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Bailout Overseer: Treasury Overpaid By Nearly $80 Billion


Harvard econ Prof. Elizabeth Warren, testifying before a Senate Banking committee hearing underway now to judge the performance of the $700 billion bailout, said that the Treasury overpaid by $78 billion in its first round of investments into troubled banks.

Warren said that Treasury spent $254 billion to purchase assets whose actual value was only $176 billion, "a shortfall of about $78 billion," she said.

Warren said Treasury failed to "price for risk," and used a metaphor to explain: It's as if Treasury was looking at 10 paintings and promised to pay $1 million for each, even though "one is a Picasso, one is a Rembrandt" and the other eight are not.

"There may be good policy reasons for overpaying," Warren said, "but without clearly delineated reasons, we can't know that."

Warren said her group hired financial advisory firm Duff & Phelps, "which we got at half-price," she said, and leaned on other professors and experts to determine the value of the assets the government bought.

"They all hammered until they were confident" with their number, Warren said. They concluded that the government overpayment so far estimated recently by the Congressional Budget Office -- $64 billion -- was "understated."

Sen. Richard Shelby (R-Ala.), ranking member on the committee, cited the CBO numbers to point out that the government bailouts to the auto industry has a subsidy rate of 63 percent, meaning that for every three dollars taxpayers gave the Big Three, they can expect to get only one dollar back.

Warner: Government Could See First Bailout Dividends This Month

10:46 A.M.: Sen. Mark Warner (D-Va.), said that troubled banks could begin paying back of the money they've been given this month in the form of dividends.

Former Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke sold the bailout plan to lawmakers by telling them that, if the bailout works right, taxpayers could actually make money on the deal.

Sen. Evan Bayh (D-Ind.) said Congress will approve no more federal bailout money without "airtight assurances" that the bailout will be better managed.

"We may have stabilized the financial markets, but at the cost of losing the public's confidence," Bayh said. He said the program needs three things: "Accountability, accountability, accountability."

Gene Dodaro, acting U.S. Comptroller General, said, "Communication has been plaguing the program from the outset."

Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  February 5, 2009; 11:41 AM ET
Categories:  The Ticker  | Tags: Ben Bernanke, Evan Bayh, Paulson, bailout  
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"There may be good policy reasons for overpaying,"

WRONG. There is never a "good" policy reason to overpay. There are several "bad" policy reasons to overpay such as:

1. Goldman Sachs and the Treasury Dept are one and the same
2. Congress is OWNED by Wall Street
3. the Fed and Treasury intend to make the GSEs their personal slush fund to offload all the banks' toxic worthless garbage and stick taxpayers with the bill

Posted by: millionea7 | February 5, 2009 12:11 PM | Report abuse

Please, don't any Senator or Congressperson ever tell me the government is looking out for the working man. What a bungled mess, or is it intentional, which would be criminal?

Posted by: gunnysgt77 | February 5, 2009 12:13 PM | Report abuse

This is Crazy and criminally negligent. $80 Billion of Free Taxpayer money to bankers, while in another of today’s WaPo articles, people are being evicted because of Unemployment payment delays. WHO in Washington is on the side of the People.

Posted by: liveride | February 5, 2009 12:22 PM | Report abuse

GET THAT MONEY BACK! I am so sick of incompetence being married to greed all on the backs of US taxpayers!

Posted by: nfbindc | February 5, 2009 12:26 PM | Report abuse

Just remember everyone, you will be over-taxed to help pay for all of the Governments "over-paying". The Democrats know how to work out this equation.


Posted by: ignoranceisbliss | February 5, 2009 12:31 PM | Report abuse

WHO in washington in deed. Pepco sent a notice informing me that they were authorized by the state of MD to increase billing rates again beginning Oct 08. Where is the relief for single families???

Posted by: kiboo | February 5, 2009 12:40 PM | Report abuse

We got ripped off by con artist, I am not talking about Madoff (He swindled money from rich), Its Henry Paulson.

It was just matter of saving crooks of Goldman sachs with all our money.

Posted by: optimist_10 | February 5, 2009 12:47 PM | Report abuse

If Ms. Warren & Co took the time and a little money to have consultants come in and perform an upfront sanity check, the Treasury wouldn't be in this mess. Better yet, if Congress let the market run itself, the strongest would survive and the weakest would finally go under.

