• Oversight: Monitoring the Costs and Results of EESA
  • December 18, 2008 | Author: Richard J. Firfer
  • Law Firm: Much Shelist Denenberg Ament & Rubenstein, P.C. - Chicago Office
  • As a measure of how much money has been committed by Congress to the Troubled Asset Relief Program (TARP), one needs only to compare that amount to the overall national debt, the limit of which has been raised by EESA to over $11 trillion. Although the $700 billion authorized under EESA is a very large number in absolute dollars, it represents less than 10 percent of the revised national debt limit. Thus, it is unlikely that the expenditures made by the Secretary under EESA will bankrupt the United States Treasury, and if those expenditures have the effect desired by Congress, history will judge that it was money well spent.
    In order to ensure appropriate transparency and oversight, EESA provides for the creation of the Office of Financial Stability (OFS) within the Treasury Department to oversee the immediate operation of TARP. The Comptroller General of the United States, however, is given ultimate oversight authority in order to measure how well TARP is achieving the principal purposes of EESA. In that regard, the Comptroller General is required to undertake a study to determine the extent to which leveraging and deleveraging of financial institutions was a factor behind the current financial crisis.

    EESA also created a Congressional Oversight Panel to review the current state of the financial markets and the regulatory system relating to those markets. The panel is required to report to Congress regularly on the Secretary's use of his expanded authority and the results, as well as the long-term costs and benefits to taxpayers. The panel is also required to submit a special report on suggested regulatory reform by January 20, 2009.

    With the exception of operating the OFS, all of the authority granted by TARP and its associated asset insurance program is scheduled to expire on December 31, 2009, unless the Secretary certifies to Congress that an extension (not more than two years after the date of enactment) is necessary, or unless EESA is further extended by Congress. The President is also given authority to appoint a Special Inspector General whose duty it would be to audit and investigate any programs established for the purpose of implementing TARP.

    In order to create additional checks and balances, EESA provides for establishment of the Financial Stability Oversight Board (FSOB). The FSOB will be responsible for reviewing the exercise of authority under any program developed in accordance with EESA, including policies implemented by the Secretary or the OFS, and the effects of such policies in regard to assisting American families in preserving home ownership, stabilizing financial markets and protecting taxpayers. The FSOB can also make recommendations regarding the use of the Secretary's authority under EESA, and would be obligated to report any suspected fraud or malfeasance. Members of the FSOB would include the Secretary of the Treasury, the Chairman of the Federal Reserve, the Secretary of Housing and Urban Development, the Director of the Federal Housing Finance Agency and the Chairman of the Securities and Exchange Commission. The FSOB would also have the authority to appoint a credit review committee to evaluate the exercise of the purchase authority provided by EESA.

    In addition to a 90-day report relating to government guaranties under TARP, the Secretary must provide to Congress within 60 days after the enactment of EESA an overview of the actions he has taken. That overview must include the total amount of the obligations incurred and the expenditures made under the programs he has established, together with a detailed financial statement relating to, among other things, all agreements, insurance contracts and transactions entered into in connection with such programs. The Secretary will also be required to give further tranche reports regarding these transactions and their effects after every $50 billion of spending under EESA. Furthermore, prior to April 30, 2009, the Secretary must give to Congress a "Regulatory Modernization Report" that reviews the then-current state of the financial markets and the regulatory system that monitors and stabilizes those markets, with an eye toward gauging the system’s effectiveness.

    All in all, it appears that the federal government, with help from some of our global economic partners, has fashioned an excellent plan for preventing a worldwide financial Armageddon. It is too early to tell, however, if all institutions participating in the various programs can be trusted to diligently carry out their mandates and get the money flowing into the right hands. If they are successful, then within the next year or two, this entire episode should begin to fall into our rearview mirror and the next upcycle of the resilient U.S. economy can begin.