Senator Grassley’s Oversight of the Troubled Asset Relief Program (TARP)

In October 2008, Congress passed the Emergency Economic Stabilization Act, authorizing the establishment of a fund to curb the financial crisis.  This program, known as the Troubled Asset Relief Program (TARP), was created to give the U.S. Treasury purchasing power of $700 billion to buy up mortgage-backed securities from institutions across the country, in an attempt to create liquidity and ease the flow of credit.  Instead, Treasury engaged in an erratic policy of picking winners and losers among companies connected directly, or even indirectly, to our financial markets, such as automakers.

Senator Grassley has conducted some of the most aggressive oversight of the government’s implementation of the financial bailout, including executive compensation, severance payouts, and documentation of how taxpayer dollars have been used.  Grassley worked to establish an independent inspector general to oversee the program and successfully strengthened the watchdog’s power when the program was altered after enactment.

This year, Grassley exposed the fact that General Motors “paid back” its taxpayer-funded loan with other taxpayer dollars from the government’s purchase of GM stock.  Contrary to an extensive public relations campaign by the automaker and Treasury Department that the bailout had been paid back “in full, with interest, ahead of schedule,” most of the government’s emergency loan to GM was converted to shares of stock during bankruptcy.  That money can only be recovered if the government can sell its shares of GM at significantly higher prices than it is currently estimated to be worth. 

Grassley also has voted many times to let TARP expire or block funds and co-sponsored legislation to end TARP.  A chronology of highlights follows:

September 25, 2008 -- Grassley formalized his call for a special office of inspector general to be established as part of any legislation that Congress considers for the financial system to scrutinize subsequent actions by the Treasury Department.  In a letter to congressional leaders signed by 32 senators, Grassley and Senator Max Baucus said, “Congress owes American taxpayers the strongest oversight possible – not just after the task begins, but as it is planned.”  Senators called for an inspector general office with the power to investigate, audit and issue subpoenas, along the lines of the Special Inspector General overseeing the Iraq reconstruction program. 

October 1, 2008 – Grassley pointed out that the TARP bill before the Senate included the core principles he wanted to see, unlike the original Treasury proposal.  Grassley said, “This bill is an improvement from the Treasury plan because there's transparency, oversight, and more protections for taxpayers.”  Improvements included a special inspector general, which Grassley pushed to include, and a Financial Stability Oversight Board responsible for reviewing the exercise of authority under the program.

January 28, 2009 – Grassley and Sen. Max Baucus introduced legislation to strengthen the ability of the Government Accountability Office -- the independent auditing arm of Congress -- to make its assessments every 60 days of TARP.  The bill would require any private entity that receives federal funds through the TARP to give the GAO access to its books and records.  Grassley said, “The original TARP legislation tells GAO to regularly report on the performance of the program, but it doesn’t require participants in the program to respond to requests for information from the GAO. The GAO’s hands are tied, and that’s not good for the taxpayers, who have so much at stake with the rescue effort. Our amendment gives GAO access to information, which means there will be greater transparency and accountability.”

January 30, 2009 -- Grassley urged the President’s director of management and budget to stop any efforts under way or excuses in the works to prevent the TARP special inspector general from initiating letters of inquiry to entities participating in TARP.  The Office of Management and Budget created red tape that prevented the inspector general from fully accessing items he needed to do his job.

February 10, 2009 -- Grassley wrote to the special inspector general, asking him to conduct an inquiry into the facts and circumstances surrounding the Treasury Department’s decisions to provide billions of taxpayer dollars to private financial institutions through the Troubled Asset Relief Program, the Capital Purchase Program, or through any other means. Press reports suggested that decisions about which institutions received federal money may have been influenced by political considerations, such as interventions by elected, appointed, or other officials, rather than objective criteria. Grassley was concerned that the public cannot have confidence in the integrity of the process for dispensing its tax dollars if it believes that government officials, for improper political purposes, are picking winners and/or losers in the marketplace.

March 23, 2009 -- Grassley wrote to the special inspector general, asking him to conduct an inquiry into the roles and actions, if any, the Department of the Treasury played in the decision by AIG to pay bonuses of more than $160 million to AIG employees. 

March 31, 2009 – Grassley spoke at the Finance Committee hearing “TARP Oversight: A Six Month Update” and urged the TARP special inspector general, whose position Grassley was instrumental in creating, to continue aggressive oversight.

April 24, 2009 – The President signed into law legislation from Grassley and Senator Claire McCaskill to significantly strengthen oversight of TARP by increasing the power and authority of the special inspector general.  The new law made clear the IG has authority over all actions taken under the relief plan; gave the IG the authority to hire auditors quickly by granting him temporary hiring authority; required the Treasury secretary to explain to Congress why any IG recommendations are not implemented; required that the IG issue a public report in September of 2009 to Congress analyzing how the program’s funds have been spent to date; and made funds for the IG immediately available to allow the IG to set up his office.

May 6, 2009 -- Grassley won Senate passage of his amendment to give the Government Accountability Office the authority to access information from the Federal Reserve about its bailout and financial stabilization efforts.  Senators voted 95 to 1 for Grassley’s initiative to increase transparency in government. 

