TARP Congressional Oversight Panel Report

When it passed the TARP Bill authorising the Treasury Department to spend €700 billion to stabilise the US financial sector, Congress set up a Congressional Oversight Panel (COP) to oversee how the TARP money was spent. The COP is chaired by Elizabeth Warren, a law professsor from Harvard and has held regular hearings and issued monthly reports. This month’s report is “Taking Stock: What Has The Troubled Asset Relief Program Achieved?”

I bring this report to your attention for two reasons. Firstly, the COP report is a comprehensive and authoritative discussion of how the US government responded to the financial crisis and, since you’re sufficiently nerdy to already be reading this website, chances are it’s the kind of thing you’ll find interesting. Because its reports are long and sometimes a bit technical, Professor Warren also releases YouTube videos introducing them. These videos are a model of how to communicate complex economic ideas to the general public in a clear and unpatronising manner.

Secondly, in relation to NAMA, it is highly instructive to see how much independent oversight the TARP program is getting. The TARP funds represented about 5 percent of US Gross Domestic Product. In comparison, the estimated NAMA outlay of €54 billion which represents almost exactly one-third of Irish GDP as of the budget’s 2010 forecast. However, it appears to be highly unlikely that NAMA’s operations will be exposed to anything like the level of scrutiny that Professor Warren’s committee has brought to bear on TARP.

I seem to recall Minister Lenihan criticising those who wanted more oversight on the grounds that these demands suggested the opposition didn’t have faith in the staff or board of NAMA. To be honest, given the amount of economic mismanagement this country has had over the years, I think this lack of faith would be pretty well placed. But even if one did have faith, it seems perfectly appropriate  that a plan to spend €54 billion should involve a few million spent on a thorough independent oversight.

22 thoughts on “TARP Congressional Oversight Panel Report”

  1. @Karl Whelan
    I can’t think of why we shouldn’t completely trust what the minister says. Oh wait, I can. As quoted in an old post of yours:

    http://www.irishtimes.com/newspaper/finance/2008/1024/1224715115776.html

    “MINISTER FOR Finance Brian Lenihan has said the bank guarantee scheme was “a necessary first step” and “the cheapest bailout in the world so far”.

    Mr Lenihan said the guarantee was “the cheapest bailout” compared with bank rescues in other countries, including the UK and the US, where….
    wait for it…..
    “billions and billions of taxpayers’ money are being poured into financial institutions”.” It’s the way he tells them.
    Letting FF establish NAMA is like letting mice establish a cheese factory. You cannot have too many checks and balances. Instead Vader has tried to cover up the process as much as possible. Vader repeatedly told us how open to amendments he was. Then he swatted them all away with his red light sabre, or used his evil powers to crush them into insignificance.
    He deliberately started with the least possible transparency and then gradually released a few token concessions. The problem isn’t our lack of faith – it’s his total bad faith. NAMA is well on course to losing €60 Billion on property loans only, as forecast by Morgan Kelly.

  2. “Because its reports are long and sometimes a bit technical, Professor Warren also releases YouTube videos introducing them. These videos are a model of how to communicate complex economic ideas to the general public in a clear and unpatronising manner.”

    I was looking at a weighty hardback monograph called ‘Tracings’ about the American architect Peter Eisenmann today. One of the things about Eisenmann, is he is a mathematian and an architect. He was also a tutor in university in the US and apparently ‘destroyed’ many a good student. Frank Gehry once describes how he hired a student of Eisenmann’s once and he found the young man to be very perplexed and un-comfortable with his chosen design profession. Eisenmann had spent 5 years preaching to his students, that all architecture comes back to basics – the circle and the line. Gehry had to work hard with this young man, because he had got so caught up in thinking about mathematics and architecture, the young man could no longer draw either a circle or a line!