The sooner we get back to supporting success and achievemen by not enabling failure will be when we can take the first step on the road to the recovery.

Posted by: Computer_Forensics_Expert_Computer_Expert_Witness | February 5, 2009 12:50 PM | Report abuse

Oh I just hate it when I accidentally write a check for $78 million extra.

Posted by: Marimom | February 5, 2009 12:51 PM | Report abuse

Another crystal clear reason why the government should not be meddling in this manner. Institute regulations and oversight. Let the dogs fail. It sure is easy for the pols to spend our tax money when they don't actually contribute to the pot.

Posted by: josheyre | February 5, 2009 12:54 PM | Report abuse

Dear Spend and Tax: Guess you (conveniently) forgot: it was the BUSH Sec. Treas, Henry Paulson, who ran around with his hair on fire insisting the Congress HAD to pass HIS legislation rightthisminute - or ELSE! So, if you don't like it, (none of us like it) just realize that in his final months Bush had one more huge @#%^-up in him - he's the gift that keeps on giving!

Posted by: Bajagirl | February 5, 2009 1:04 PM | Report abuse

TARP is just a synonym for "Wall Street Rip Off." I think the better approach to handling failed financial institutions would be either FDIC take-over or the resurrection of the Resolution Trust Corporation from the S&L bail-out days.

Posted by: Charley5 | February 5, 2009 1:09 PM | Report abuse

I got a great idea... since we gave billions to the banks, HEY! let's secretly call them the Federal Banks to fool the American people that it is legitimate...

Huh? what? Oh? They've already done that?

Oh! And I guess that is ok!

We need to pull the plug on the Federal Reserve! This is housed with the most evil and corrupt people in this universe!

Posted by: darmar40 | February 5, 2009 1:23 PM | Report abuse

What is not explained is how the evaluations were made. On what basis did the Treasury overpay by $78 million. How was this determined? What assets are we talking about? Who did Treasury buy these assets from? The report relayed by the media, and shown to Congress, must have had some greater detail and substance; at least one would hope so. Why can't greater details be shared with the public? Are we too stupid to understand? After all, it is our tax money that is involved and is something we will have to pay for years to come. It is time that our "so-called" leaders understand that we are not that stupid and deserve full explanations. Transparency would at least lead to some trust. I would assume that others share this view.
charles hopfl

Posted by: hopflcd | February 5, 2009 1:23 PM | Report abuse

I worked at Fannie back in the early 2000's. It is incredibly difficult to price mortgage backed secutiries (MBS). Oftentimes, you would get the marks of your counterparties and use them as a basis for your marks.

The pool of people that price derivatives is very small. In essence, the gov't is faced with buying distressed assets from distressed sellers at the sellers price. The seller has every incentive to price them as expensively as possible. Talk about a sucker deal. There is an asymmetry of information and intellect here. The gov't does not have a savvy enough financial staff to counter the prices that Wall Street offers as fair pricing.

Posted by: nathanmboggs1 | February 5, 2009 1:23 PM | Report abuse

Overpaid by 78 billion dollars and that's just to start. We've got a long way to go yet. Politicians and bankers are robbing us blind.

Posted by: brewstercounty | February 5, 2009 1:45 PM | Report abuse

Treasury paid 144% for these ass ets. So Bush and Paulson took the US taxpayers for another very expensive ride. Republicans remain proud of what they have accomplished against Americans, and are now attempting th stymie the recovery package.
Hoobert Heaver the Republican Idol, George Bush the deciples father and son.

Posted by: laurelphoto | February 5, 2009 1:48 PM | Report abuse

Where are the previous comments

Posted by: gunnysgt77 | February 5, 2009 1:48 PM | Report abuse

The situation with Wall Street's power is virtually the same as that of the Mafia's in the past. The Mafia never would have attained the power that they had without three things: corrupt cops, corrupt judges and corrupt politicians. Wall Street and our financial institutions could never have wreaked the havoc that they have without a corrupt SEC, a corrupt, hand-slapping judiciary, and in the pocket politicians. We are only now understanding the breadth of corruption in our government. Monumental and all-consuming. Putting Paulson of Goldman-Sachs in charge of this was like an anti-organized crime unit headed by John Gotti.

