The act -- Emergency Economic Stabilization Act -- established TARP.  The act is misnamed. The implemented plan, even if adjusted, will not adequately stabilize the economy, but continue providing capital to entities with deteriorating balance sheets.

This is not a solution.

If executed, this plan and recommendations are expected to create more of a problem. The concern is the administration has abandoned this plan, embarked on a new strategy. It's unclear what relevant standards GAO was using when evaluating the different strategy, unrelated to the documented plan.

That's the good news.

The bad news is the GAO report sounds more like a (worthless) Senate Iraq WMD Phase II report: The mind reels looking at what they've not adequately challenged. Every line in this report shows evidence the US Congress, Administration, and GAO are missing the mark.

When new bailout options are discussed, GAO needs to discuss what Congress must do to ensure these lessons are incorporated into the legislation from the outset, as mandatory requirements.

Dubious Recognition of Derailed Train

This falls into the category of missing the point:

30 of 72: "It is unclear how OFS and the regulators will monitor participating institutions' use of the capital investments."

Normally, when developing a plan, managers are concerned about something called results. Here, not only are they ignoring the results, they aren't tracking where the money is going, not to mention how the overall economy is doing while these capital injections continue.. If they can't track the information, this means they have no plan to monitor changes relative to the economy. That's useless and a reckless approach.

Bioler Plate Agreements Do Not Compel Consequences For Failure

What we need to consider is whether the terms of the agrements incentivize the unintended effects; and what mechanism will be used to agree, "Despite our objectives, we recognize that this bailout plan has backfired, and we are adjusting."

30 of 72: The recitals refer to the participating institutions' future actions in general terms--for example, that "the Company agrees to expand the flow of credit to U.S. consumers and businesses on competitive terms" and "agrees to work diligently, under existing programs, to modify the terms of residential mortgages."

It would be good to find out -- early -- that the proposed bailout is not only failing, but making the larger economic situation worse. Using the above approach, not only will this informatin not be available, but there's no plan to ever make it available, much less do this analysis.

Ambiguous Contract Terms Does Not Ensure Economic Success

This shows us they've assentially agreed to unenforceable terms, without any mechanism to impose consequences on those who fail to perform, or remain silent despite the imploding pit:

30 of 72: The standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.

Didn't we learn anything from Iraq and Afghanistan about "standard argreements" and things athat are "not required"? They don't get done; but people look for ways to do the opposite, and not get caught. Oh, that's right, Congress never did an impeachment investigation, so Congress still hasn't "learned those lessons" that it would otherwise have discovered during this investigation.

Ignoring the Lessons of Intent From Rendition, POW Abuse

This is a joke, as "intending" to do something is ambiguous:

30 of 72: they told us that their institutions intended to use the funds in a manner consistent with the goals of CPP

These are the same types of firms -- as with FISA and Geneva -- that "intended" to do one thing, but [surprise, surprise] somehow found themselves connected with FISA violations and war crimes.

How many days will it be before the firms linked with this bailout are asking for legal relief, despite the foreseeable concerns raised that there could be prosecutions?

Where are the DOJ OLC memos, as we saw after 2001 re Geneva, discussing

A. foreseeable prosecutions and the implicicit attached supboenas;
B. the next US government immunity deal to not impose consequences on firms who said they intended one thing but "somehow" did something else; and
B. the failure of the US government to ensure that the firms retained the infromation related to this foreseeable litigation?

We need to have some confidence that the firms are meeting their data-records retention requirements; and that the GAO and Congress have the access they need to timely review progress. Otherwise, as we saw with the WH emails and subpoenas re FISA-US Attory-Geneva, it will be years before we see the information, much less adjust to it, and implement a needed plan going forward for economic recovery.

Simply asserting "we have change" does not mean the entrenched incompetence within Congressional leadership -- as evidenced by their reckless refusal to challenge FISA-Geneva violations -- means they didn't take the time to learn these standards; and are not in a position to impose simlar oversight on economic issues. Whatever has been ignored and not learned re national security remains beyond their comprehension on issues of economic recovery. It's impossible to argue Congress, despite inaction on national security oversight is somehow "ready to go" on the economic oversight. They didn't spend the time challenging the Administration and learning how to conduct oversight since 2001. They have alot of work to do. the same is even when they did some investigations, the consequences were meaningless. That's not change.

