Today, Paul Hodes lashed out at Treasury Secretary Tim Geithner over a new oversight report which alleges that hedge funds are specifically using bailout funds to turn huge profits for their executives and investors. The Hodes-opposed bailouts were sold to the public as a necessity to stabilize lending functions for the economy as a whole. Instead, the new report shows that Wall Street insiders are using bailout cash to fuel windfall profits and bonuses for executives as middle class families in New Hampshire continue to struggle.
"These hedge fund managers are betting against American taxpayers with their own tax dollars and it needs to stop," said Hodes. "While these Wall Street insiders continue to make money off our tax dollars, middle class families in New Hampshire are still struggling. It's simply unacceptable that Wall Street profits are being generated at direct cost to Granite Staters who've opposed these bailouts from the beginning."
Portions of the Wall Street bailout funds have been entrusted to hedge fund managers. These managers have been found selling overpriced investments from their for-profit arms to the taxpayer financed accounts in order to increase their personal profits. Independent oversight panels continue to demand that these hedge funds set up separate staffs to manage these different funds and remove the opportunity for corruption. However, to this point the Treasury Department refuses to require such protections, and recent reports have chronicled continued abuses.
Text of Hodes' letter to Treasury Secretary Tim Geithner below:
Dear Secretary Geithner,
I am writing to ask why the Treasury Department has not instituted the recommendations made in the recent quarterly report to Congress issued by the Office of the Special Inspector General to the Troubled Assets Relief Program (SIGTARP) to institute conflict-of-interest walls and more transparency for the Public-Private Investment Funds established with TARP dollars.
According to SIGTARP's January report, the Treasury Department could have instituted information barriers or walls between the portfolio managers of TARP funded Public-Private Investment Funds and portfolio managers of the for profit hedge funds who were managing both funds simultaneously. Three of the nine the participating portfolio managers of the Public-Private Investment Funds instituted these walls voluntarily while the Treasury Department said that the walls were "simply not practical".
However, some unusual trades by one of the hedge fund portfolio manager have drawn concern. One portfolio manager did not institute a wall and ran both a taxpayer funded Public-Private Investment Fund as well as private hedge funds. He sold securities at an inflated rate from a private fund to the taxpayer fund. This is a completely unacceptable use of taxpayer funds. Without a wall, there is no one advocating for the taxpayer. As a result, hedge funds are using taxpayer dollars to make a profit in a market that was supposed to be illiquid.
Why did the Treasury Department not institute these walls? SIGTARP concluded correctly that if these walls had been instituted then "we would not have to worry whether the portfolio managers were acting to benefit one fund over the other".
I have been concerned about use of the TARP funds since the program's enactment in October, 2008. I am deeply troubled by the ongoing lack of adequate oversight of the $700 billion program.
TARP funds should not be used for portfolio managers of hedge funds to make a profit off of taxpayer dollars. Please let me know how the Treasury Secretary plans to address the conflict-of-interest walls for Public-Private Investment Funds in light for of the fact that SIGTARP has started an investigation.