Posted by: curtb | February 5, 2009 1:54 PM | Report abuse

I'm puzzled. Just how did the U.S. government go about purchasing shares of the banks. Did they, for instance, buy shares on the open market? Did they make some backroom deal with Fast Eddie on who offered them a good deal on hot bank stocks. Hmmm It fair boggles the mind don't it that Henry Paulson overpaid for his purchases by $78 Billion Bucks.
It seems to me that the tax payers are due for an explaination. Congress should have put independent oversight in place immediately. Why wasn't this done?
Return now with us to those thrilling days of yesteryear! Paulson popped the imminent failure of banks of Congress and the taxpayers. He proposed the bail out to be approved immediately. He wanted to have a free hand in spending the funds no questions asked, no oversight and no ability to sue if the funds were not properly spent. Didn't this send up any red flags, any warning bells? Paulson proposed spending the bailout funds on purchasing troubled assets. Then when the bill was passed the gave lump sums of the filthy lucre to the banks and AIG no restrictions, no requirements, no questions asked.Then he "buys shares in the banks". Now it seems to me there should be accountability in here somewhere.
Where is it?

Posted by: OhMy | February 5, 2009 1:54 PM | Report abuse

Where is the outrage? Where is the accountability? Who is looking out for the U.S. taxpayer? Is there no shame in these characters?

Now, the GOP is crying about the size of the spending bill... why aren't they complaining about the manifest waste of taxpayer dollars on Wall Street? Why is the GOP so dead-set against spending that will benefit normal Americans? Are they so elitist that any cash not going to military contractors or Wall Street is repugnant?

Look what happened when Bush cut the taxes for the Top 1%... their income doubled in the past 8 years.

What happened to middle and lower class citizens... they got the shaft -- Big Time.

We need a Government that is interested in propping up the middle and lower classes because they are the heart and soul of this country. "They" serve in the military; become police & firefighters; teach our children; and fix our intfrastructure. As consumers, they drive the global economy.

So I ask again, why not prop up the masses instead of draining our Treasury on the Top 1%?

It is so hypocritical it strains credulity.

Posted by: winoohno | February 5, 2009 1:57 PM | Report abuse

Welcome to "Change You Can Pray For." Lets see...3 tax cheats nominated right at the start of a presidency...a lame "apology" to the American people (which somehow happens on the very day that The New York Times prints a major critical editorial on his nominees). I was always wary of Obama's rhetoric, the smokescreen. He was aware of the tax issues with his nominees and his selection smacked of two words: sheer hypocrisy. He backtracked when the press started to get highly critical. The point is: how in the world could he EVER justify these appointments? I, for one, do not trust the man at all. Change, my friends, can go either way--and I think we are headed into a much deeper hole with Obama and the ideologues at the helm. Meanwhile, people are still losing their homes--where is the cash for them????

Posted by: marat1 | February 5, 2009 2:00 PM | Report abuse

And let's not forget that our newly named Treasury Sec. was right in the middle of the bank bail out with Chicken Little Paulson and Bernanke.

Make them give back the 80 million overpayment immediately (and with the interest the bank would charge us!)
and while we are giving the bank some real ultimatiums, tell them they MUST loan, to the American people IN America, 50% of every single dollar they received. This was the purpose of the bail out. This is an outrage and very sad for our future generations. They are in debt and do not even know it. Then we have another spending package on the way. Poor Kids and Grandkids!

Nancy Pelosi,
Unlike you, most of our children will NOT inherit multimillions. They will have to work a life time to pay this off!

Senators in Congress,
Give us a bill that makes sense and not a free for all! We know we need a bill, but we need a manageable one. You can always look at the other spending line items when the economy is recovered in a few years. But right now is not the time!
We are not out buying yachts!

Posted by: Texan2007 | February 5, 2009 2:26 PM | Report abuse

Yonkers, New York
05 February 2009

Exercising its oversight function, the appropriate committees of the House and the Senate should ask ex-Treasury Secretary Henry Paulson to explain why he paid $254 billion for bank assets actually worth only $176 billion, for an overprice of $78 billion.

I have a feeling that it was not out of sheer stupidity, cupidity or negligence that such a huge overpayment was made out of the $700 billion the Treasury got from the Congress to bail out distressed financial institutions.

The Congress and the American people have a right to know.

