Amid growing public consternation with the federal banking bailout, the Treasury Department's special inspector general has opened an examination of political influence in handing out some of the $350 billion in federal bank bailout funds, The Times has learned.
The audit, which has just begun, is broad in scope but will focus on lobbying activities by financial institutions and what the special inspector general, Neil Barofsky, has called "outside influences."
The Treasury Department has released $294 billion as of last month, with most of it going to the banking industry in exchange for preferred stock and other bank securities.
When the department launched the banking rescue plan last fall, it set up a process for awarding the massive sums of money outside of public view and with criteria that were not disclosed, even to Congress.
The secrecy fueled suspicion that political influences would be difficult to restrain with so much money at stake and with the banking industry in such disarray. Within months, reports began to surface that banks were actively lobbying for the funds and that members of Congress were exerting their influence on Treasury officials to give money to specific banks.
Sen. Charles E. Grassley of Iowa, the senior Republican on the Senate Finance Committee, asked Barofsky earlier this week for an investigation into possible political meddling in the Troubled Asset Relief Program, or TARP. Grassley has been among the most vocal critics of how the program is working.
Barofsky apparently had already decided on such an investigation. He disclosed his plan deep in a 189-page document sent to Congress on Feb. 6, saying he had begun a "general audit reviewing outside influences on the [TARP] application process."
The investigation hints at what could be a long, drawn-out legal drama. Barofsky, a former federal prosecutor, has his own multimillion-dollar budget and is aligning his office with other federal law enforcement agencies, pledging "robust criminal and civil enforcement against those, whether inside or outside of government, who waste, steal or abuse TARP funds."
