WASHINGTON--In a draft of its first report, an oversight board created by Congress to monitor the Treasury Department’s management of the $700 billion economic stabilization plan raises 10 questions about it – often critically – including about the department’s multi-faceted approach to rolling it out.

“We ask Treasury to articulate its vision of the problem, its overall strategy to address that problem, and how its strategic shifts in since September 2008 fit into that overall strategy,” the draft report says.

In the 37-page draft, the four-member board tells lawmakers, “This report…does not attempt to answer the questions Congress and the American people have about the use of the powers granted to Treasury under the Emergency Economic Stabilization Act of 2008. Rather, we seek to pose those questions clearly in the context of the events that have occurred since the adoption of the Act in October. In doing so, we intend to set the agenda for our future work and to advise the Congress as to the issues that it will need to address in the next Administration.”

The board members acknowledge they held their first meeting just two weeks ago. A source close to the writing of the report said the board has so far hired just two staff members and did not have the time and resources to prepare a more substantive analysis of the Treasury’s management of plan, also known as TARP. The board said it will issue future reports monthly.

The report is titled “Questions About the $700 Billion Emergency Economic Stabilization Funds.” Board chairperson Elizabeth Warren, a Harvard University professor, will testify on the report Wednesday before the House Financial Services Committee.

“We are here to investigate, to analyze and to review the expenditure of taxpayer funds,” the panel members wrote in the draft. “But most importantly, we are here to ask the questions that we believe all Americans have a right to ask: who got the money, what have they done with it, how has it helped the country, and how has it helped ordinary people?”

The first question the report asks is “What is Treasury’s strategy?” As with the other questions, It follows up the first general question with more specific questions: “What does Treasury think the central causes of the financial crisis are and how does its overall strategy for using its authority and taxpayer funds address those causes? What specific facts caused Treasury to change its strategy in the last two months? What specific facts changed that made the purchase of mortgage-backed assets a bad idea within days of the request and what specific facts changed again to make guaranteeing such assets a good idea a few weeks later?”

The draft report lists five specific strategies it says Treasury has used – or had authority for but not used -- since Congress approved the plan two months ago. Some analysts and members of Congress have also questioned the department’s strategy, saying it has been executed inconsistently, adding to uncertainty in financial markets. But Treasury Secretary

Henry Paulson has defended the department’s actions as nimble and appropriate in reacting to changing facts and circumstances.

It also raises questions critically about, among other things, whether the strategy is working to stabilize financial markets; what metrics the department is using to evaluate the success of the plan in stabilizing financial markets; how banks that received Treasury capital have used the cash, and whether the plan is helping reduce mortgage foreclosures. Many members of Congress – both Democratic and Republican – have raised similar questions.

Some also have criticized Treasury for not using funding in the plan to take more aggressive steps to help homeowners facing foreclosure. The department says it is evaluating various proposals to prevent foreclosures.

“Preserving home ownership is an explicit purpose” of the TARP legislation, the board said in the draft report.

The report also asks, “Is the public receiving a fair deal?” It notes that Treasury will receive 5% annual dividend payments on preferred shares it acquired in Goldman Sachs, Citigroup and other financial institutions in exchange for taxpayer funds.

But it also notes that Berkshire Hathaway, the conglomerate run by legendary investor Warren Buffet, will receive 10% annual dividend payments on the $5 billion in preferred shares it acquired in Goldman Sachs. In addition, it notes that the Abu Dhabi Investment Authority is receiving 11% dividend payments on its $7.5 billion investment in Citigroup (C) preferred shares.

“The Oversight Panel intends to work with Treasury, the GAO, and the Congressional Budget Office to determine the value of the preferred stock acquired by Treasury at the time of acquisition, particularly in light of these comparable transactions, and to understand how these terms were negotiated and determined,” the draft report said.

A Treasury spokesperson did not comment on the report, saying, “We haven't seen it yet.” A spokesman for the board said the draft of the report released to the media was substantially complete and could undergo a few “minor” technical changes before being formally submitted to Congress on Wednesday.

