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U.S. Banks Refuse to Detail How They're Spending Federal Bailout Money

[This is the fifth installment of an investigative series in which Money Morning examines how U.S. banks are using federal bailout funds.]

By William Patalon III
Executive Editor
Money Morning/The Money Map Report

After receiving hundreds of billions of dollars in taxpayer-funded federal bailout money, the biggest U.S. banks say they can't track how that money is being spent.

Some of the banks are outright refusing to discuss the matter, a new study has found.

"We have not disclosed that to the public. We're declining to," Thomas Kelly, a spokesman for JP Morgan Chase & Co. (JPM) told The Associated Press, which surveyed 21 banks that received at least $1 billion in federal bailout money, and asked how that capital was being used. JP Morgan received a $25 billion infusion as part of the U.S. Treasury Department's $700 billion Troubled Assets Relief Program (TARP).

As an ongoing Money Morning investigation has demonstrated, billions in U.S. bank rescue funds are financing buyouts worldwide – instead of lending at home. Some of those buyouts deals are being done in markets as far away as China. Meanwhile, credit remains tight here in the U.S. market, a situation that could be alleviated if only the banks made the bailout money available to consumers in the form of loans.

Money Morning was one of the first news organizations to really examine how TARP money was being misdirected, and wasn't being deployed as originally intended. More recently, The AP has joined the journalistic posse and published several investigative pieces, including one that looked at executive pay at financial institutions that received bailout money.

Some experts – such as investing icon Jim Rogers – say that bailouts in general are bad deals. They're even worse if they're funded by taxpayers who don't know how their money is being spent [A related story on Rogers' views about the U.S. banking-bailout initiative appeared last week in Money Morning. To access that story, please click here].
The bottom line: Banks won't say how they're using the bailout money. That refusal – coupled with the almost non-existent disclosure and oversight of the TARP program – means the country may well never find out how hundreds of billions of taxpayer dollars were spent.

Anatomy of a Survey

In its latest investigative offering, The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings? And what's the plan for the rest?

According to The AP, none of the banks provided specific answers.

For instance, when Kevin Heine, a spokesman for Bank of New York Mellon Corp. (BK) – which received about $3 billion in TARP money – was asked how his institution was using the emergency infusion, he replied by stating that "we have not disclosed that to the public. We're declining to."

The words varied, but the basic message was the same from one bank to another. For instance, Barry Koling, a spokesman for SunTrust Banks Inc. (STI), the Atlanta, Ga.-based lender that received $3.5-billion in taxpayer cash, told the wire service that "we're not providing dollar-in, dollar-out tracking."

Some banks actually admitted that they simply didn't know where the money was going.

For instance, a spokesman for the Birmingham-based Regions Financial Corp. (RF) said the company is not tracking how it is spending the $3.5 billion in TARP money that it received.
"We manage our capital in its aggregate," said Regions spokesman Tim Deighton.

These answers – or lack thereof – highlight both the secrecy surrounding the TARP program, as well as the lack of oversight by Congress. Given that the entire TARP program is worth at least $700 billion – roughly the equivalent of the economy of The Netherlands – those aren't small issues.

About half of the $700 billion was earmarked for bailouts. But because the U.S. financial crisis was escalating so quickly – and because the Bush administration pushed Congress to approve the TARP plan quickly – Congress attached virtually no strings to the bailout funds. The Treasury Department has been using the money to buy stakes in key U.S. banks, allegedly hoping that the infusion of cash would enable them to heal themselves and start lending again.

As the deepening U.S. credit crisis has shown, that hasn't happened.

No Oversight, No Accountability

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill late last year and implored them to lend the money – instead of hoarding it, spending it on executive bonuses, or for buyouts to get bigger. But there's no process in place to guide this. And there are no consequences for banks that fail to comply with what U.S. lawmakers are asking.

Even worse: There's no vehicle that enables taxpayers to find out what banks are doing – at least, not yet.

"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," Elizabeth Warren, the top congressional watchdog overseeing the financial bailout, told The AP. Stating that it takes "a lot of nerve not to give answers."

Warren said her oversight panel will try to force the banks to say where they've spent the money. But she also noted that she was quite surprised to learn that she even has to ask for that information.

"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," Warren said.

In fact, the due diligence on the legislation that created TARP was so lax that lawmakers didn't realize until much later that the bill they passed actually managed to create a potentially illegal tax loophole that grants banks a tax-break windfall of as much as $140 billion. Lawmakers were furious – but possibly powerless, afraid that a full-scale assault on the tax change could cause already-done deals to unravel, in turn causing investor confidence to do the same.

