With Congress back in session, accountability is the theme of the week. Barney Frank announced the “TARP Reform and Accountability Act of 2009,” which I hope to get to in a day or two. But for now I want to talk about Elizabeth Warren and the Congressional Oversight Panel for TARP, which issued their second report on Friday. Of course, beating the accountability drum at Henry Paulson’s expense is politically easy, and a lot less controversial than, say, designing a stimulus package or a foreclosure reduction plan. But that doesn’t mean it isn’t important.
Back in September, Simon and I wrote an op-ed in the Washington Post that focused on the incentive problems in the initial TARP proposal and cynically predicted:
It is most likely that “governance” over the fund will be provided by periodic hearings of the relevant Senate and House committees during which the Treasury secretary and the fund managers will be asked why they overpaid for banks’ securities and will answer that there was no choice if the financial system was to be saved.
(Recall that the proposal at that point was for Treasury to buy toxic assets from financial institutions, most likely overpaying the process.) However, the governance measures were strengthened in the eventual legislation, and it does seem that Elizabeth Warren and most of her committee (Jeb Hensarling, R-Texas, did not endorse the report) are committed to keeping Treasury under tight scrutiny, which is all good.
The Baseline Scenario 