Last week, the Government Accountability Office issued a critical audit of TARP, saying Treasury had failed to adopt sufficient internal controls in executing the plan, among other things. Treasury officials say they are moving to address the GAO’s criticisms.

The 10 questions listed and analyzed in the draft oversight board report are:

1. What is Treasury’s Strategy? What does Treasury think the central causes of the financial crisis are and how does its overall strategy for using its authority and taxpayer funds address those causes? What specific facts caused Treasury to change its strategy in the last two months? What specific facts changed that made the purchase of mortgage-backed assets a bad idea within days of the request and what specific facts changed again to make guaranteeing such assets a good idea a few weeks later?

2. Is the Strategy Working to Stabilize Markets? What specific metrics can Treasury cite to show the effects of the $250B spent thus far on the financial markets, on credit availability, or, most importantly, on the economy? Have Treasury’s actions increased lending and unfrozen the credit markets or simply bolstered the banks’ books? How does Treasury expect to achieve the goal of price discovery for impaired assets? Why does Treasury believe that providing capital to all viable banks, regardless of business profile, is the most efficient use of funds?

3. Is the Strategy Helping to Reduce Foreclosures? What steps has Treasury taken to reduce foreclosures? Have those steps been effective? Why has Treasury not generally required financial institutions to engage in specific mortgage foreclosure mitigation plans as a condition of receiving taxpayer funds? Why has Treasury required Citigroup to enact the FDIC mortgage principle write down program, but not required any other bank receiving TARP funds to do so? Is there a need for additional industry reporting on delinquency data, foreclosures, and loss mitigations efforts in a standard format, with appropriate analysis? Should Treasury be considering others models and more innovative uses of its new authority under the Act to avoid unnecessary foreclosures?

4. What Have Financial Institutions Done with the Taxpayers’ Money Received So Far? What have the companies who received money from Treasury done with the money? Have the companies used the funds in the way Treasury intended when it disbursed them? How have institutions supported under the Capital Purchase Program used their funds, and they have they leveraged the capital support to increase lending activity? Is this different from the way funds were utilized for institutions who received funds pursuant to the Systemically Significant Failing Institutions plan?

5. Is the Public Receiving a Fair Deal? What is the value of the preferred stock Treasury has received in exchange for cash infusions to financial institutions? Are the terms comparable to those received in recent private transactions, such as those with Warren Buffett and the Abu Dhabi Investment Authority?

6. What is Treasury Doing to Help the American Family? Does Treasury believe American families need to borrow more money? Have Treasury’s actions preserved access to consumer credit, including student loans and auto loans at reasonable rates? What restrictions will Treasury put on credit issuers to assure that taxpayer dollars are not used to subsidize lending practices that are exploitive, predatory or otherwise harmful to customers? What is Treasury doing to ensure that its spending is directed in ways that maximize the impact on the American economy?

7. Is Treasury Imposing Reforms on Financial Institutions that are taking Taxpayer Money? Congress has told the auto industry to reform its current practices before it could be considered for taxpayer aid and the British are requiring reforms on their banks as a precondition for capital infusions. Has Treasury required banks receiving aid to:

• Present a viable business plan;
• Replace failed executives and/or directors;
• Undertake internal reforms to prevent future crises, to increase oversight, and to ensure better accounting and transparency;
• Undertake any other operational reforms?

8. How is Treasury Deciding Which Institutions Receive the Money? What factors is Treasury using to determine which institutions receive equity infusions, purchase of portfolio assets, or insurance of portfolio assets? Is Treasury seeking to use TARP money to shape the future of the American financial system, and if so, how?

9. What is the Scope of Treasury’s Statutory Authority? What is Treasury’s understanding of the statutory limits on its use of funds? How does Treasury justify its decisions under the Act in relation to its view of these limits? How is Treasury carrying out its statutory mandate regarding credit insurance?

10. Is Treasury Looking Ahead? What are the likely challenges the implementation of the Emergency Economic Stabilization Act will face in the weeks and months ahead? Can Treasury offer some assurance that it has worked out contingency plans if the economy suffers further disruptions?

Congress TARP Overview Draft