"Those are legitimate questions that should have been asked on Day One," said U.S. Rep. Scott Garrett, R-N.J., a financial services committee member who opposed the bailout as it was being pushed through Congress. "Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?"

Buyouts Not Bailouts

Nearly every bank questioned – including Citigroup Inc. (C) and Bank of America Corp. (BAC) – recipients of some of the largest TARP infusions – responded to AP inquiries with generic public relations statements explaining that the money was being used to strengthen balance sheets and to continue making loans to ease the credit crisis.

As a Money Morning story detailed Friday, BofA just finalized its buyout of Merrill Lynch & Co. Inc. (MER), creating the largest U.S. bank – as well as the biggest challenge yet for longtime BofA Chief Executive Officer Kenneth D. Lewis. And Wells Fargo & Co. (WFC) completed its $12.7 billion purchase of Wachovia Corp. (WB) – outbidding Citigroup Inc. (C) and making a massive bet that it accurately quantified the still existing risks in Wachovia's huge portfolio of mortgage and real estate loans.

Those were just the latest in a long series of buyout deals being funded at least partly by TARP money, the ongoing Money Morning investigation has shown.

In response to The AP survey questions, a few banks detailed company-specific programs, such as a JP Morgan plan to lend $5 billion to nonprofit organizations and healthcare companies over the next year. Marshall & Ilsley Corp. (MI), said the $1.75 billion bailout infusion it received allowed the Wisconsin-based bank to temporarily stop foreclosing on homes, said Senior Vice President Richard Becker.

This "foreclosure moratorium" will run through the end of March, the bank announced in December.

No Real Answers

But no bank provided even the most basic accounting for the federal money. Some even said that the money couldn't be tracked.

The bailout money "doesn't have its own bucket," said Bob Denham, a spokesman for North Carolina-based BB&T Corp. (BBT).

Denham said taxpayer money wasn't used in BB&T's recent purchase of a Florida insurance company. When asked how he could make such a statement – after stating that TARP money couldn't be tracked – said BB&T would have made that deal even without the infusion.

Interestingly, a spokesman for BB&T told the Charleston (W.V.) Daily Mail newspaper just before Christmas that the bank doesn't like the federal government's $700 billion financial rescue plan – and actually didn't want to participate – but took the $3.1 billion because competitors are participating and because the Treasury Department urged it to.

According to the newspaper, BB&T – the largest bank in West Virginia – has been asked how it justifies participating in the federal government's Troubled Asset Relief Program, or TARP, in light of BB&T Chairman John A. Allison IV's promotion of the late author Ayn Rand's philosophy of free market capitalism.

The reticence banks displayed when it came to discussing their use of TARP money bordered on the absurd. Most banks wouldn't even say why they were keeping the details secret.
"We're not sharing any other details. We're just not at this time," Wendy Walker, a spokeswoman for Dallas-based Comerica Inc. (CMA), which received $2.25-billion from the government, told The AP.

One didn't even want to say they wouldn't say, the wire service reported.

Heine, the New York Mellon spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."
Morgan Stanley (MS) offered to discuss the matter with reporters on condition of anonymity. When The AP refused, Morgan Stanley spokeswoman Carissa Ramirez sent the wire service an e-mail saying: "We are going to decline to comment on your story."

Lawmakers say they want to tighten restrictions on the second half of the TARP money, the yet-to-be-released block worth $350 billion. U.S. Treasury Secretary Henry M. "Hank" Paulson Jr. said the federal department is trying to build up its monitoring of bank spending.

"What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this," Paulson said at a recent forum in New York. "So we're building this organization as we're going."

But that may all be too late, says Garrett, the New Jersey Republican congressman. Indeed, it's entirely possible that U.S. taxpayers will never get a clear answer on where hundreds of billions of dollars went.

[Editor's Note: The ongoing financial crisis has changed the investing game forever, making uncertainty the norm and creating a whole set of new rules that will help determine who wins and who loses. Investors who ignore this "New Reality" will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive.

Money Morning Investment Director Keith Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as "The Golden Age of Wealth Creation." But Fitz-Gerald brings more than a realization – and an understanding – to the table, here. After a decade of work, he's also developed a new computerized trading model based on a mathematical concept known as "fractals." This system allows him to predict price movements of broad indexes, or individual stocks, with a high degree of certainty. And it's particularly well suited to the kind of market we're all facing right now. Check out our latest report on these new rules, and this new market environment.]

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About the Author

Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.