    While I was flicking through this heavy hardback monograph today about Peter Eisenmann, I could see that many of his building projects do involve adventures into non-linear, algebraic equations and complex forms. One of the buildings featured was the ‘Cardinals’ football stadium which is shaped like a rattlesnake as it sits on the ground. But I remember seeing a ‘Discovery Channel’ documentary about this project a while back. You know what? The discovery channel documentary at least gave you some clue of what it was all about, the project.

    But I remember back in the days when I was a student all we had to go on was this awful heavy weight hard back monographs with static pictures and text. No moving pictures, no interviews with the real designer, nothing. When I think about it now, I am delighted for people growing up with much better multi-media available to them. I had to laugh once, listening to a discussion about the Gratefull Dead ‘trips’ festivals in San Francisco. Someone said, you aren’t meant to try and describe verbally anything about your trip. The famous quote was, talking about taking LSD is like Dancing about Architecture.

  3. I can’t resist telling the story about the father of Java programming language as I am at it.

    James Gosling had been thinking about a language to scale up to the future demands, when people and work became widely dispersed and networked. One evening while sitting at a Doobie brothers concert, he was listening to the music and there was this big ‘lighting feature’ around the stage which flashed on and off in synchronisation with the music. It was then it struck James Gosling what was required of a programming language. It had to be able to scale so that every device was part of the network, including one’s kitchen toaster. Gosling tells the story of how he made ‘a lot of big breakthroughs’ in his thinking as he sat there listening to the music and watching the bright lights.

  4. “But even if one did have faith, it seems perfectly appropriate that a plan to spend €54 billion should involve a few million spent on a thorough independent oversight.”

    Karl,

    This point is well made indeed.

    At the height of the Celtic Tiger bubble, a lot of international engineering and architectural consultants started to ‘land on our shores’. I remember at the Anglo Irish headquarters in the Dublin Docklands for instance, the idea was to do preliminary ‘modelling’ of the structure to understand its design better from a fire emergency point of view.

    This is standard procedure for large buildings in places such as Dubai. But no way in the world was the foreign consultant going to ever convince us Paddies we needed fancy over sight. The fact is, the consultancy may have cost 100k but saved 1m. It is funny, the builders involved would fit over 10 euro. But psychologically, it felt extravagant in the extreme to spend 100k on preliminary models to claw back 10x savings.

    There is something you might have an answer for Karl. I always do enjoy reading Charlie Fell’s article in the Irish Times. His recent one on Dubai also.

    http://www.irishtimes.com/newspaper/finance/2009/1204/1224260031516.html

    My question is this. Ireland has not built anything like the scale of construction that Dubai undertook. Heck, we have a half complete Anglo head quarters and a poisoned field worth €400 million to show for our efforts. And oh yeah, a slogan from DDDA that we were the ‘biggest construction site in Europe’.

    But Dubai’s problems seem to be more manage-able than our own. Obviously I am reading something wrong here. But how did Ireland manage to clock up so much bad loans and have so little to show for it? I was walking through Fitzwilliam Square today and I have to admit, I went out of my way just to do that. Walking through that square always adds a spring to my step. It deservedly commands good rents. We still have nothing to compete after a disasterous building boom.

    I believe the ‘model’ for those old Georgian Squares was to basically set up a square amenity space and sell off plots at a time. Gradually the ‘square’ as it were got completed in different stages, by different builders and developers etc. Like in a lot of things, if you keep the basic plan straightforward. Just implement a basic over-arching rule, and allow people to get on with it. What is so difficult about this, that we cannot seem to get right today? With all of the computers, professionals and number crunching we have to do?

  5. @Karl Whelan
    Here is an interesting comparison for NAMA. NAMA’s cost per Morgan Kelly was 25% of GDP. But is there something worse? How does it compare to German war reparations after WW1:

    “Initial reparation demands from Germany were close to 200% of GDP, but quickly lowered to around 85%.”
    http://www.voxeu.org/index.php?q=node/2549

    Another source says 83%.
    http://www.aeaweb.org/annual_mtg_papers/2007/0105_1015_1004.pdf

    So, the cost of NAMA is 30% of the German reparations after losing WW1.
    Now that makes me wonder. Could Brian Lenihan have sold the Versailles Treaty to the German public as a great victory?

