They Lied: Watchdog Says Treasury and Fed Knew Bailed-Out Banks Were Not 'Healthy' (Matthew Jaffe)

Created by : Francis Goodwin View profile
Published on Monday, October 5, 2009 by ABC News

by Matthew Jaffe

WASHINGTON - The Treasury Department and the Federal Reserve lied to the American public last fall when they said that the first nine banks to receive government bailout funds were healthy, a government watchdog states in a new report released today.

[FILE - In this Sept. 19, 2008 file photo, President George W. Bush, second left, accompanied by, from left, Federal Reserve Chairman Ben Bernanke, then Treasury Secretary Henry Paulson, and then Securities and Exchange Commission Chairman Christopher Cox, delivers a statement about the economy and government efforts to remedy the crisis in the Rose Garden of the White House in Washington. (AP Photo/Pablo Martinez Monsivais, file)]
FILE - In this Sept. 19, 2008 file photo, President George W. Bush, second left, accompanied by, from left, Federal Reserve Chairman Ben Bernanke, then Treasury Secretary Henry Paulson, and then Securities and Exchange Commission Chairman Christopher Cox, delivers a statement about the economy and government efforts to remedy the crisis in the Rose Garden of the White House in Washington. (AP Photo/Pablo Martinez Monsivais, file)
Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (SIGTARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country's economy, federal officials knew otherwise.

"Contemporaneous reports and officials' statements to SIGTARP during this audit indicate that there were concerns about the health of several of the nine institutions at that time and, as detailed in this report, that their overall selection was far more a result of the officials' belief in their importance to a system that was viewed as being vulnerable to collapse than concerns about their individual health and viability," Barofsky says.

Last October, the government was in the midst of trying to contain the worst financial crisis in decades. On Sept. 7, 2008, mortgage giants Fannie Mae and Freddie Mac were placed under conservatorship. On Sept. 15, the massive investment bank Lehman Brothers filed for bankruptcy. The next day, insurance giant AIG needed an $85 billion government loan to avoid collapse.

http://www.commondreams.org/headline/2009/10/05