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  1. Larry Hunter | January 6, 2009

    If your findings are true, this shows the total lack of conscience and morality of those who run our financial system. No wonder it is in such bad shape. This also proves the lack of back bone and intelligence of those who supposedly represent us.
    The question is what can be done?

  2. Steve McNeill | January 6, 2009

    Why are these banking people not held in contempt and jailed. Congress, Paulson, Bernake and this administration have completely sold out the people of this country. These people are no better than, and should be treated as criminals. They have done more to destroy this country than the attack on 9/11 and we do nothing about it. I guess we get what we deserve.
    Steve McNeill

  3. Walter Starck | January 6, 2009

    The most likely reason for non-disclosure of the disposition of bailout money is that most of it is being held in reserve to cover anticipated future defaults and they either do not wish to express such concern or may even been warned not to do so.

    The government and banks must surely recognize that many prime loans now on the books are likely to go into default with ongoing layoffs.

    N.B. Please change this almost unreadable light green text color to something darker.

  4. A. Pearsall | January 6, 2009

    This is going to be remembered as the period when the bankers went on strike against the American people, hoarding their government-issued billions (or financing acquisitions with them!) while steadily refusing to lend to Main Street.

    Businesses in my town are going under because of this; families too. It's enough to drive a man wild; no wonder the banks are all trying to hide the facts.

    I agree with another commenter, Mr. Starck, about the light-green text color in this part. The comments can almost go unnoticed because they appear so faintly against the white background.

  5. Gabrial McClanahan | January 6, 2009

    I think its rediculous that these banks were allowed to purchase assest across the globe and not put it back in our economy!!! It is an outrage that there were NO limits put on this money! What good will the second TARP do? Most already received at least a billion dollars!! They should have spread the 750 billion among the American population evenly and let us get ourselves out of debt since it was our money in the first place!!!

  6. laverne chadderdon | January 6, 2009

    Do you know how to keep congress , the american people and a democracy uninformed and in ignorance and suspense ? I will tell you tomorrow and tomorrow .

  7. Rob Millard | January 6, 2009

    Para 2: "We have not disclosed that to the public. We’re declining to," Thomas Kelly, a spokesman for JP Morgan Chase & Co."

    Para 9: "Kevin Heine, a spokesman for Bank of New York Mellon Corp …replied by stating that "we have not disclosed that to the public. We’re declining to."

    Did both respond with exactly the same words, or is one being misquoted?

  8. Fitness For Busy Men | January 6, 2009

    "we’re not providing dollar-in, dollar-out tracking."

    It's nice to know that my banking institution has NO trouble keeping track on my debts…yet can't seem to keep track of it's own budget.

    Wanna know why? Like Jim Rogers says, THESE BANKS ARE INSOLVENT…COMPLETELY BANKRUPT!

    "We manage our capital in its aggregate," said Regions spokesman Tim Deighton.

    READ: "Hey man, you think we are going to admit we just pulled the biggest robbery in the history of the world?"

    "I just would prefer if you wouldn’t say that we’re not going to discuss those details."

    READ: "I'm a skunk and I know we are doomed no matter how much money is given to us…but don't tell anyone."

    "What we’ve been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we’re doing this," Paulson said at a recent forum in New York. "So we’re building this organization as we’re going."

    -Great Hank!!! Sounds like you've actually put some thought and planning into this!!!

    READ: "What we’ve been doing here is moving, I think, with lightning speed toward complete destruction. We have no idea what the hell we are doing with your money and that's why we can't even tell you how we are spending it."

  9. L. bBeall | January 7, 2009

    This is absolutely sick. We should not tolerate it. LB

  10. john c | January 7, 2009

    this sounds crazy! what can ordinary citizens do about this?

  11. Kris Chiron | January 7, 2009

    This is a sad commentary on the laziness of the American people for it is they who have empowered Congress to commit what is tantamount to the swindling of our great grandchildren. What am I saying here? I'm saying that "We the People" are far more interested in our TVs than in fulfilling our responsibilities to be engaged in the political process by letting our elected representatives know how we feel (by both correspondence and our vote!) In essence, Americans are getting exactly what we deserve. I'm not saying that most of the bums in DC should not be thrown out on their ears, but we've got a responsibility here, too. The message I keep sending to my elected representatives is the same one I live by:

    1. You can't do business with people who don't have any money.
    2. Never reward bad behavior.
    3. Never throw good money after bad.
    4. You can't spend your way to prosperity.
    5. There is no such thing as "free."

    As for me, I'm all for putting the bankers in jail–right next to the Congress and Senate who have swindled us.

    BTW "Atlas Shrugged" should be required reading for every American.