  6. “1 Chronology of the Financial Crisis

    The global financial crisis that culminated in intervention by the United States and other industrialized countries to rescue their banking systems was largely the result of an asset bubble in housing, driven in part by the relatively low cost of credit. U.S. housing prices reached their high point in mid-2006. At the market’s peak, the average cost of a home was more than twice what it had been just six and a half years earlier, a remarkable annual growth rate of nearly 12 percent. Housing construction had likewise surged to an unsustainable annual rate of 2.15 million new privately owned units, and by 2006 unsold inventory began to pile up. Then house prices began to ebb. The decline was initially not dramatic – prices fell by less than 3 percent over the next 12 months. But it was enough to undermine a key assumption behind the financial instruments that provided much of the support for the U.S. housing bubble – that housing prices never go down, at least not on a sustained nationwide basis.”

    I suppose there’s no chance that we could have a Congressional Oversight Panel?

    The panel is required to report their findings to Congress every 30 days.

    Of course not, silly me, we don’t have a Congress.

    We (unlike those thick Americans) are a Republic.

    We have an Oireachtas.

    Now, remind me. When does NAMA next report to the Oireachtas?

    Is there any chance at all that we can have independent oversight?

    Or is the Minister exercising his role as a “corporate sole” without the need to refer to the grubby peasants who elected him.

  7. @ 4:20 Warren, on the video, gives a plain explanation of moral hazard.

    How much amoral behaviour has the Irish Government encouraged by guarantying €450bn of liabilities of bankrupt financial institutions in Ireland?

    We have absolutely no idea what risky games they are playing in the derivatives casino.

    They don’t care any more whether they win or lose. The Government is going to bail them out.

    They will all get their bonuses and pensions and say “it was the market gov, not our fault”

    It is a crime against the Republic to continue to back Anglo Irish and Irish Nationwide.

    They should be liquidated and bondholders be damned.

  8. Lack of accountability is basic to all frauds. Power corrupts … especially with large sums to disburse and knowing that the government cannot afford to have a whiff of scandal about NAMA! Talk about setting things up?

    I remember a little scandal called pick me ups, does anyone else? Political gangs would launder public money into certain private contractors like printers and advertizing agencies. These would then do work for the gangs and hire the odd son or odder daughter of gang members and channel payments to other entities controlled by gang members. A fine scam. Revenue found out because we had not been memoed not to look at these launderers, unlike the banks!. They had been fiddling the VAT as a subsidy to the scheme!

    It made the papers? How much is to gom on contracting fees? 4,200,000,000? I hope some of our friendly shills on this site get their cut!? One thing is for sure, the political parties/gangs will do well out of Nama! I suspect the Revenue memoes will be sent this time, so do not expect that this will be discovered by tax inspectors!

  9. @ Karl

    “you’re sufficiently nerdy to already be reading this website”

    I take great offence to that. I’m not saying its not true, im just saying i take great offence…

  10. @ Pat Donnelly

    “Power corrupts …” Lord Acton?

    “And remember, where you have a concentration of power in a few hands, all too frequently men with the mentality of gangsters get control. History has proven that. All power corrupts; absolute power corrupts absolutely.”

    “The one pervading evil of democracy is the tyranny of the majority, or rather of that party, not always the majority, that succeeds, by force or fraud, in carrying elections.”

    “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.”

    “The danger is not that a particular class is unfit to govern: every class is unfit to govern.”

    “There is no error so monstrous that it fails to find defenders among the ablest men.” NAMA?

    I love the internetwebbythingy.

  11. Likewise for the Yale / Geanakoplos link.

    http://www.youtube.com/watch?v=ilApxQjhs_s

    That could do with a separate thread.

    Did you catch the Bill Moyers interview of William black?

    http://www.pbs.org/moyers/journal/04032009/watch.html

    I think it is disappointing that RTE’s economic and political offerings are straight jacketed by a misplaced devotion to “balance” which results in a repeating loop of the Punch & Judy show of narrow Irish politics.

