The federal government's controversial rescue plan for the nation's financial sector took some additional knocks Friday and appears headed for some revisions.
Incoming Obama administration officials and Democrats in the House intend to change the $700 billion program so it provides more help for struggling homeowners and more accountability for how the rest of the money — about $350 billion — is spent.
Criticisms of the huge financial rescue package flared within weeks of its passage last fall.
First, Treasury Secretary Paulson changed the focus of the program, moving away from buying up toxic mortgage-backed securities in favor of injecting hundreds of billions of dollars of capital into the nation's banks.
Some lawmakers called it a bait-and-switch ploy and also complained that no funds from the Troubled Asset Relief Program (TARP) were being used to help homeowners avoid foreclosures.
Friday, a TARP Oversight Panel released its first substantial report on the rescue program.
It too was critical.
Harvard law professor Elizabeth Warren, the panel's chair, said that among other things, the panel was concerned that the Treasury Department had no systems in place to see if banks were actually using the government's money to make new loans.
"It's not a claim the money has been used wrong," Warren said. "It's a claim that the money is not being accounted for properly. If you're going to use American taxpayer money, American taxpayers have a right to know how you're using it and why you're using it that way. ... You can't evaluate if you can't see what's happening."
Warren's panel was also highly critical of the Bush administration's decision not to use the TARP money to help homeowners facing foreclosure.
"These are huge numbers and we have to remember it's not only the families that go into foreclosures, it's their neighbors, it's their communities, it's everybody in the construction industry. The echo effects of having that kind of foreclosure rate is just staggering for the whole economy."
Even as Warren was making those criticisms on CNN, Rep. Barney Frank, the Massachusetts Democrat who chairs the House Banking Committee, was appearing on Capitol Hill to tell reporters about a bill to revise and strengthen the TARP.
"I mean a lot of what we're talking about is making them do, or having them agree to do, what we talked about in the original bill," Frank said.
Frank echoed the two main criticisms of Treasury Secretary Henry Paulson's stewardship of the TARP.
"First of all, the refusal — inexplicable to me — to use any of the money for foreclosure when it was explicitly mandated," Frank said. "Secondly, he dispersed the money in the capital program, I think with good purpose, but without safeguards as to what they would do with it. So, yeah, I share those criticisms."
And the bill Frank is proposing would require greater accountability on both those matters. It would mandate that some of the remaining bailout money be used to help prevent foreclosures. Frank's bill would also retroactively put limits on compensation for executives of financial institutions who have already accepted TARP funds.
"It's setting some rules about what is and isn't appropriate," he said. "I don't regard the denial of a bonus to someone who is making millions of dollars and whose institution is benefiting from taxpayer funding as a punishment. If they don't like it, they can give the money back."
For his part, Secretary Paulson said in an appearance early this week that he has no regrets about the actions he's taken.
"As I look at the major issues, the issues where we intervened, going to Congress to get the authority for the TARP, I believe we made the right decisions," he said.
Frank predicted his bill to revise TARP would be voted on by the House by the middle of next week.
He said he has been working with members of the Obama team, including Treasury Secretary designate Tim Geithner, on ways to strengthen the financial rescue program.
A transition official told Reuters Friday that Geithner is developing a comprehensive set of principles for the TARP, including measures to address foreclosures and to place tougher conditions on financial institutions that receive money. It would also put limits on executive compensation.