May 20, 2009 – Grassley’s provision giving the Government Accountability Office the authority to access information from the Federal Reserve about its bailout and financial stabilization efforts became federal law as part of a housing bill.   Also enacted was the Grassley-Baucus bill to strengthen the ability of the Government Accountability Office to report on TARP by requiring any private entity that receives federal funds through TARP to give the GAO access to its books and records.

September 18, 2009 -- Grassley joined 39 Senate colleagues to send a letter to the Treasury secretary pushing him to allow TARP to expire at the end of the year.  Current law allows the Treasury Department to extend TARP authority for an additional nine months through October 3, 2010.

November 9, 2009 -- Grassley called on the Treasury secretary to require TARP participants to report on the actual use of TARP funds, after an October report to Congress from the special inspector general for TARP said the Treasury Department has failed to do so for all but three TARP recipients, despite the urging of the inspector general that it be done.

November 17, 2009 – Grassley joined Sen. John Thune and other colleagues to introduce the TARP Sunset Act of 2009.  The legislation had 21 cosponsors as of June 9, 2010.

November 20, 2009 -- Grassley sent a letter to the Department of the Treasury and the Federal Reserve regarding the special inspector general’s study titled, “Factors Affecting Efforts to Limit Payments to AIG Counterparties.”  Grassley was alarmed by the report’s findings that actions by the government left the American taxpayer with exposure to the risk of massive financial loss.  The inspector general report spelled out a lack of “basic transparency” regarding TARP loans to AIG.

December 10, 2009 -- Grassley said the Treasury Department has an obligation to track and disclose how TARP dollars are used.

December 24, 2009 -- Grassley wrote to the Treasury secretary asking why the 2009 AIG bonuses were not paid back, as promised, and expressing dismay that AIG was planning more bonuses for 2010 and Treasury was not doing anything to stop a second round of AIG bonuses.

January 15, 2010 -- Grassley sought a Congressional Budget Office analysis of the President’s proposed bank fee to repay taxpayers for TARP.

January 25, 2010 -- Grassley again wrote to the TARP special master for compensation, asking more questions about a multi-million severance package for an AIG executive, plus a second AIG executive.

February 2, 2010 – At a Finance Committee hearing, Grassley asked the Treasury secretary why AIG bonuses went out for two years in a row and why Treasury didn’t stop them.    Grassley said in a statement that more AIG bonuses showed the Administration had been outmaneuvered.

February 3, 2010 -- Grassley wrote to the Treasury secretary, seeking to learn whether some AIG bonuses were promised after the bailout began and asking why Treasury did not follow through on the President’s promise to pursue every legal means to recover the bonuses.

March 4, 2010 – Grassley released an analysis from the non-partisan Congressional Budget Office showing banks likely would pass the cost of a proposed bank tax to repay TARP on to their customers.

March 15, 2010 – Grassley praised the special inspector general for TARP for filing criminal charges against an individual for attempting to steal from TARP.  Grassley said the action showed the importance of having a special, independent TARP watchdog, which he was instrumental in creating.

March 23, 2010 – Grassley asked the special inspector general for TARP to investigate why the Treasury Department did not follow through on the mandate from Congress in last year’s stimulus bill to require that all TARP recipients, including AIG, meet appropriate standards for executive compensation.  A significant number of TARP dollars went to AIG.

April 28, 2010 – Grassley continued to peel back the layers of taxpayer obligations behind the prior week’s claim and fanfare about General Motors repaying its multi-billion dollar loan from TARP.  Grassley gave a speech on the Senate floor to release the response he received from the Treasury Department to his earlier inquiry.  The response confirmed that taxpayers funded the loan repayment by way of an escrow account containing taxpayer funds used to purchase GM stock.  Grassley’s work exposed the misrepresentation 

May 4, 2010 – At a Finance Committee hearing, Grassley continued to explore the impact of a proposed bank tax to repay taxpayers for TARP losses, expressing concern that the Democratic majority would use any bank tax proceeds for more spending rather than paying back taxpayers.

Grassley Votes to Allow Tarp to Expire or Block Funds

January 15, 2009 -- Grassley voted for a joint resolution to disapprove the use of the second $350 billion in TARP funds.

April 2, 2009 -- Grassley voted to prevent unbudgeted TARP funds from being used for other purposes.

April 2, 2009 -- Grassley voted to take $272 billion of unused TARP funding to reduce the deficit.

April 2, 2009 -- Grassley voted to prevent Chrysler and GM from getting more bailout funds.

May 4, 2009 -- Grassley voted to let well-capitalized banks pay back their TARP aid.

May 5, 2009 -- Grassley voted to prevent repaid TARP program funds from being recycled.

May 5, 2009 -- Grassley voted to prevent converting preferred shares bought under the TARP program to common stock.

July 29, 2009 -- Grassley voted to prevent any additional TARP funds from being used to aid GM or Chrysler, clarifying that the Treasury had a fiduciary duty to maximize taxpayer return on the aid, and required the government to give the taxpayers its common stock in those companies within one year of their emergency in bankruptcy.

August 6, 2009 -- Grassley voted to set a firm expiration date for TARP.