Mariano Patalinjug

Posted by: MPatalinjug | February 5, 2009 2:35 PM | Report abuse

Why aren't we literally using the CLAWBACK rules to rip this money back from the "executive compensation" paid to the former CEOs/CFOs/execs at the firms the money went to?

Just literally pull the money back.


Oh, and toss them in GITMO for a few months - that will clear their heads.

Posted by: WillSeattle | February 5, 2009 2:42 PM | Report abuse

Heck of job, Mr. Paulson. Mission accomplished.

Posted by: washpost4 | February 5, 2009 2:45 PM | Report abuse

Obama needs to hire Prof. Elizabeth Warren to go over every item/line in his proposal. He's beginning to sound like George Bush with his threat of getting this package passed -- all without any experts or thought. I'm beginning to get dismayed with this Administration.

Posted by: lbarczyn | February 5, 2009 2:47 PM | Report abuse

"Haste makes waste" my grandmother used to say. I hope the Senate defeats the $900 billion dollar so called stimulus bill which is in realtiy a gigantic pork bill with very little in it to stimulate job creation. Individual bills that stimulate job creation can then be introduced and the process of gathering expert testimony from economists and business people as to the efficacy of each proposed bill can proceed.

Posted by: msmithnv | February 5, 2009 3:12 PM | Report abuse

Antonio Ivan Easterling
The Proletarian Review

Topic: Bad Banks Must Close

1. Our business community is looking for the Federal Reserve lead to start its commitment to the National Downsizing Initiative (NDI). As the workers and small business owner have downsized operations, and even some have shutdown. Our Federal Reserve must do the same to reduce the tax revenue required to operate a nationalized banking system.
2. Our nationalized banking system is rescuing suspect banks who should not be in business anyway. The time has come for President Obama to intervene by Executive Orders to stop the growth our banking system.
3. The growth of our banking system has taken prime rated credit corporation, and mix them with suspect corporation, thus, empowering weak business entities to remain operating at the expense of taxpayer's money. This practice must be stopped to conform with the National Downsizing Initiative (NDI). Our banking system is encouraged to invest in technology and management systems to transform this failing industry into a business environment of efficiency. America can not afford another wasted dollar on companies without the intestinal fortitude to remove in service and compete in the world of globalization. Banking executives, we are in global war to save the economy called the United States of America. Let no bullet be triggered, but, the economic mentality of survival be steadfasted.

Antonio Ivan Easterling
The Proletarian Review

Posted by: sterlinggo1 | February 5, 2009 3:15 PM | Report abuse

Nationalize the big banks.

Fire the top management.

Recapitalize them.

Then break them into bits and sell off the pieces.

I don't understand why this is so difficult. The taxpayer is on the hook any way that it gets sliced. Hank Paulson was simply bailing out his buddies and trying to perpetuate a failed model.

Posted by: raydh | February 5, 2009 3:18 PM | Report abuse

Hmmm: "Sen. Richard Shelby (R-Ala.), ranking member on the committee, cited the CBO numbers to point out that the government bailouts to the auto industry has a subsidy rate of 63 percent, meaning that for every three dollars taxpayers gave the Big Three, they can expect to get only one dollar back."

Wow, that beats the Senate's ratio which must be about 2.0% if you consider the increase in the carbon footprint created by hot air.

Posted by: wesatch | February 5, 2009 3:39 PM | Report abuse

I'm curious: when do things get to the point where we begin to revolt? Is it sudden, like being hit by lightning, or is it more glacial? When to we storm the castle? They are stealing from us! They are taking food our of our children's mouths! They are robbing the majority of the citizens of this nation of a future! If, or maybe when I lose my job, I will be ready.

Posted by: elife1975 | February 5, 2009 3:48 PM | Report abuse

Don't forget the original stimulus package was handled by the Bush Administration, which always overpaid - "What's good for business is good for Bush". So glad he's gone. Now, we just have to get rid of all those other government employees who don't believe in government, except to get overpaid.

Posted by: TwoEvils | February 5, 2009 3:51 PM | Report abuse

How much Treasury overpaid is really up for grabs.

Paulson's plan was a total disaster for the American taxpayer, throwing billions of dollars to over-entitled financial executives. The new plan -- whatever it is -- is another swindle upon the taxpayer.