This much money flowing around and disconnected from a real solution, and this is a prime environment for many people to feign stupidity.

FBI's Management Problems Shows No Prospect Of Modernizing To Enforce The Act

The boilerplate language sounds more like the FISA-like agreements between the telecoms and the government. The key will be to look at what the language does not expressly prohibit; and look for methods to detect whether that questionable activity is occurring; then ensure DOJ's FBI has the support to investigate illegal acdtivity along these baselines. Last time we checked, the FBI does not have enough resources to address national security or corruption issues.

Where does the Congress proposite -- in a matter of a few short weeks -- to create FBI agents that will have this expertise and responsibly being indictments for the foreseeable fraud? We'd have an idea if Congress -- outside DOJ -- put impeachment on the table for those financial entities that the US government refuses to prosecute. That would require a change.

As with the private FISA agreements with the telecoms, they may agree to a set of conditions which are taking us in the wrong direction. We need something that will recognize this problem, and speedily adjust course. This is not evidence within the current GAO oversight.

Inadequate Provisions To Accommodate, Monitor Other Economic Efforts

GAO needs to discuss the needed oversight plan to assess progress, not of this plan, but of how this plan will dovetail with other Administration efforts to improve the economy. The hard part isn't the initial monitoring, but integrating an initial effort with subsequent changes:

GAO: Treasury has operated on parallel tracks in implementing the act.

I'd hate to think we have a myopic view of the world, without considering the core problem: A failure to plan.

What provisions have been made within the existing plan to accommodate future efforts?

How will GAO and Treasury, not just Congress, know whether apparent indicators are telling us one thing; but the net result of the combined programs is taking us in the wrong or opposite direction?

Irrelevant Performance Data Relative To Sustainable Recovery

2 of 12 of the summary should show summary financial data and progress:

- Debt repayment ability measured by changes in cashflows to service the supplied capital and debt instruments.

Failure to Include An Oversight-Integration Team During In-House Reviews

29 of 72 (fig 1): Chart should include a question: "Are we -- and this economy -- going over a cliff with these results?" and "How will we seamlessly handle revised legislation that changes this approach, and incorporates future efforts?"

Recipie For Indefinite Excuses, No Accountability

Remember that waiting game with the White House emails or non-responses to the subpoena requests? You haven't seen anything yet. We also have evidence of more of the "trust me now, I'll tell you later (not)"-game. We need a straight answer. When will it be "just right" to get a straight answer:

GAO: It is too soon to determine whether the program is having the intended effect on credit and financial markets.

The answer: Never, because government-led capital infusions cannot -- forever -- change the markets unless the fundamentals change: Cashflows. The fastest way to do this is to accept that bankruptcies will arrive.

The error is to continue providing capital through TARP to entities that should otherwise reorganize. Bankruptcy does not necessarily mean the entity is out of business or that the product-service is gone; it means operations can continue while they reoganize. The scare tactics of "if the car companies declare bankruptcy, that will be a problem"-argument are overstated. indeed, bankruptcy will have ripple effects, but not as much as letting the companies continue to burn cash on an unsustainable trajector. The pain is coming.

Illusory Fears About Bankruptcy

The responsible way forward is to ensure the lessons of this GAO report are appropriately applied to the needed US government oversight of the bankruptcy process. It's been a sad series of news disclosures to learn the US economic regulation is outdated. It would be a sorry legacy for the legal community to leave to discover the bankruptcy process is, not as required, modernized to handle this wave of needed streamlining.

However, the same employment-training-qualification problems we've seen with Abu Ghraib, Geneva, FISA, and this bailout are expected to occur with the bankruptcy. We need to ask: Is bankruptcy being delayed not because it is a problem, but because there are too many firms that would benefit from bankruptcy, but not enough qualified staff to responsibly manage this streamlining process?

