Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, warns that the government's bail out and prop up economic policies may result in another financial crisis and housing collapse as reported by Heather Stewart for the Guardian:
TARP was first announced by the then Treasury secretary Hank Paulson in autumn 2008, to stabilise the banking sector in the wake of Lehman Brothers' collapse. The Obama administration increased the size of the programme to $700bn and widened its scope from propping up failing banks, to boosting borrowing to small businesses and preventing mass foreclosures in the housing market. In his report, Barofsky warns that while many of Wall Street's largest players bought their way out of the TARP last year, returning some of the government's funds, the financial system is no safer than at the height of the credit crunch. * * * Barofsky also warns the government risks re-inflating a bubble in the US housing market – the source of the sub-prime turmoil that engulfed world financial markets. He points out that after the government-backed lenders Freddie Mac and Fannie Mae were taken into formal federal ownership, and with an "alphabet soup" of other measures to support homebuyers, the state is now underwriting almost all new mortgage lending. "The government has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private sector, he said.
Meanwhile, "investigations of misconduct related to the $700 billion Troubled Asset Relief Program expanded in the fourth quarter as the U.S. rescue fund's watchdog increased opened cases by 41 percent" as reported by Joshua Gallu for BusinessWeek:
Special Inspector General Neil Barofsky began 25 criminal and civil probes in the quarter, and had 77 total active cases, according to a quarterly report to Congress published yesterday. Through the third quarter of 2009, Barofsky’s Washington-based office opened 61 cases with 54 active, he said at the time. Examiners are looking into possible wrongdoing linked to the financial-industry bailout, including insider trading, accounting violations, mortgage fraud, obstruction of justice and money laundering, according to the report.
