WASHINGTON – A Treasury Department official said Wednesday that the financial regulatory law enacted last summer will help the government avoid future bailouts, deflecting criticism that those risks have grown since the financial crisis.
Timothy Massad, a senior Treasury official managing the $700 billion bailout, told a House panel that the law lets regulators impose tougher rules on big financial companies and shutter those that pose a threat.
Massad was disputing testimony from Inspector General Neil Barofsky, who has oversight authority over the bailout fund created at the height of the financial crisis in 2008.
Barofsky told the panel that the law won't end bailouts. He said Wall Street banks have grown since the crisis, so a single failure is more likely to threaten the financial system.
Barofsky cited comments by Treasury Secretary Timothy Geithner and other top regulators who suggested the government would rescue banks if one of them threatened the broader financial system.
Geithner said in an interview with Barofsky's staff last month that despite the tools included in the financial law, "we may have to do exceptional things again" to prevent a similar crisis.
Barofsky said the bailout fund, known as the Troubled Asset Relief Program, or TARP, is good financial shape and taxpayers are likely to recoup most or all of the money disbursed.
But Barofsky said there have been other costs related to the bailouts.
Barofsky added that policies enacted after the crisis failed to alter the view among investors and officials that bank bailouts would happen during a future crisis.
"Treasury has too much of a tunnel-vision focus on the financial cost" of TARP, Barofsky said. "These are very avoidable failures that account for some of the deep unpopularity of TARP."
Barofsky also criticized the administration's efforts to help homeowners avoid foreclosure.
As of November, about 774,000 homeowners had dropped out of the administration's main foreclosure-relief program. That's about 54 percent of the more than 1.4 million people who applied. The program had helped more than 500,000 homeowners permanently lower their monthly payments. Of the $50 billion originally set aside for the program, only about $1 billion has been spent, Barofsky said.
He said Treasury had failed to provide meaningful help for homeowners, which was one of the goals laid out in the bailout law.
"There's no way we're ever going to get close to the three to four million homeowners" that president Barack Obama said the program would help, Barofsky said.
Treasury has refused to set clear goals or say how many people it expects to help, Barofsky said, and that has made it difficult to oversee the program.
Barofsky and Massad testified before a hearing of the House Committee on Oversight and Government Reform. It was the committee's first hearing since Republicans took control of the House.
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