[Congressional Record (Bound Edition), Volume 155 (2009), Part 17]
[House]
[Page 23584]
[From the U.S. Government Publishing Office, www.gpo.gov]




                FEDERAL REGULATORS MISLED DURING BAILOUT

  The SPEAKER pro tempore. The Chair recognizes the gentleman from 
Florida (Mr. Stearns) for 5 minutes.
  Mr. STEARNS. Mr. Speaker, I rise this morning to address my concerns 
as a result of the Special Inspector General for the Troubled Asset 
Relief Program's audit of the capital injections provided to Bank of 
America and other major banks through the taxpayer-funded TARP program.
  Neil Barofsky, the Special Inspector General for the TARP, revealed 
yesterday in his official report that high-ranking Federal officials, 
including former Treasury Secretary Henry Paulson and current Federal 
Reserve Chairman Ben Bernanke, misled the American people about the 
true financial state of Bank of America and eight other initial TARP 
recipients that received over $125 billion in this bailout.
  We were told last October that the Treasury Department needed over 
$700 billion, along with unprecedented and vast new authority, in order 
to stave off a total collapse of our financial system. They were going 
to buy the so-called toxic loans. Ten days later, after the bill 
passed, they changed their strategy and decided to give TARP funds to 
financial institutions.
  We were told last October that this $700 billion would enable the 
Secretary of Treasury to go and restore liquidity and stability and to 
our financial system through a series of capital injections into these 
financial institutions. And, most importantly, we were told last 
October that the Federal Government was going to inject this money into 
``healthy'' financial institutions under the rationale that propping up 
these ``healthy'' banks would enable them to lend money and unfreeze 
the credit market so that none of the other major banks and private 
financial institutions would collapse. Almost exactly a year later, we 
have found out that the American people were not given the full truth.
  The nine initial TARP recipients, which received $125 billion in TARP 
funds, were actually not the stable, healthy institutions that Mr. 
Paulson and Mr. Bernanke claimed they were. And, as we all well know 
today, none of these institutions were able to increase their lending 
activities.

                              {time}  1245

  Bank of America and Citigroup, in particular, actually ended up 
needing billions more in bailout money than they were initially given. 
Meanwhile, struggling financial institutions such as Merrill Lynch, 
which was on the verge of collapse months before the enactment of TARP, 
were largely ignored until the now infamous and coerced acquisition of 
Merrill Lynch by the not-so-healthy Bank of America.
  Neil Barofsky's audit blankly states that ``By stating expressly that 
the 'healthy' institutions would be able to increase overall lending, 
Treasury may have created unrealistic expectations about the 
institutions' condition and their ability to increase lending.'' The 
Federal Reserve, along with the Federal Deposit Insurance Corporation, 
also described the nine original TARP recipients as ``healthy.'' 
Privately, however, other Federal regulators and government officials 
were concerned that some of these institutions were actually in a state 
of near financial collapse, bankruptcy. These institutions collectively 
held more than $11 trillion in banking assets, or about 75 percent of 
total U.S. bank assets, as of mid 2008.
  Special Inspector General Neil Barofsky's audit concludes that 
``government officials should be particularly careful, even in a time 
of crisis, of describing their actions in an accurate manner'' and that 
``inaccurate statements could have unintended long-term consequences 
that could damage the trust that the American people have in their 
government.'' Unfortunately, the real damage has already been done. The 
American people continually put their trust in high-ranking Federal 
officials to do what is best for the good of the people in our country. 
However, the reality is that most Americans, including the majority of 
my constituents in the Sixth Congressional District of Florida, were 
already and still continue to be outraged by the $700 billion bailout 
of Wall Street.
  Finding out that they were also misled about the rationale and the 
criteria in which the Treasury Department, the Federal Reserve and 
other Federal regulators selected Bank of America and eight other 
institutions to be the first recipients of taxpayer-funded TARP money 
does nothing to lessen the concern or infuse confidence into the future 
decision surrounding financial regulatory reform. Many Americans these 
days feel like Washington is the problem, not the solution. This is an 
unfortunate perception that must be changed. Trust in our Federal 
regulators must be restored in the American people's minds for, as 
Thomas Jefferson once said, ``Follow truth as the only safe guide and 
eschew error, which bewilders us in one false consequence after 
another.''

                          ____________________