  12. Seth Bodner | January 8, 2009

    So what were the Democratic "Oversight" Committees doing when the money was authorized? Where are the "monitoring" requirements that seemed to be on everyone's lips at the crucial moment when the first $350 billion was allocated! This situation is truly an outrage.

  13. Kris Chiron | January 7, 2009

    As individuals, we can do very little within that is within the law; we can become engaged in the political process along with other like minded folk by voting at every opportunity and corresponding with those we've elected to serve us. As a group we can form coalitions and do all we can to preserve our rights under the Constitution. Recall petitions come to mind, leaving our TVs long enough to attend town hall meetings andour city commission meetings will also help. Become engaged in the process! If We the People do not do all within our power to promote ethical government and to preserve our freedoms, we will only get more of what we have and lose those freedoms.

  14. joe Public | January 10, 2009

    These banks that can not tell how or know where the tarp money they got from our government is being spent are the banks that should be closing there doors.

  15. Alvin Smithart | January 10, 2009

    According to your artical above, which is a trueism, the leaders' of this country who work for the american people are incompentent, not knowning how to handel the money of this nation. The operative word in the artical above is there is no accountiibility of the bailout taxpayers' money. Now going down this road we (the american people) are finanical slaves to China and we are headed to a U.S. bankruptcy. I understand that people are loosing jobs' and their homes',
    apparently, the leaders have not focused on the economic crisis nor do they care untill it is to large of a problem to solve. I like so many others'I am hurt by the empty words' that is flushing down the economey of this nation, I think an approperate word is finanical treason when callin a spade a spade. President Lincoln stated " if this Nation should fall it will fall from withiin" remember there is no honor among theives' an we the people are nothing but pawns' so how is this nation to servive with no jobs' and homes'? that are being lost except for the call of the Lord. However, It is apparent to me that this Nation and the World in which we live on is His and the wrath is His judjement and if not there is but one expression and that is stupid is who stupid dose.

  16. Donn Simon | January 11, 2009

    All this money put into these corrupt institutions (my Bank is one that is mentioned in this article) is like water being poured into the Titanic. It will all go down with the ship, run by incompetent leaders

  17. jim | January 11, 2009

    Ole barney the hag needs to be THROWN out on his fat a$$, he is TOTALLY INCOMPETENT!!! After causing the MESS we are in, he is STILL in charge!!! HOW DESPICABLE!!!!!!!!!!

  18. Charles Gimbel | January 11, 2009

    While very informative, this article is particularly troubling. Paulson came to congress with a three page proposal, and congress managed to produce a final product that, if I recall correctly, was inflated to a 400+ page bill. It is unthinkable that the august bodies did not have the common sense to require cost accounting requirements. Yet, when government provides grants to institutions, there must be a final accounting, to the penny, itemizing the expenditures. Banks are in a position to assign an account number to an asset, and use accounting procedures to allocate the asset to the account number. It is unfathomable to me that this infusion was treated as a part of an aggregate, co-mingling as it were.

    If I were in a position to demand an answer to the question, and I received such a reply, I would demand an accounting of how all of the liquid assets of the firm were deployed. If they indicate that they can not identify, perhaps some forensic accounting with the assistance of the IRS is justified. The specter of obvious consequences of such an audit would loosen some tongues. It is time to hold top executives accountable for explaining the use of TARP funds. If they are astute enough to be in their positions, they could not possibly miss the intent of the infusion regardless of the many evolutions in the Fed's methods to avert the liquidity crisis. A crisis of such proportions, never having occurred before, requires evolution based on my own experience.

    Lack of access to reasonably priced loans is unconscionable. For one example, if 70% of the jobs are related to small business employment, one does not have to be a rocket scientist to understand that this percentage applied in some way to the 4.2 million unemployed could be used to affect a significant percentage of the unemployment number. The reemployed become consumers, and such an action would be part of a vehicle to recovery and prosperity.

    Walter Starck (#5) has an interesting perspective, and I hope he is not totally correct. Although TARP money going to China for investment makes no sense to me unless Walter is clearly correct.

  19. John | January 12, 2009

    Personally i think that the American people should with hold their Taxes and let the Banks pay up unless they explain where and how the Peoples MONEY has been spent.

  20. Chris Mitchell | January 12, 2009

    Banksters stole the "bailout" money to use it to consolidate much-coveted acquisitions with OPM ~ Other People's Money. This misconduct is anti-USA & anti-patriotic. It's more of the banksters' true-to-character unconscionable immorality and unethicalness. These pirates are far from done "looting" & raping, pillaging & plundering.

