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April 21st, 2009

TARP’s Fraud Reports Begin To Trickle In

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Federal Investigators announced this week that 20 criminal probes have been launched to investigate “possible securities fraud, tax violations, insider trading and other crimes” associated with the TARP. Lawmakers fear that this number is only the tip of the iceberg. Many agree that it comes as no big surprise that such a vast and expensive program would entice fraudulent activity:

The disclosures reinforce fears that the hastily designed and rapidly changing bailout program run by the Treasury Department and Federal Reserve is going to carry a heavy price of fraud against taxpayers — even as questions grow about its ability to stabilize the nation’s financial system.

[TARP's Inspector General Neil] Barofsky said the complex nature of the bailout program makes it “inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants, and vulnerabilities to money laundering.”

Mr. Barofsky’s 250-page report to Congress today focused especially on the risks that accompany the Treasury Department’s latest strategy to rid the nation’s largest banks of their toxic assets. The report had little to say in regard to the specifics of who was under investigation and how these alleged schemes were being committed.

Autonews.com reported today that auto-part suppliers are concerned that the $5 billion in TARP funds allotted to them could be subject to fraud. The suppliers noted that since automakers can select their individual suppliers, their funds were subject to “phantom receivables” and “commercial bribery.”

“Even a 1% loss-to-fraud rate equates to $7 billion,” said HSH Vice President Keith Gumbinger. “You could pay off 70,000 failing mortgages of $100,000 each with that money, so tighter conditions need to be put in place.”

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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