Revisiting IMF Metrics To Monitor Larger Economic Development Progress

We need to prepare for the more comprehensive economic plan. GAO has some work to do. We need to see some sample charts, with a coherent discussion about cashflows and economic progress:

GAO: GAO has identified a number of preliminary indicators that when viewed collectively should signal whether TARP as well as other related programs may be functioning as intended. Among these preliminary indicators are trends in interest rate spreads, mortgage rates, mortgage originations, and foreclosures.

Claims that this is a surprise are disingenuous. The IMF has been barking about the problems, but the US government has largely ignored these concerns. The future has arrived:

- How much of this information GAO proposes be tracked is a repeat of what information the IMF has prepared?
- How long have these indicators been ignored?
- To what extent is GAO asking Treasury to re-invent the IMF-monitored wheel?

We need to find out whose been working on indicators related to sustainable economic progress; and understand to what extent the IMF-like indicators have been cast to the winds by Administration-Fed officials deluded by the bubble. As with Abu Ghraib, it will be a sad legacy for the world to see: That the US ignored the IMF-monitored baseline information it imposed on others; but said the IMF-information, like Geneva, wasn't "good enough" for the US.

Had Congress been serious about challenge this arrogance through an impeachment investigation, this national security-legal-lesson might have been applied to the economic arena. The markets are telling Congress: This is what you get for keeping your heads in the sand.

Lesson of DOJ OLC Qualified Legal Opinions

Congress needs to see the following information, and discuss the scope of the plans the President implemented; how it diverges from the agreed-to legislation; and what mitigation plans outside counsel discussed should the implemented strategy (not the plan) depart from the legislature's economic goals.

From: 10/16: Treasury announces award of contract to Simpson, Thacher & Bartlett to provide legal advice on the implementation of the act.

From: 10/29: Treasury contracts with Hughes Hubbard & Reed, LLP, and Squire Sanders & Dempsey, LLP to provide legal advice on implementation of CPP.

The program appears to have been narrowly defined to create the illusion of a progress, without adequately ensuring that the plan addresses the real economic problems. It's one thing for the Speaker to ignore abuses since 2001. It's quite another for the Speaker to rubber stamp a flawed bailout plan, and provide no assurances that the US Government is going to change, and be timely held publicly accountable for failure.

We need to understand what types of inputs these counsel had to the drafting of the legislation. We need to get some straight answers:

- What information did members of Congress receive in secret, as was done with FISA, to  ensure Members of Congress do not discuss the real concerns legal counsel have with this plan or the proposed-revised plan to achieve the economic goals

- What concerns did legal counsel raise about the plan as implemented (not the legislated plan);

- What concerns did legal counsel raise about the plan as executed, and whether it would or would not achieve the advertised goals;

- What concerns did legal counsel make about the various risks in implementing this plan to achieve specific economic goals; and the adequacy of the information the Administration was disclosing should the economic situation deteriorate; and the potential legal consequences to personnel in providing truthful (but useless) information to Congress on a plan (without addressing whether the plan is really working to achieve the economic goals)

- How far can the economy tank before the legal crew is publicly challenged for purposes of disbarment or legal malpractice

- Are there sufficient qualifying statements within the lawyer's memos that would, as with FISA, create sufficient wiggle room so that Congress -- regardless the outcome -- is not held to any performance standard

- To what extent have independent Congresional legal counsel worked to review the legal working papers of the legal counsel to ensure they are adequately meeting their fiduciary responsibilites, as regulated by the State Bars?

- To what extent is the Congress, otuside the legal counsel mentioned here, reviewing how the program is progressing to determine whether these-named legal counsel should be subject to specific reporting requirements, and regulated at the Federal level?

Transitioning A Flawed Plan

The concern is that Obama appears to have publicly sided with this flawed plan, without distancing himself from both the GAO approach and the current bailout. This concern springs from this comment:

GAO: facilitate a smooth transition to the new administration by building on and formalizing ongoing activities, including ensuring that key OFS leadership positions are filled during and after the transition

Smoothly transition the crews who implement a flawed plan is not success. It is a false assurance of progress.

