Report: U.S. Bailout Program Helps Foreign Countries
The $700 billion U.S. bailout program launched in response to the
global economic meltdown had a far greater impact overseas than other
countries’ financial rescue plans did on the U.S., according to a new
report from a congressional watchdog.
Billions of dollars in U.S. rescue funds wound up in big banks in
France,
Germany and other nations. That was probably inevitable because of the
structure of the Treasury Department’s program, the Congressional
Oversight Panel says in a new report issued Thursday.
The U.S. program aimed to stabilize the financial system by injecting
money into as many banks as possible, including those with substantial
operations overseas. Most other countries, by contrast, focused their
efforts more narrowly on banks in their nations that usually lacked
major U.S. operations.
But the report says that if the U.S. had gotten more data on which
foreign banks would benefit the most, the government might have been
able to ask those countries to share some of the cost.
“There were no data about where this money was going,” panel chair
Elizabeth Warren said in a conference call with reporters on Wednesday.
“The American people have a right to know where the money went.”
An example: Major French and German banks were among the biggest
beneficiaries of the U.S. rescue of American International Group Inc.,
yet the American government shouldered the entire $70 billion risk of
pumping capital into the crippled insurance titan. The report compares
that with the $35 billion that France spent on its overall financial
rescue program and the $133 billion that
Germany
spent.
Much of the $182 billion in federal aid to AIG – the biggest of the
government rescues – went to meet the company’s obligations to its Wall
Street trading partners on credit default swaps, a form of insurance
against default of securities. The partners included French banks
Societe Generale, which received $11.9 billion in AIG money, and BNP
Paribas, which got $4.9 billion, and Germany’s Deutsche Bank, $11.8
billion.
Of the 87 banks and financial entities that indirectly benefited from
the U.S. aid to AIG, 43 are foreign, according to the report. In
addition to France and Germany, they include banks based in Canada,
Britain and Switzerland.
In addition to AIG, many of the U.S. banks and automakers that
received billions in bailout aid derive a large proportion of their
revenue from operations outside the U.S., the report noted.
The watchdog panel was created by Congress to oversee the Treasury
Department rescue program that came in at the peak of the financial
crisis in the fall of 2008. It has said it’s unclear whether U.S.
taxpayers will ever fully recoup the cost of the AIG bailout. The
Congressional Budget Office estimates that taxpayers will lose $36
billion.
Although the law creating the U.S. rescue program called for Treasury
to coordinate its actions with similar efforts by foreign governments,
“the global response to the financial crisis unfolded on an … informal,
country-by-country basis,” the new report says. “Each individual
government made its own decisions based on its evaluation of what was
best for its own banking sector and for its own domestic economy.”
The U.S. program wound up injecting capital into around 700 banks,
while all other governments combined aided fewer than 50, according to
the oversight panel.
At the same time, the report suggests that the Treasury program,
known as the Troubled Asset Relief Program, or TARP, may have played a
constructive role.
“It appears that the existence of the TARP might have served to
enhance the negotiating position of the U.S. government (at least in
a limited way), as it demonstrated the willingness of U.S. officials to
be aggressive and forceful in committing a significant amount of
resources to confront a deepening crisis,” the report says.
Treasury Department spokesman Mark Paustenbach said the report “shows
that Treasury worked effectively with its overseas partners in a number
of ways to address the global financial crisis.”
The report says the financial crisis revealed the need for an
international plan “to handle the collapse of major, globally
significant financial institutions.”
(Copyright
2010 by The Associated Press. All Rights Reserved.)
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