Bailout bill oversight within sight

Although weeks have past since the Program was approved and $290 billion of the first $350 billion has already been pledged, the President has announced his nomination: Neil Barofsky, Assistant United States Attorney in the Souther District of New York. Appearing before the Senate Finance Committee, Barofsky outlined his professional background and explained how he would utilize his position to bring about proper oversight.

“This past summer, our United States Attorney asked me to supervise a newly created Mortgage Fraud Group to respond to the havoc that mortgage fraud has caused to countless homeowners and lenders in our district...we attacked at the roots of those who have contribute significantly to the current housing and financial crisis through wholesale fraud of homeowners, lenders, and investors,” said Barofsky.

“‘[It] has given me the tools to identify the markers of fraud throughout the financial industry, the necessary expertise in investigating such frauds, and the experience of establishing a plan of attack on those committing these fraud.”

Committee member Senator Charles Schumer (D-N.Y.) elaborated on Barofsky’s previous experiences.

“Mr Barofsky demonstrated great personal bravery when he investigated the Revolutionary Armed Forces of Columbia, FARC, the narco-terrorist group that controls more than half the world’s annual cocaine production. He successfully indicted the FARC’s top 50 leaders at great risk to his own personal safety,” said Schumer.

Following Congress’s initial rejection of the Troubled Assets Relief Program, the bailout bill was subjected to numerous alterations. One important change was the addition of an inspector general to provide the program with oversight.

Barofsky described how he would bring his investigative experience to the position, stating “We will need to establish an investigative arm, which I can assure this committee will tirelessly investigate and refer for prosecution any individual or entity that tries to criminally profit from the Program.

Senator Jay Rockefeller (D-W.V.) warned that banks and those high up in financial institutions have ways of “slipping things by” and essentially asked if Barofsky would be a tough enough inspector general to provide proper oversight to which Barofsky responded, “I won’t give you empty words. Instead I’ll just point to my record and what I’ve done as a prosecutor in the Southern district of New York. Whether it was attacking the FARC in the jungles of Columbia or Refco on Wall Street, all I’ve done is to go after those who violated the law. And I will take that exact same tenacity and dedication to this job as I’ve done with every prosecution I’ve worked on.”

Bernanke: Second fiscal package would be appropriate

Federal Reserve Chairman Ben Bernanke raised the possibility of a second package of fiscal measures during a House Budget Committee hearing.

Bernanke believes that in the context of a threatened economy it would be appropriate, and suggested steps congress could take to make the package most beneficial.

"Any fiscal package should be well-targeted, in the sense of attempting to maximize the beneficial effects on spending and activity per dollar of increased federal expenditure or lost revenue," said Bernanke.

Bernanke also said that properly timing its release would be a factor so that it would take maximum effect when the economy is expected to be otherwise weak, and that Congress should take care to limit the package's long term effects on the government's structural budget deficit.

"If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit consumers, homebuyers, businesses, and other borrowers."

When prompted, Bernanke declined to state how much Congress should allocate for the package, but said that it should be significant.

Bernanke attributes the recent crisis to the erratic housing market, in which the increase in house prices was followed by a steady decline, coupled with a pattern of irresponsible lending practices.

To mitigate the crisis's impact, the Treasury Department and the Federal Reserve, along with foreign governments and their central banks, have expanded currency swap lines with central banks and established temporary programs to aid problems in in the market for commercial paper.

"The Treasury implemented a temporary grantee program for balances in money market mutual funds...the Federal Reserve put in place a temporary lending facility that provides financing for banks to purchase high-quality asset-backed commercial paper for money market funds," said Bernanke.

According to Bernanke, the bailout bill also offered resources to improve the current situation. These include providing capital to financial institutions, purchasing or guaranteeing troubled mortgages, and increasing the limits of how much the Federal Deposit Insurance Corporation and the National Credit Union Administration covers, raising it to a quarter of a million dollars.

Despite the attempts by the Federal Reserve and Treasury Department, it is apparent that the economy will not be mended overnight. Bernanke said that since the low demand for housing continues to be put up against the glut of unsold homes, residential construction is predicted to contract into next year and that the general downturn in international trade will continue to affect the U.S. Still, Bernanke contends that inflation should meet levels consistent with price stability due to the de-acceleration on the prices of imports.

"Because the time that will be needed for financial normalization and the effects of ongoing credit problems on the broader economy are difficult to judge, the uncertainty currently surrounding the economic outlook is unusually large," said Bernanke.

Following the hearing Representative Rosa L. DeLauro (D-Conn.) heatedly asked Bernanke if the U.S. was in a recession.

"I don't think it's a fair question for the following reason. Recession is a technical term that was created by academics for studying a certain pattern," said Bernanke.

Bernanke then went on to clarify his answer by responding,

"We are in a serious slowdown in the economy which has very significant consequences for the public and whether it is called a recession or not is of no consequence."

Hoyer: We are in the eye of the storm

House Majority Leader Steny Hoyer (D-Md.) likened the U.S. financial crisis to a hurricane saying that if any bailout bill passes the House it will be "the eye of the storm." He recalled the scenes of devastation left by the recent powerful storms Ike and Katrina, saying that if emergency bailout legislation does not pass there will be broad damage nationwide.

Hoyer began his regular sit down with reporters by summing up the changes made to the bailout bill since it failed to pass in the House on Monday. Hoyer said that the new bill had more transparency and oversight including a congressionally-appointed oversight board. There have also been taxpayer protections added to the legislation. One of these provisions will give equity in any potential payback to the residents of all states equally. There is also an outline for assessment of how the government-owned assets are doing in the market. After five years out, if these mortgages and mortgage-backed securities have not yielded significant returns a fee will be paid by the financial industry at large to cover the government's costs. Hoyer also reassured the press that the portions of struggling companies that the federal government plans to buy will not involve them in any voting on company boards, "We are not going to get into the business of the government running private companies," Hoyer said.

Hoyer said that while calls to his congressional office continue to have three to one of constituent callers against the bailout, the number has gone down from six to one early in the week. Hoyer said people saw the effect of the bill's failure on the state of the market. The significant loss caused people to recognize the downside of not passing some kind of financial intervention. "People saw on Monday the direct impact on them," he said. "Then the wind started to whip up on this hurricane."

The Democratic leader said he didn't expect a vote on this legislation until Friday, as he said there are still discussions of add-ons including increased unemployment insurance, which Republicans oppose. He said that the House continues to listen to constituents. "Most people say we need to act," Hoyer said. " But they are not sure what we need to do. Which would put them in the same position as the Congress."