Private Congressional Reservations

We judge the economic sitaution is so dire, Obama dares not disclose the real doubts he has with this plan, not to mention the false sense of security Congress might hope to send by adjusting this flawed plan. The plan fails to review or address the rest of the problem: The deteriorating cashflows.

It is likely the financial wizards will rely on more sophistry to adjust the books and make it appear we've had an improvement. That's not a solution but another bubble. It's unclear the US leadership in concert with national powers have enough economic clout to defy the market judgment.

Bailout Plan Distinguished From Sustainable Economic Progress: GAO did not adequately audit whether the bailout plan is likely to succeed in supporting a sustainable recovery; but only whether the internal controls to monitor the (defective) plan were or were not effective, regardless the success or failure of the economy.

The GAO report is not an adequate audit for the public to make informed decisions about the likelihood of an economic recovery. The conclusions show the focus of the work will be put on better monitoring a flawed plan, not in creating a credible plan for economic recovery; nor in progress in monitoring whether a revised plan will or will not be required.

GAO Meets Jello and Wall

This GAO report is itself troubling, not to mention the underlying bailout plan. We have two problems, discussed here:

1. The Treasury bailout plan is flawed;
2. GAO is focusing capital supply, and not the required conditions to repay those debts.

GAO has embraced the flawed plan's assumptions, without distancing itself to look at the feasibility of the plan to improve cashflows required to service the "hoped for" increase in capital supply.

GAO has thrown jello at a moving wall. GAO has no information to substantiate any Administration responses. GAO advisory on every recommendation:

GAO: "When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information."

The flawed plan, even if monitored, does not resemble what is happening:

From: understand the rationale for changes in this strategy to avoid information gaps and surprises;

Jello is an appropriate analogy. We have the following problems:

1. An economic crisis marked by a collapse of debt repayment and cashflows;

2. A bailout plan that does not address (1);

3. A change within the bailout plan (2) that is doing something other than (1);

4. An audit of a bailout plan that has no information to show how the responses are meeting the GAO findings, not to mention the economic goals (1) or the changed strategy (3).

The inherent problems this Congress has refused to challenge since 2001 -- through an impeachment investigation -- are smack in the middle of this report. It's unclear who is more clueless, the Administration, Congress, or the GAO. At least the GAO documented their faulty arguments.

Bubble Management: We need to see some better information:

A. from the administration about what happened to the capital formation risk assessments;
B. from Congress, how these risks assessments were or were not factored into Congressional oversight (they weren't, just like FISA); and
C. which oversight will credibly change regulations to ensure people who have deteriorating balance sheets on the demand side do not have access to cheap capital.

Recurring oversight problem, linked with inaction on impeachment: The "other views about capital repayment risks related to deteriorating cashflows" appear to have been excluded, as was with FISA and the JAGs-Geneva.

Where were the business professionals who were monitoring the business risk; how were their inputs factored into Administration plans; and what information did the Administration exclude?

Dubious Plan To Glean Lessons of DoD Contract Mismanagement

The problems with DoD contracting (fraud, inadequate contract oversight) do not bode well for the oversight of TARP. Given the bungling US contracting operations in Guantanamo, Abu Ghraib, and Iraq, this goal appears beyond what the US can reasonably expect to achieve:

GAO: [E]nsure that sufficient personnel are assigned and properly trained to oversee the performance of all contractors, especially for Contracts priced on a time and materials basis, and move toward fixed-price arrangements whenever possible;

The contracted effort in TARP in no way satisfied the larger contracting improvement efforts required to support an economic recovery. Since 2001, the Administration has not effectively mobilized the public to support combat and relief operations. There is not adequate time to train the people needed to execute a sustainable economic recovery. The market forces will, through attrition, sort out the good and bad performers. The US government is not in a position to credibly overs see this screening process.

