Ted Kaufman - United States Senator for Delaware

US Financial Bailout Run Largely By Contractors - Report

Source: Dow Jones

By Meena Thiruvengadam

October 14, 2010

Fannie Mae has nearly three times as many employees working on the government's financial bailout as does the U.S. Treasury, a watchdog panel wrote in a report Thursday.

The report, from the Congressional Oversight Panel formerly headed by Obama advisor Elizabeth Warren, shows just how involved contractors have become with the government's once $700 billion effort to stabilize the financial system.

"The vast majority of people working on the TARP today receive their paychecks from private companies, not the federal government," the panel's new chairman, Sen. Ted KAUFMAN , D-Del., said in a conference call about the report.

The Treasury has awarded 96 different contracts with an estimated total value of $436.7 million. Its two largest contractors: Fannie Mae and Freddie Mac -- the government-sponsored enterprises put into conservatorship in September 2008.

Fannie Mae received contracts valued at $126.7 million while Freddie Mac received a contract valued at $88.9 million.

"[S]imply put, we made a determination that there were no other parties with the capabilities and infrastructure to operate a national mortgage modification program," Gary Grippo, Treasury's deputy assistant secretary for fiscal operations and policy, told the panel.

Fannie Mae alone has 600 employees working on the bailout program. The Treasury has 220 employees working on TARP.

Fannie Mae and Freddie Mac, which have received billions in aid outside TARP, are among several contractors who have received government assistance in recent years -- a factor the panel said could pose a conflict of interest.

Bank of New York Mellon (BK) and Morgan Stanley (MS), which each received billions from TARP, also received contract work from the program. Bank of New York Mellon is being paid $28.5 million to act as TARP's custodian, while Morgan Stanley is being paid $23.6 to manage TARP assets after it had repaid the government.

"Certain TARP recipients had a special status that should have disqualified them from acting as a financial advisor in relation to TARP funds," the panel wrote.

The Treasury, however, did receive some praise from the panel for handling contract awards better than most government agencies. "Treasury provided for competitive bidding for most of its contracts, and it has established several layers of controls to monitor contractor performance and to prevent conflicts of interest," it said.

But it noted, "The government contracting process is notoriously nontransparent, and although Treasury appears to have performed well on a comparative basis, significant transparency concerns remain."

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