April 21st, 2009
01:46 PM ET

Financial Dispatch: Bailout cop opens criminal investigations

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Andrew Torgan
CNN Financial News Producer

The top cop tracking the government's $700 billion bailout program says he has opened 20 criminal investigations and six audits into whether taxpayer dollars are being pilfered or wasted.

Neil Barofsky, the special inspector general overseeing the TARP, 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.

Barofsky, whose investigations could lead to criminal charges, says he wants taxpayers to understand where their money is going. At the same time, he wants to alert officials to weaknesses in TARP that could invite corruption or fraud.

Geithner grilled

A bailout oversight committee today asked Treasury Secretary Tim Geithner to explain the agency's handling of the controversial $700 billion bailout program.

Congressional Oversight Panel Chairwoman Elizabeth Warren, a Harvard University law professor, stressed the need for more transparency and accountability.

“People want to see action described in terms that make sense to them and that seem fair,” she said. “They want to see that taxpayer funds aren't being used to shield financial institutions from the consequences of their own actions.”

The hearing marked the first time Geithner has publicly appeared before the panel, which was established as part of the Troubled Asset Relief Program passed by Congress last October at the height of the global financial panic.

For his part, Geithner mounted his strongest defense of Treasury's actions over the past few months as the agency has become the target of several critical reports.

“We are not a private investment firm - we are the government of the United States. When we act, we don't do it for the benefit of those banks,” he said. “You can't look at ... the narrow prism of the transaction itself. You have to look at the broader benefit it takes.”

Toxic asset fallout could hit $4 trillion

The International Monetary Fund is raising its estimate of the amount of toxic assets that banks and financial institutions around the world will have to dispose of or write down to $4 trillion.

The IMF released information from its latest "Global Financial Stability Report" today saying its estimates for global write-downs has increased from $2.7 trillion in January to $4 trillion, partly as a result of including more types of assets that have been depreciating.

Previous estimates had only included U.S.-originated assets. Also contributing to the new estimates is what the IMF calls "the worsening base-case scenario for economic growth," a projection that the recovery will be painful and slow.

New loans for GM & Chrysler?

General Motors and Chrysler will reportedly get billions more in bailout money as the two automakers race to meet government-imposed deadlines to restructure.

Reports say the Obama Administration will make about $500 million available to Chrysler through the end of this month as it seeks to reach an alliance with Fiat, and up to $5 billion through May to help GM restructure outside of bankruptcy.

Separately, Chrysler Financial - the financing arm of the troubled car maker - turned down additional government funding this month because executives could not agree to new government-mandated limits on executive pay, according to a source familiar with the matter.

An official with Chrysler Financial tells CNN that the loan was turned down because the company “has determined that it has adequate private capital funding to cover the short-term needs of our dealers and customers and as such, no additional TARP funding is necessary at this time.”

The official also said that company executives “have not been presented with any new demands with regard to executive compensation.”

Earnings rule Wall Street

Despite a lower open, Stocks on Wall Street are starting to make some headway following the Dow's nearly 300-point tumble on Monday.

Investors are focused on a wave of corporate earnings reports illustrating the bad, the not-so-bad and the good.

Dow component Caterpillar reported its first loss in 17 years before the opening bell.

The world's largest maker of construction and mining equipment posted a loss of more than $110 million. Caterpillar was pushed into the red by more than $500 million in charges.

Merck posted a 57% drop in its first quarter profits.

That’s worse than analysts were expecting, and comes on the heels of a drop in sales of Zetia and Vytorin - two cholesterol drugs which Merck has partnered with Schering-Plough to market.

On the opposite side of the earnings spectrum, Dow component DuPont came out on the high end of expectations, even though its profits fell nearly 60%. The chemical maker also cut its full-year earnings outlook.

Delta Air Lines, while being hit hard by the global recession, was able to narrow its net loss to just under $800 million.

The carrier now hopes to generate $100 million annually by instituting a $50-dollar fee for a second checked bag on international flights. That charge will go into effect July 1.

And last but not least, Coca-Cola saw first quarter profits fall 10%, but still managed to meet Wall Street’s expectations.

The soft drink giant has been focusing more closely on its core Coke and Sprite brands due to a pullback in consumer spending.

