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Auditor: 'Hundreds Of Billions' Of Bailout Could Be Lost To Fraud

UPDATED at 11:40 A.M.:

Neil Barofsky, the special inspector general at Treasury for the bailout program, warned of "hundreds of billions of dollars in fraud" if the government bailout funds are not closely monitored.

Barofsky, testifying before a joint economic committee on the Hill that concluded moments ago, gave a long and impassioned definition of his job, as he sees it.

"The dangers here are so bad in our view that if they're not addressed, it's not a question of a little bit of fraud here or there," Barofksy said. "It's putting in danger the American peoples' confidence in government; it puts in danger the recovery. There are hundreds of billions of dollars that could be lost to fraud."

Barofsky continued: "If the American people lose all confidence in government...to engineer a bailout, so much of economic recovery is based on confidence. It's a very psychological concept...If there's the perception that this program is just picking winners and losers...it could damage the psyche of the American people. It is critical that the American people know we're protecting their investment."

Barofsky added that he hopes to have the results of six bailout audits underway now -- including two involving AIG -- by the beginning of summer. Barofsky said that AIG showed initial resistance to cooperate with his investigation, but "in the last week" the information has started to flow.

Barofsky: Paulson, Bernanke May Not Have Pressured Lewis, As WSJ Reports Today

11:04 A.M.: Barofsky cautioned that it may not be "black and white" that Fed Chairman Ben Bernanke and former Treasury Secretary Hank Paulson pressured Bank of America chief executive Ken Lewis to keep quiet about the big losses incurred by the bank's acquisition of Merrill Lynch, as reported in today's Wall Street Journal.

Barofsky is testifying before a joint economic committee on the Hill concluded moments ago.

According to the Journal: "Mr. Lewis, testifying under oath before New York's attorney general in February, told prosecutors that he believed Messrs. Paulson and Bernanke were instructing him to keep silent about deepening financial difficulties at Merrill, the struggling brokerage giant."

Barofsky was asked about the Journal article and said that he was actually in the room when Lewis gave his testimony.

"I would caution anyone from leaping to too many conclusions about what Mr. Paulson or Mr. Bernanke said until we look at all the facts and report on them," Barofsky said, saying he is looking into Lewis's testimony. "The conclusion one may draw that it's a black-and-white order from the U.S. government not to disclose, I don't think is as crystal-clear as suggested in that article."

Barofsky: One-Third of His Bailout Fraud Probes Came From Tips

10:33 A.M.: Barofsky said that one-third of all of the investigations underway in his office relating to waste, fraud and abuse of bailout funds have come from tips from ordinary citizens.

Barofsky is testifying before a joint economic committee on the Hill right now, which you can watch here on elsewhere on The Post's Web site.

Barofsky said that his department "takes every tip seriously" and has set up a department to handle them.

The tip line can be found here at www.sigtarp.gov. (That stands for "special inspector general" of the TARP bailout program.

In an unrelated matter, Barofsky, a former government prosecutor, testified that he is still paying off school loans.

-- Frank Ahrens
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By Frank Ahrens  |  April 23, 2009; 11:40 AM ET
Categories:  The Ticker  | Tags: AIG, Bank of America, Ben Bernanke, Hank Paulson, Ken Lewis, Neil Barofsky, TARP, bailout  
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