Treasury Defends Bailout Response

The Treasury Department is defending its management of the $700 billion bailout fund, amid criticisms about confusing shifts in strategy and deficiencies in tracking how the money is being used.
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The Treasury Department is defending its management of the $700 billion bailout fund, amid criticisms about confusing shifts in strategy and deficiencies in tracking how the money is being used.

Writing in response to requests by the Congressional Oversight Panel for clarification of the Troubled Assets Relief Program's goals and achievements, Treasury issued a point-by-point justification of its intervention in the financial markets.

The document provided details of the deterioration in credit markets that the Treasury said required a shift in policy away from buying troubled assets and toward taking equity stakes in U.S. financial institutions.

In the report, however, Treasury acknowledges that it is not easy to assess the impact its equity investments in banks have had. Comparisons among individual financial firms are difficult and it is hard to keep track of the allocations of its funds within a given institution.

"Nonetheless, Treasury is working with the banking regulators to develop appropriate measurements and Treasury is focused on determining the extent to which the

Capital Purchase Program is having its desired effect," the report said.

Institutions participating in the TARP's Capital Purchase Program include

JPMorgan Chase

(JPM) - Get Report

,

Bank of America

(BAC) - Get Report

,

Goldman Sachs

(GS) - Get Report

,

Morgan Stanley

(MS) - Get Report

,

Citigroup

(C) - Get Report

and

Wells Fargo

(WFC) - Get Report

.

The Treasury stressed in its report that the TARP has significantly diminished the risk of failure for systemically significant financial firms. Since September, the financial system has been rocked by the government takeover of

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

, the purchase of

Merrill Lynch

by BofA, a bankruptcy filing by

Lehman Brothers

and an $85 billion line of credit to ailing insurance giant

AIG

(AIG) - Get Report

.

The Treasury also said that its actions to stabilize credit markets will provide significant benefits to Americans who rely on debt to finance business operations as well as day-to-day purchases. The agency also said it expects that its equity investments in the financial sector will yield a positive return on taxpayer funds.

The department insisted the program is helping to stabilize the financial system, but acknowledges it will take time for conditions to return to normal.

The report says: "We have made significant progress, but there is no single action the federal government can take to end the financial market turmoil and the economic downturn."

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