JIM LEHRER: The federal government's efforts to rescue big banks and other institutions faced new scrutiny today. A top government official offered a critical new look at the program, while the treasury secretary defended it.
NewsHour correspondent Kwame Holman has our lead story report.
KWAME HOLMAN: The report came from the Treasury Department's inspector general for the Troubled Asset Relief Program, known as the TARP. The findings ran 250 pages and criticized the administration's plan to help banks get rid of bad debts linked to bad mortgages.
The inspector general concluded a public-private partnership to take over toxic assets could cost $2 trillion. And he warned the taxpayer risk is many times that of the private parties and increases the risk of fraud.
The release of the inspector general's report coincided with a new hearing of the oversight panel created by Congress. The group convened here at the Dirksen Senate Office Building to question Treasury Secretary Timothy Geithner.
Panel member Damon Silvers pressed the point about taxpayers assuming too great a burden through the Federal Reserve and the Federal Deposit Insurance Corporation.
DAMON SILVERS, Panel Member: Mr. Secretary, if it turns out that the assets that these partnerships buy are not worth the price paid, not because of anything terrible, but because of just risk, right, and if we eat through the equity in those partnerships, is it not the case that the FDIC and the Fed are on the hook?
TIMOTHY GEITHNER, Treasury Secretary: Absolutely. This is secured lending against collateral at an interest rate with pricing designed to help protect the Fed and the FDIC from that risk. But what I'm saying is you're equating capital, which is fully at risk, with financing against collateral.
Now, really the critical thing, as you know from our previous conversations, is, compared to what? And the alternative programs that many have advocated for dealing with these legacy assets...
DAMON SILVERS: Well...
TIMOTHY GEITHNER: It's important to let me finish this. We have the government taking on all the risk, providing -- taking on all the risk in mispricing the assets, taking all the downside risk, and having all that protection.
Now, they would get in return all the potential upside in this case, but that trade-off is a bad trade-off for the government, because the government is highly unlikely to be in a position to be able to get the valuation right.
KWAME HOLMAN: Geithner also faced new questions on whether the government might end up nationalizing banks as it considers ways to avoid asking Congress for more rescue funding.
REP. JEB HENSARLING (R), Texas: There's great concern among many on an apparent plan to convert the preferred stock positions in many of the financial institutions to common stock, thus essentially converting Uncle Sam into a control shareholder of many of our largest financial institutions. Is that the plan, and why?
TIMOTHY GEITHNER: That risk worries me, too, so let me just say a few things about what our objectives are. Again, what we want to make sure is that there's the capital the system requires and that it's targeted to where it's needed.
Now, they'll have a variety of different ways where they can raise that capital. They'll have the choice of raising the market. They'll have the choice to do a range of conversions. Or they have the choice to take it from the government.
KWAME HOLMAN: The secretary suggested the choice of when to repay the government might be limited, even though a number of banks want to exit the TARP program early.
TIMOTHY GEITHNER: My basic obligation and our responsibility is to make sure that the system as a whole -- as a whole -- has the ability to provide the credit that recovery requires. And so we need to make a careful judgment about what policies are going to best promote that objective.
KWAME HOLMAN: In the meantime, new lobbying reports showed the 10 leading recipients of rescue funds still are promoting their objectives. General Motors, AIG, Citigroup, and others spent $9.5 million on federal lobbying in the first three months of the year.
And according to the TARP inspector general, General Motors is set to receive up to $5 billion more in federal loans and Chrysler another $500 million. It's intended to tide them over as they labor to meet deadlines for restructuring.
At the same time, the Washington Post reported Chrysler's financial division has turned down government aid to avoid curbs on executive compensation. The company denied the account.
But amid the claims and counterclaims, the International Monetary Fund urged greater action to ease the global credit crisis. It projected U.S. financial institutions could end up losing $2.7 trillion, a sharp increase from just six months ago.