access to credit is increasing, and the economy is growing. The government is exiting from its emergency financial policies and taxpayers are being repaid," Treasury said. "Indeed, the ultimate cost of those policies is likely to be significantly lower than previously expected."
But the panel's report points to ongoing problems in the financial system as evidence that the bailouts did not address every concern Congress laid out.
Among the problems: Limited credit, ongoing bank failures, continued weakness at some large banks, escalating job losses and foreclosures and the banking system's continued reliance on government support.
TARP has gone through several iterations, it says, beginning as a program to purchase toxic assets from troubled banks, morphing into a capital injection effort, then becoming a source of funds for homeowners at risk of foreclosure and automakers on the brink of collapse.
Responding to the panel's report, the Treasury Department agreed that unemployment and foreclosure rates remain high, while access to credit for small businesses is limited. "For this reason, the focus of TARP now is on responsible homeowners and small businesses," it said. "Improvement in these areas will take some time and our job is not done."
As it has every month since its first report last December, the panel called on Treasury to make its decision-making and actions more transparent.
"Despite the difficult circumstances under which many decisions have been made, those decisions must be clearly explained to the American people, and the officials who make them must be held accountable for their actions," said the panel.
Texas Rep. Jeb Hensarling, the only Republican on the panel, voted not to approve its report. In separate comments, he wrote that TARP bailed out failing and non-financial firms, was unsuccessful in stemming the foreclosure crisis and politicized decisions that should have been purely economic.
"TARP is failing its mandate," Hensarling wrote. "It is difficult to conclude that Treasury has diligently discharged its taxpayer protection obligation."
The panel is one of three oversight mechanisms Congress built into the financial bailout legislation. The law also created a Special Inspector General for the programs and authorized regular audits by the Government Accountability Office.
Warren gained prominence as an early voice questioning whether Treasury was providing enough transparency as it doled out the bailout money. She also was the first to propose creating a new agency to protect consumers against abuse by lenders and other financial enterprises. Mortgage brokers, payday lenders and other companies offering high-risk loans faced little regulation in the run-up to the mortgage and financial crises.
Legislation to create a consumer financial protection agency is working its way through Congress.
Treasury Secretary Timothy Geithner can extend the $700 billion program beyond the end of the year, but Republicans have said that authority should be taken away, arguing that some $300 billion has been unused or returned and the money should be used to reduce the deficit rather than fund new programs.