Troubling Maneuver Ends Bailout Bill's Transparency

Remember when Treasury Secretary Hank Paulson proposed in September that Congress give him unprecedented authority to spend $700 billion of taxpayers' money, with almost no oversight, to bail out the nation's financial institutions? The details — and we use that term in the ironic sense — were included in a three-page memo.

Congress, quite reasonably, insisted on taking a little more time and crafting a bill with a few particulars before authorizing such a huge expenditure to buy the "toxic" assets held by many of the nation's largest banks. Among other things, lawmakers insisted that the bill include limits on the lavish pay received by the top executives at the institutions receiving the money and a mechanism for penalizing firms that failed to comply with such limits.

We now know that at the last minute the Bush administration won from congressional negotiators a one-sentence modification, stipulating that the pay limits apply only to institutions that sell their troubled assets to the government at auction. That probably seemed harmless enough at the time, as the Treasury Department had said publicly that auctions were exactly the process through which the toxic instruments would be taken off the banks' books.

Then, however, Paulson — no one can call him too stubborn to change — abandoned the auction plan and decided to simply inject capital into the banks.

The practical effect of such a switch, of course, was that there is now no effective limit on what the banks accepting the government funds can pay their executives, a limit Treasury officials resisted all along.

The original bailout bill had a variety of provisions restricting the compensation for the leaders of firms accepting the funds, including a ban on excessive severance pay, limits on incentives that could encourage excessive risk-taking and the right to recover bonuses if profits did not materialize.

It also included an amendment to the Internal Revenue Code limiting to $500,000 annually the amount that companies could deduct for compensation paid to their top five executives — the single feature most likely to get the banks' attention.

Now none of that applies.

It is outrageous enough that an element essential to Congress' approval of the deal was wiped away so quietly. But that behind-the-curtain maneuver is just one example of the troubling opaque nature of the entire Troubled Asset Relief Program, or TARP. From Paulson's flip-flop on auctioning troubled bank assets to decisions on which banks receive help and which don't, to disclosure of what the institutions are doing with the money they receive, there has been far too little information and explanation to the public about how this massive government intervention is being carried out.

We agree with a headline in a recent Government Accountability Office report on the TARP: "Additional Actions Needed to Better Ensure Integrity, Accountability and Transparency." And we call on Congress and the incoming administration to take every measure necessary to guarantee that integrity, accountability and transparency.

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