Posted by: Gatsby1 | February 5, 2009 4:31 PM | Report abuse

This $78 billion overpayment was all an "accident" of course (wink, wink). Hey, what's a little bit of overpayment between fellow criminals?

Posted by: hairguy01 | February 5, 2009 4:45 PM | Report abuse

geithner and bernanke? they must go tomorrow. the time of incompetence and kissing wallstreets asses must come to an end and reason must succeed. there are brilliant economists such as dr. paul krugman et. al. and serious other contenders for these important jobs. why keep apprentices and lousy imcompetent people in the most important positions? the president must know - latest by today - that with them and the crooket and criminal wallstreet-guys he will destroy this country and this beyond repair. if he does not act he will be forgotten and will like the clown GWB added to the list of the worst presidents of the U.S.

Posted by: fieldon | February 5, 2009 4:48 PM | Report abuse

No wonder they can afford bonuses.

Good news, however. Next year we've limited them to $500K in salary. Unless they don't want to follow the guideline. Then they can do what they want.

I hope this all makes sense to someone, because I feel like we're being taken for a ride.

Posted by: postfan1 | February 5, 2009 5:14 PM | Report abuse

What percent of the software for the banking and financial industry is coded in America? Zero Percent.

Posted by: blakesouthwood | February 5, 2009 5:41 PM | Report abuse

I love Elizabeth Warren! Obama should put her in his cabinet - make her the person in charge of performance. she is clear thinking articulate and diligent.

Posted by: MassamachusettsWoman | February 5, 2009 5:46 PM | Report abuse

Remember when billions were being wasted and stolen in Iraq? And a "surge" was an Iraq thing and not an unemployment thing?

Time marches on. Only the subject changes.

Posted by: Bluefish2012 | February 5, 2009 5:49 PM | Report abuse

Not another dime should go to ANY Financial Institution for buying their FAILED excuses for mismanagement and flat out biggoted ignorance of the American taxpayer and get this - They are screwing with Foriegn investor's money in the process, who are now saying the Chicken needs to come home to roost!

Jeez, even the European Union is sounding like we might engage in some form of Financial War with them and it was flat out heated, with their leader. I was ready to suit up and grab my f rifle!

Posted by: kurtbw | February 5, 2009 6:12 PM | Report abuse

Well, in truth, I doubt anyone knows what their worth. But its no surprise the govt came up on the short end of this last estimate.

Posted by: steveandjanereed1 | February 5, 2009 7:01 PM | Report abuse

So many ideas... so few good ones, but a lot of finger pointing and smoke and mirrors.

Let's begin with what happened back in 2008: with the first bill Bush and his cronies didn't want any oversight; they sold a bill of goods to Congress. The Democrats, fearing being cast as villians, went along with Paulson and Bush's show.

As soon as the Dems got on board, the Republicans bailed out! "The vote against the measure was 228 to 205, with 133 Republicans turning against President Bush to join 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans."

Version 2 was passed with all the fanfair of a Broadway ... or should I say a Wall Street production.

Bush's cronies were supposed to get $700 Billion from TARP but some in Congress balked at not having much say as to where the money would go, so it was split into two halves: Bush got to distribute the first $350 Billion, the next administration was to distribute the second $350 Billion.

The intent of the bill passed by Congress and signed by Bush was to buy mortgage backed securities (MBS). Within a week of the signing, the real intent of the bill was revealed: Paulson wanted to loan money to banks without conditions. Once he had the money approved, he changed the whole reason for the bailout package. He said: "I will never apologize for changing an approach or strategy when the facts change,".

The banks got the taxpayer's money and went on a spending spree... buying up smaller banks, giving themslves billions in bonuses and having some grand parties.

It is the Bush $350 Billion "that the Treasury overpaid by $78 billion in its first round of investments into troubled banks."

Obama has not released any money but he is looking to install controls and conditions. You need to see what Obama does before you throw darts. "I want him to fail" is not what we need to hear. This is not a partisan issue; it's this country's future!

Posted by: mikeu1 | February 5, 2009 8:19 PM | Report abuse

Gee whiz! 78 Billion dollars overpaid! Does Wall Street have it's hand in the Bush Treasury's pocket or was the Bush Treasury Dept. just this inept?

Posted by: warrengheintz | February 5, 2009 9:27 PM | Report abuse

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