    Who knows that hank paulson and its central bankster cronies (i.e., the rockefeller/rothschild mafia) threatened US federal congressthings with immediate imposition of Martial Law if congress didn't bless TARP -as is- in its entirety? In any court of Justice* that's extortion/blackmail. It's also a Terroristic Threat by banksters to hold all American citizens hostage at gunpoint and other overwhelming deadly and/or injurious force — if congressthings don't meet banksters' terms of Unconditional Surrender to their piracy. (*don't confuse Justice with law — they're mostly mutually exclusive).

    TARP stipulates:
    NO accountability,
    NO auditability,
    NO criminal investigations,
    NO prosecution to seek Justice,
    NO guarantee to plow bailout grants back into the US economy, and
    carte blanche blanket immunity for criminal banksters.

    How nice: more "legalized" looting + "Get out of Jail FREE" passes. True-American Patriots sanely expect no less from the descendents of humankind's worst-ever economic enslavers. They're MONSTERS. They're inhumane, at best.

    Unlike Ayn Rand's blithering, blundering idiot "looters", today's monsters are executing their smash & grab with precision. They've targeted private resources, and those in the Public Trust ~ all taxpayer bought-and-paid-for infrastructure that banksters and/or their corporatist partners in crime will turn into "cash cows" by making John, Jane & Junior Q. Public pay tolls to use in the near future what they freely (except for taxes) use today.

    These thugs-in-suits, mafia-like "legit bidnussmen" want our infrastructure resources, but don't want to spend their wealth to get it. So, their proxies in the federal-mafia criminal godvernment expropriate the American citizenry's resources and hand them over to the thugs. Twice. First, cash bailouts handed over by congressthings after they were forced to do so by el presidente jorge busho and hank paulson (bankster insider, cum US Treasury plunderer/pirate). Second, the real, tangible Public Trust infrastructure asset.

    The lesser bankster thugs focus on private real wealth; i.e., looting personal possessions via recalled homeowner loans and mortgages, foreclosures, repossessions, cash-strapped/starved (to death) business failures, etc. Eventually these medium-sized barracudas will be devoured by their Big Brother pirates who plundered the Public Trusts.

    That is why they refuse to tell We The Extremely Victimized American Sheeple where they spend our posterity's unearned (as yet) income. If they told the Truth, even some of the TV-brain-deadened mindless masses would break free of their rigid brainwashing and dumbing down briefly enough to glimpse and remotely understand that this = infinite enslavement . . . NO American will ever be Free again!

    It's that bad. It's that serious. This is for all the marbles.

  21. James Yamaki | January 12, 2009

    What has happened to the good ole U.S.A.?

    It still exists from all the comments I read. America stands for justice, equality, fairness, honesty, trust, faith, hard work, etc..

    The underlying values are present that made our country great and the strongest power in the world.

    Our financial system is a mess. Fix it first. Get rid of the banks that created this mess by not providing any further bail-outs and let the ones that did the right things rise to the top.

    The financial service sector serves a vital need to keep our economy going, so no sweat. We don't need the banks that got us in this mess. If there is no Citi Bank or a Goldman Sachs or Morgan Chase or even Bank of America or Wells Fargo around, there will always be other institutions to replace these institutions to keep providing financial services to keep our economy moving.

    There will be dislocations and things may get even worse, but what the heck, many are already hurting financially because of financial indiscretions caused by some other people, and it couldn't get any more worse, and maybe it is better to bite the bullet and start doing the right thing now to repair the damage that had been done.

    I am hoping Obama and his administration with a fresh perspective can see the problems and take the necessary corrective steps as expounded by your readers and the writer.

    The economy is the next place to focus. This is where the bailout money should go: outlays for improving and expanding infrastructure, helping distressed mortgage borrowers with low interest loans, maintaining or reducing income taxes, helping the auto and real estate industries because they are the ones that are part of our real economy that produce real goods and services, helping to retrain the workforce with low interest students loans, and anything else that stimulates the economy.

    I am very hopeful all these things will come to pass.

    Long live America!


  1. […] The Obama administration has also pledged to keep stricter tabs on the $700 billion Troubled Assets Relief Program (TARP). The first $350 billion authorized by Congress has all but vaporized at this point. But there is no way to tell what effect the money has had, as the banks that refused capital infusions are refusing to disclose how they spent it. […]

  2. […] The Obama administration has also pledged to keep stricter tabs on the $700 billion Troubled Assets Relief Program (TARP). The first $350 billion authorized by Congress has all but vaporized at this point. But there is no way to tell what effect the money has had, as the banks that refused capital infusions are refusing to disclose how they spent it. […]

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