MELISSA BLOCK, host:
A little more now on how the TARP funds have been spent so far - that's the Troubled Asset Relief Program. Elizabeth Warren has been keeping tabs on the money in a role as chair of the TARP's Congressional Oversight Panel. Elizabeth Warren is also a professor at the Harvard Law School. So, what has she found?
Professor ELIZABETH WARREN (TARP Congressional Oversight Panel Chair): We haven't been able to discern how it was spent, and the main reason we haven't is that Treasury handed out the money without saying, and you've got to tell us what you're going to do with it and give us some measures for telling whether or not you actually did what you said. So, you know, if you don't ask, you don't get an answer.
BLOCK: Now, Congressman Gary Ackerman of New York in grilling these eight CEOs today asked all of them to provide a written report detailing how they've spent this first installment of the TARP funds. Are you confident that that's going to happen?
Prof. WARREN: You know, when Congress asks a question, I assume that every banker remembers Congress will ultimately write the rules. Not only the rules today, but all the rules going forward, under which the bankers will operate. Surely, no bank would have the nerve not to give a fairly detailed report to Congress when asked directly.
BLOCK: Now, the Oversight Panel issued its own report, and you found, or you suggest that the federal government paid too much for some of the TARP investments. Some of this is very, very complicated, but I want you to try to briefly explain how and why that happened.
Prof. WARREN: At the time that we made these first big purchases, about $254 billion, the Secretary Paulson described it as, we're investing in these banks, and we'll be taking back stock and warrants that are worth about the same amount as the amount we're putting in. In other words, we're not going to lose anything on the deal. In fact, he said, we might make some money. So, the Congressional Oversight Panel asked him specifically about the terms of the deal and essentially said, are we getting our money's worth?
He wrote me back on December 30th and he said yes, these are par transactions, which means, in effect, for every $100 that the government puts in, they got back $100 worth of stock and warrants. So, you say, hey, that sounds pretty fair. Now, we could've stopped there, but we decided, you know, maybe we should make an independent investigation. So, we got together some really terrific people, experts and basically what they found was in this first go-around that for every $100 that the government put in, we got back about $66 worth of stock. You do that enough times and that adds up to a shortfall of about $78 billion.
BLOCK: Did the former Treasury Secretary Hank Paulson know that these weren't par transactions?
Prof. WARREN: You know, I don't know which one would make me more upset, that he spent that kind of money without knowing that for every $3 that were going out that he was only getting $2 worth of value back, or that he knew it and was not forthcoming with the American people about it.
BLOCK: What actually needs to happen to create more transparency to make sure that tax dollars are spent wisely?
Prof. WARREN: Well, you know, there are really three parts here. When we talk about transparency, you can think of that in a very technical way. And what it really means is put the documents on the Web site, let everybody see the numbers. You can talk about it in a more strategic way. Let everyone see the decision-making process. How it is that this bank got this amount of money and how another bank got a different amount of money.
But what our most recent interactions with the former Secretary of the Treasury Paulson suggest is that a key part of transparency is a clearly articulated and honest plan for how we're spending money and how we think that's going to pull this economy out of the ditch.
BLOCK: Did you hear that either from Timothy Geithner or from President Obama yesterday?
Prof. WARREN: Not yet. You know, the good news is they indicate that they understand that the American people want to know what's going on and feel pretty angry about not having someone be entirely forthcoming with them, but we have to wait and see what the details are.
BLOCK: Professor Warren, thanks so much.
Prof. WARREN: Oh, thank you.
BLOCK: Elizabeth Warren is the chairwoman of the Troubled Asset Relief Program's Congressional Oversight Panel. She is also a professor at Harvard University. Transcript provided by NPR, Copyright NPR.
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