Treasury Response Fails To Focus On Cashflows, Sustainable Capital Demand

65 of 72: Nothing Treasury provided -- by way of comments to the GAO report -- addresses the deteriorating balance sheet, debt repayments, cashflow problems. Treasuring is only focusing on providing capital.

Treasury and GAO are lost. This is analogous to monitoring whether or not the prison guards at Guantanamo were or were not following the wrong procedures. The right approach is to (a) implement the right procedures -- a plan that would shore up the means to service these capital infusions; and (b) monitor whether performance along those correct procedures and objectives.

As bad as the GAO report is, the bad news is: The plan itself is getting adjusted without adequately reviewing the real problem with cashflows required to service that "hoped for" increase in capital supply.

Treasury and GAO are only focusing on (at best) part of the problem. The assessment of this solution to that partially-confronted problem is inherently flawed.

We have zero confidence the identified metrics will ensure Treasury is focusing on sustainable debt repayment (demand side) via cashflows.

Chasing Irrelevant Indicators

Signs of problems which, providing more capital, does not address:

60 of 72 (fig 7) exponential.

58 of 72 (figure 5): Spread shows this problem has been brewing, and is increasing (trending up, widening), not reversing.

55 of 72 (fig 3): Market spreads show real risk. GAO should highlight how today's numbers compare with 1987.

57 of 72 (fig 4): The spike in Baa warrants attention. Rating agencies appear to be chasing the  market-recognized disasters. This isn't a forecast.

Concern: GAAS numbers not mentioned

The accounting standards are not adequately referenced. Congress needs GAO to explain what they did or didn't look at.

6 of 72: "We conducted this performance audit in October 2008 and November 2008 in accordance with generally accepted government auditing standards."

It appears the Treasury department policies are flawed because they're implementing a flawed bailout. GAO should have included sample GAAS standards and samples of the data reviewed, to include summary spreadsheets, staffing decisions, and Treasury policies and guidelines. The GAO report doesn't provide this.

When cashflows deteriorate, but the capital infusions continue, the risk of fraud increases, as was discussed in SAS99. GAO says they followed GAAS; but did not disclose how they increased audit scope per SAS99 because of the inherent risks of fraud by the Administration and Congress.

SAS70 focuses on services and users. This assumes the auditors, when reviewing entities that are closely coordinated, can rely one set of data. This ignores whether the underlying economic conditions driving fraud will or will not increase.

These recommendations are worthless, they do not have a deadline. The metrics for what they will be "communicating" are vague, and not clearly linked with economic progress.

This comment about business cycles raises questions about why the US government, despite the Patriot Act before 9-11, did not also develop similar contingency plans; and whether future economic development efforts-results will be adequately monitored within this framework; or how a new framework must be developed to incorporate new programs:

51 of 72: However, several factors will make isolating and measuring the impact of TARP challenging, including simultaneous changes in economic conditions, changes in monetary and fiscal policy, and other programs introduced by the Treasury, the Federal Reserve, FDIC, and FHFA to support banks, credit markets, and other struggling institutions

Questionable Validation

This shows the GAO is not adequately prompting Treasury to monitor the demand side (cashflows) of the public, and show how they are tracking these:

51 of 72: Nevertheless, we have preliminarily identified some indicators that may be suggestive of TARP's impact over time. These indicators include measures of the perception of risk in interbank lending, consumer lending, corporate debt markets, and the overall economy. We have also identified a number of other indicators that we are also monitoring and may include in future reports.

The error is for the Treasury to look at the banking system like a dam, with Treasury adding water to keep the generators going. The financial system depends more on simply injecting capital into a market. The demand for that capital must be sustainable.

Treasury is acting as if the financial system is a structure that needs to be oiled; and that the Treasury, by injecting capital, can keep the machine oiled.

The GAO hasn't looked at whether the proposed plan -- when executed -- will or will not make the situation worse.

29 of 72:  Fig 1: There's no internal  integration to  assess whether this or future bailout plans are or are not taking the economy over the cliff. Providing more capital to a market that is imploding doesn't solve the problem, just chokes the channels.