The Rogue Treasury


The U.S. Treasury took enormous powers for itself last fall by telling Congress they would use it to “ensure the economic well-being of Americans.” Six months after passage of the Emergency Economic Stabilization Act of 2008 Americans are worse off. Since it was signed into law on October 3, 2008, here are the changes in a few measures of our economic well-being:


Before TARP

So Far

National Unemployment



    Lowest state unemployment

3.3% (WY)

3.9% (WY)

    Highest state unemployment

9.3% (MI)

12% (MI)

National Foreclosure rate (per 5,000 homes)



    Lowest state foreclosure rate

< 1 in 7 states

< 1 in 6 states

    Highest state foreclosure rate        

68 (NV)

71 (NV)

Dow Jones Industrial Average



“Before TARP” figures are as close to October 3, 2008 as possible; “So Far” figures are most recent available, which varies by category from February through April. Unemployment and foreclosure rates by state are available at

The Troubled Asset Relief Program (TARP) was sold to Congress and the American public as an absolute necessity to save the American Dream of homeownership. Once the legislation was passed and the funds were released, however, Treasury decided to give the money to banks with no restrictions on its use – no monitoring, no reporting requirements, no nothing. We are worse off today than we were when the legislation was signed – and are likely to remain so when TARP has its first year birthday later this year.

Yet, the U.S. government has already paid out $2.9 trillion, with further commitments to raise the total to over $7 trillion – a number that Senator Max Baucus (D-MT) said “is mind-boggling, indeed it is surreal. It’s like having a second government.” The money Treasury is passing out is more than all government spending in 2008. The Senate Finance Committee, of which Baucus is chair, held a hearing on March 31 (TARP Oversight: A Six Month Update). The three parties established as monitors in the 2008 legislation were there to testify. Without exception they “are deeply troubled by the direction in which Treasury has gone.”

Senator Chuck Grassley (R-IA) suggested [referring to former-Secretary Paulson] that Congress “was awed by a person who comes off of Wall Street, making tens of millions of dollars. … You think he knows all the answers and when it’s all said and done you realize he didn’t know anything more about it than you did.”

As soon as Treasury got the money they decided to bailout big banks instead of helping homeowners with mortgages bigger than the market value of their homes. Since then, Paulson, Geithner, and Bernanke have refused to comply with demands to produce documents about the TARP recipients’ use of funds.

Neil Barofsky, Special Inspector General and the one monitor with authority to pursue criminal investigations, directly solicited information from the recipients of TARP funds – all over Treasury’s objections that it couldn’t be done. Barofsky received responses from all 532 recipients. He will be summarizing the findings, but so far knows that some banks used TARP funds to pay off their own debt (including at least one bank that used TARP funds to pay off a loan to another bank that also received TARP funds); some banks made loans they couldn’t otherwise have done. Some banks monitored the funds separately from their other assets; some co-mingled the money with no effort to separate, monitor or control what they did with the TARP bailout money.

Elizabeth Warren, Chair of the Congressional Oversight Panel, brought up the central issue: once Treasury decided not to bailout homeowners, what was the plan? “What is the strategy that Treasury is pursuing?” she asked. “We have asked this question over and over, with the notion that without a clearly articulated plan and methods to measure progress to goals, we cannot have good oversight.” Warren is still waiting for an answer. She also added that there is no bank in this country that would lend with a policy of “take the money and do what you want with it” – which is exactly what Treasury has done.

Senator Debbie Stabenow (D-MI) put it bluntly: auto manufacturers get reorganization (through bankruptcy) while banks get subsidization. One side is being held accountable for their past bad decisions and the other side has a total lack of accountability. Her bottom line: “If we don’t make things in this country, we won’t have an economy.”

Warren laid some of the blame with Congress, who “gave treasury significant discretion” but is unable to get real-time explanations for what is being done with the bailout money. There is no transparency when it comes to Treasury. “Without it, I’m afraid …. Congress and the American people have been cut out of the conversation”, she says. One group in Michigan is being asked to bear enormous pain and another group in New York is not – that’s the way Stabenow sees it and Warren agreed. The alternative offered by Warren is that either Congress manages to “get Treasury to get some religion and put standards in place” or Congress has to step in with new legislation.

Susanne Trimbath, Ph.D. is CEO and Chief Economist of STP Advisory Services. Her training in finance and economics began with editing briefing documents for the Economic Research Department of the Federal Reserve Bank of San Francisco. She worked in operations at depository trust and clearing corporations in San Francisco and New York, including Depository Trust Company, a subsidiary of DTCC; formerly, she was a Senior Research Economist studying capital markets at the Milken Institute. Her PhD in economics is from New York University. In addition to teaching economics and finance at New York University and University of Southern California (Marshall School of Business), Trimbath is co-author of Beyond Junk Bonds: Expanding High Yield Markets.