Bailout Overseer: Treasury Overpaid By Nearly $80 Billion

UPDATED WITH FURTHER COMMENTS FROM BAILOUT OVERSEER:

Harvard econ Prof. Elizabeth Warren, testifying before a Senate Banking committee hearing underway now to judge the performance of the $700 billion bailout, said that the Treasury overpaid by $78 billion in its first round of investments into troubled banks.

Warren said that Treasury spent $254 billion to purchase assets whose actual value was only $176 billion, "a shortfall of about $78 billion," she said.

Warren said Treasury failed to "price for risk," and used a metaphor to explain: It's as if Treasury was looking at 10 paintings and promised to pay $1 million for each, even though "one is a Picasso, one is a Rembrandt" and the other eight are not.

"There may be good policy reasons for overpaying," Warren said, "but without clearly delineated reasons, we can't know that."

Warren said her group hired financial advisory firm Duff & Phelps, "which we got at half-price," she said, and leaned on other professors and experts to determine the value of the assets the government bought.

"They all hammered until they were confident" with their number, Warren said. They concluded that the government overpayment so far estimated recently by the Congressional Budget Office -- $64 billion -- was "understated."

Sen. Richard Shelby (R-Ala.), ranking member on the committee, cited the CBO numbers to point out that the government bailouts to the auto industry has a subsidy rate of 63 percent, meaning that for every three dollars taxpayers gave the Big Three, they can expect to get only one dollar back.

Warner: Government Could See First Bailout Dividends This Month

10:46 A.M.: Sen. Mark Warner (D-Va.), said that troubled banks could begin paying back of the money they've been given this month in the form of dividends.

Former Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke sold the bailout plan to lawmakers by telling them that, if the bailout works right, taxpayers could actually make money on the deal.

Sen. Evan Bayh (D-Ind.) said Congress will approve no more federal bailout money without "airtight assurances" that the bailout will be better managed.

"We may have stabilized the financial markets, but at the cost of losing the public's confidence," Bayh said. He said the program needs three things: "Accountability, accountability, accountability."

Gene Dodaro, acting U.S. Comptroller General, said, "Communication has been plaguing the program from the outset."

Frank Ahrens

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