TARP shortchanged taxpayers $78 bn, says panel

US taxpayers are being shortchanged by about $78 billion through the Treasury Department’s bank bailout, the panel overseeing the programme said.

The Treasury, when it was headed by Secretary Henry Paulson, received bank assets worth about $176 billion in exchange for capital purchases of $254 billion under the Troubled Asset Relief Program(TARP), the Congressional Oversight Panel said in a report on Friday.

“The loss estimate is conservative,” said Representative Alan Grayson, a Florida Democrat on the House Financial Services Committee. “It could turn out that those assets in the end are worthless. These are massive handouts to favoured institutions to try to make up with taxpayer money the mistakes they made with investor money.”

The public’s stake in the nation’s banking system continues to grow as first the Bush administration and now President Barack Obama’s team work to pull the US out of the deepest recession in at least two generations. TARP, part of the more than $9 trillion the government has pledged to rescue the financial system, has guaranteed $350 billion to banks so far, with another $350 billion set for use in coming months.

Harvard Law Professor Elizabeth Warren, who is chairman of the oversight panel, said the Treasury’s strategy of giving the same aid to all banks “results in substantial subsidies that are disproportionately granted to the riskiest institutions.”