Obama to pressure credit card CEOs

Finally, are the stars finally aligned for a Washington crackdown on credit cards?

President Obama on Thursday will attend a meeting of administration officials and card company executives. He’s expected to press CEOs to adopt practices designed to protect consumers.

Meanwhile, Congress is pushing ahead on legislation that in past years has been introduced - and even approved by the House - but that has never advanced very far.

But this year might be different. Many insiders on both sides of financial services issues say they expect legislation to ride the populist wave that swept Democrats into the White House and to Congress in greater numbers.

The bills would, among other things, ban card companies from abruptly jacking up interest rates and fees and prevent young adults from getting credit cards.

Filed under: Andrew Torgan • Economy • Finance • Wall St.
soundoff (17 Responses)
  1. Ed

    just curious. Could the reason that banks want to opt out of TARP funds now is that they want to be able to cash in on their golden parachutes , in addition to their prodigious salaries and bonuses, should their financial institutions be taken over or go bankrupt? To that end, perhaps a condition of returning TARP funds is that all golden parachute arrangements be null and void should bankruptsy or take-overs be done within 5 years

    April 21, 2009 at 7:42 pm |
  2. dina212

    That's a lot of case files open, and Obama doesn't want them to give the money back? Yikes. I am so disappointed that no one is even bringing up Electric Vehicles as potential income from GM & Co. The money that they are giving to GM is for what, exactly? Also why are they required to fire in order to get TARP. I thought retention was one of the main benefit for giving companies funds? Good point Myra.

    April 21, 2009 at 7:02 pm |
  3. JC- Los Angeles

    Mari, I usually don't concern myself with people like you, however, as a registered Independent who voted for Barack Obama and with our nation on the brink of collapse, it's paramount new leaders possess the ability to lead.

    Geithner and the Wall Street frat boys made a killing off mortgage fraud with the American public now paying the price for their egregious, myopic self interests.

    With little Timmy now planning on creating a Private/Public Investment Fund to get his colleagues paid a second time on the same mortgage fraud, it's border line criminal.

    April 21, 2009 at 7:01 pm |
  4. Annie Kate

    Credit card companies need to be brought into line – their gouging is horrible. I usually pay my credit card off each month but there are some months I have to carry over a small balance. When I got my main credit card it had an interest rate on it of 11 percent – that was good at the time when most cards were at 18% or higher. I changed my address from a post office box to my normal street address (wanted to save the money on the post office box). It wasn't a physical move but the credit card company considered it one and abruptly yanked my interest rate from 11% to 24%. Even when I called them and explained they did not cut it back.

    Credit cards should never be granted to young adults under the age of 21. With student loans and credit card debt the young adults are slaves to a paycheck before they even graduate. They deserve a better start than that.

    April 21, 2009 at 6:46 pm |
  5. Mark

    Can you tell me why all of theese companies needed money until the government put restictions on it and now they don't need it? Was it just a lie?

    April 21, 2009 at 5:40 pm |
  6. Mari

    @ JC ............. Geithner PAID his taxes ......... Google it. Geez you far-right people are always telling lies.

    We NEED tough new regulations! And we need the SEC to do its job!

    The Bush SEC was warned in 2007( as was Bush) about the Housing bubble, the bad mortgages being made, and they did ............. nothing!

    Also, the "betting" has to stop on Wall Street, beginning with the "short sellers" whose antics destroy good companies.

    April 21, 2009 at 5:38 pm |
  7. Jim M

    Sorry, Joe Murray, when has this country had bankers with "traditional" values ?

    Pre-regulation demise? When their greedy hands were tied?

    Pre-1929 Depression – with little if any regs?

    The Panics of 1907, 1893, 1873, 1857, 1837, 1819?

    April 21, 2009 at 4:53 pm |
  8. Anderson Cooper

    It is a shame that with TARP money we will still have the fox guarding the hen house and soon find we have few hens left. It was due to big mergers of banks and the corporate mentality, where hiring the least expensive salaried employees, Instead of bankers steeped in old traditional values.
    Joseph Murray

    April 21, 2009 at 4:12 pm |
  9. Jim M

    Two points:

    1. If Chrysler can find enough "private investors" to fulfill the needs of its credit division, let them sell stock and see if they can find private investors who have faith in their auto operations. Not more TARP funds.

