Corruption risk in $750 billion US bailout

By Michael Sidwell

  
US federal investigators have opened 20 criminal probes into possible securities fraud, tax violations, insider trading and other crimes by recipients of the US $750-billion financial bailout programme, reports the LA Times. 


“The cases represent only the first wave of investigations, and the total fraud could ultimately reach into the tens of billions of dollars,” said Neil Barofsky, the special inspector general overseeing the Troubled Asset Relief Program, according to the article. 

Barofsky’s office has released a 250-page report “detailing a long list of concerns about government efforts to prop up hundreds of banks, Wall Street firms and auto companies,” writes CNN. 

In a series of recommendations, the report calls on the Treasury Department for greater transparency and greater fraud protections. 

"Our recommendations are forward looking and there are no vulnerabilities that can't be addressed," Barofsky said. "The balance of what we're trying to do is to inform, bring transparency and make appropriate recommendations" (CNN). 

According to Barofsky, the Treasury “should dispense with rating agency determinations” on mortgage-backed securities, which lay at the root of the financial crisis, and should instead screen each security to assess its value, reports the FT. 

In addition, Barofsky also urges federal officials to create safeguards that prevent conflicts of interest arising among banks and investors participating in the new Public- Private Investment Program to stop "collusion between participants, and vulnerabilities to money laundering” (CNN). 

The report illustrates the complexity of the US bailout programme. “What started out in October as a [US] $750-billion effort only to buy toxic securities has morphed into 12 separate programs that cover up to [US] $3 trillion in direct spending, loans and loan guarantees -- an amount roughly equal to the annual federal budget,” reports the LA Times. 

The inspector general's office is now conducting six audits, “including one on whether recent bonus payments to American International Group employees complied with government aid conditions and whether Treasury was aware of the full range of compensation plans at the company,” notes Reuters.