    But then maybe we don’t have a William Black.

  12. @ Brian O’Hanlon

    Of course I is not just that the US has Warren heading up the Congressional Oversight Panel the also have Barofsky heading up The Office of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”).

    http://www.youtube.com/watch?v=BvwKzF6TLKo

    I wouldn’t suggest that the US oversight response is perfect by any stretch but they do have COP and SIGTARP.

    What have we got for NAMA? Basically nothing and that had to be extracted from Lenihan like an abscessed tooth.

    How fungible will the NAMA money be?

  13. @ Greg,

    I must catch up on this William Black fellow. Your comment on the RTE coverage is also well made. I know exactly what you mean. There is a straight jacket with regard to debate. Having listened to 12 months of debate in the media about public versus private, I have wondered is there another way to approach debate, if for no better reason than to avoid the discussion going stale completely.

    Hence, what I was aiming to talk about here:

    http://www.irisheconomy.ie/index.php/2009/12/11/if-it-were-done-when-tis-done-then-twere-well-it-were-done-quickly/#comment-27965

  14. What you are saying about RTE’s attempt to keep the discussion balanced in interesting. If you want a very good reference on this, check out Daniel Goleman’s chapter in his book, The New Leader, about ‘six leadership styles’.

    It is funny, in the many projects and project managers I have worked with, a very common fault was (1) too much towards command and control, which works some of the time, but not all. (2) Too democratic, which has the draw back of keeping everyone happy, but progress become torturous.

    Goleman makes a very sensible observation, the best leaders of all learn to combine the several styles together into their own unique mix. A quick run down through the types here.

    http://changingminds.org/disciplines/leadership/styles/six_emotional_styles.htm

  15. One more comment. I have to admit I do read down through Goleman’s six styles in the chapter in his book from time to time. It help’s me a lot to re-evaluate situations and the kinds of people I am working with. In an objective fashion, without thinking about personalities. Sometimes the dynamic of the team you are in can change radically in a short space of time, and it can catch you un-awares. That is not good in my opinion. One should always try to have a realistic perception of the strengths of the team that work around you.

    Reading through Goleman’s six styles described in the above link, something did strike me as important in the context of the ‘Irish Economy’ website and discussion(s). If I think back on all of the newspapers and articles I have read in the past 12 months, one thing does jump out at me. Ireland as a nation, in many different arenas seems to have cried out for the ‘command and control’ style of leadership. There has been undue emphasis given to that kind of leadership style – which is understandable given our perceived perdicament.

    However, where Goleman’s writing is so valuable (I am not an expert I have to admit on his ’emotional intelligence’ concept) is standing back from the situation. By focussing exclusively on this one style of leadership, Ireland as a nation is running a real risk of ignoring at least 5/6’s of the entire picture, in how we manage and re-build. There is grave risk in that. As the ‘useful-ness’ of the ‘command and control’ leader runs out shortly after the ‘crisis’ situation has abatted.

  16. BTW, Greg. If you have time look at a video featuring Peter Schiff speaking to the ‘Western Regional Mortgage Bankers Association’ in 2006. A lot of the audience present were based in the Phoenix area and possibly in California also. Peter Schiff really didn’t hold back on that occasion.

    But notice again, how much the ‘command and control’ type of character seems to come to the fore and be particularly suited to crisis/bubble/bust situations like we are living through. There was a second speaker who is not even mentioned, but who seems like a very well educated professor, with a great range of knowledge and awareness presenting the ‘up-side’ at the same event.

    This is what I mean. At the moment, those people who can come in and take strong control over a panic type situation are appreciated at the moment. But there has to be a lot more to the equation than that. Ms Warren working with the COP appears to have a great range of awareness and capacity to understand. It is nice to listen to someone discuss matters in so straight forward a manner.

    Much appreciate the link that Karl Whelan gave in the original post above.

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