    2. If the federal agenbcy overseeing credit unions can mandate a maximum 18% interest rate, isn't it time for the feds to take the same apporach with banks and credit card companies? If they cannot live on the return from a 18% max, let them be more selective on the distribution of their cards.

    April 21, 2009 at 4:07 pm |
  10. earle,florida

    Question? Has anybody ever gone to a county-fair para-mutual horse race? I'm assuming there are some of you out there,and I'm assuming most of you who had partaken in the gambling, lost your shorts! What's happening now with the TARP ,and Banking Industry is no different than a roving county-fair. The banks holding these bad (tier 3) assets (prized horses already sold to the foreign horsemeat market,when junket ends),and your tax money used to pay down their debt goes directly into the coffers(to keep them healthy) of the Banks! It's already happened when AIG paid Citigroup,Goldman Sachs,J.P. Morgan Chase more than 100% of CDS's and ABS's value which at most were only worth approx.70% because of "Time Valued Depreciation"! But, were working on it,and should have some tangible results in six months (internal investigation)? Yep, there are suckers born every second,and fleeced every nano-second with these clowns running the "Big Top"! Pathetic

    April 21, 2009 at 3:44 pm |
  11. Terry, TX

    Sorry they are the wrong people...Chris Dodd, Barney Franks, Geithner, Maxine Waters. Rep Clay, Rep Meeks, and Rep Davis are the ones to be charged. They started this mess with Fannie and Freddie. Geithner needs to resign and the rest of them need to be voted out....and anyone since jan 2009 who voted for the two Pork Bills and the Bailout. Enough of this distraction...next we will hear the preacher speech by Obama... outraged...anything to distract and cram more socialist agenda. I will be curious to see if I don't end in perpetual moderation.

    April 21, 2009 at 3:18 pm |
  12. Wrong Change

    What a shock! Fraud and waste when governments print money and throw it at the problems. Geithner and this whole idea are completely off base. No one is interested in serious change anymore, they just want to kick the can down the road a little further. Why accomplish today what you can put off till tomorrow? When are people going to wise up and vote out all the wasteful, self-serving, bureaucrats we have in office and bring in someone who is serious about cleaning up all this mess, regardless of how painful the truth is.

    April 21, 2009 at 2:52 pm |
  13. Patrick Bynum

    I think its a good idea for the Government to bailout Banks and the Auto industry, in order to save our country from going into a depression. The one thing I would have done differently is that I would have set it up as matching funds. As long as the Banks and car companies were lending I thing the government could have matched funds, with proof of sale, rather than just giving a ton of taxpayers dollars away without any accountability. Then again, I'm just a tax paying voter without a voice.

    April 21, 2009 at 2:45 pm |
  14. Isabel

    Government will help, again, Chrysler and GM.

    Will solve, this time?

    April 21, 2009 at 2:44 pm |
  15. David Duncan

    Question for Mr. Cheney regarding water-boarding. If his daughters were in the military and were captured, would he find it acceptable if they were subjected to water-boarding as part of their interrogation process.

    April 21, 2009 at 2:22 pm |
  16. JC- Los Angeles

    Mr. Barofsky should start his investigation with Timothy Geithner; not only does Geithner not pay taxes, his Private/Public Investment Fund is simply a scheme to get his Wall Street friends paid a second time on the same mortgage fraud that ruined the global economy.

    Geithner's friends at Bear Stearns, Lehman, AIG and the ilk who made a killing running the nation into the ground, will most likely reconvene and make up the "private" portion of Geithner's plan.

    It's as if Geithner is laundering mortgage fraud in plain site; you can't make this stuff up.

    April 21, 2009 at 2:17 pm |
  17. Myra Boyd

    It's about time someone was looking into it. When do we get to find out where the stupid money went anyway? Paulson tripped all over himself getting the first batch to give away, rapidly, with no accounting on it at all. All of it since then hasn't been watched too closely either from what it looks like. I swear, first year middle school math students could do a better job of handling money!

    April 21, 2009 at 2:00 pm |