Barofsky: Bailout "Almost Certainly" a Financial Loss for Taxpayers

By Chris Carey, Bailout Sleuth

The federal bailout of the nation’s financial sector will “almost certainly” result in a loss for taxpayers, the inspector general overseeing the program said yesterday.

“We need to temper or be realistic about our expectations, a dollar-for-dollar return is just highly unrealistic,” Neil M. Barofsky said yesterday at the Bloomberg Washington Summit. “It’s almost certainly going to be a loss.”

Barofsky, appointed to examine fiscal and ethical issues related to the Troubled Asset Relief Program, has been critical of the effort. In a report last month, he charged the government with creating a moral hazard and being “less-than-accurate” in reporting on its initial investments in nine large financial institutions.

Under the terms of the $700 billion program, participating banks give the government stock and related products in exchange for cash. Were the value of the shares to increase before the bank redeemed them, it is possible that the taxpayers could make a profit.

Many of the largest participants, however, have rushed to return the money, mainly to avoid the increased regulatory strictures that come with it. Those efforts have preempted any chance of large future profits for the government.

Barofsky also said that his office was conducting 65 fraud investigations related to the bailout. Next week, he plans to released an audit examining whether American International Group Inc. “paid more than necessary to banks including Goldman Sachs Group Inc. after the insurer’s bailout,” Bloomberg reported.

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