Watchdog panel raises questions about government stimulus program

The Congressional Oversight Panel, created to monitor the $700 billion federal bailout program, is raising some red flags over the way the program is operating.

The panel, headed by Harvard Professor Elizabeth Warren, is concerned the Term Asset Loan Facility (TALF) may pose a risk to taxpayers due to inadequate safeguards. The panel is also worried the program may not be moving fast enough.

Created by the Bush Administration, the TALF program was designed to spur the availability of consumer and small business credit by loaning up to $200 billion to investors buying newly issued securities backed by those loans. Loans were to be available to institutional investors and hedge funds. The COP has reservations about the program being used to subsidize hedge funds.

Another problem with the program is that it has been of no help to one of its designated beneficiaries: automobile dealers. The TALF was expanded in February to cover leases for rental-car companies and loans to auto dealers for floorplanning. To date, none of the money disbursed has gone to support those loans.

The problem is TALF is restricted to backing only investment-grade securities and dealer floorplan loans, which average $4.9 million, are generally rated below investment grade.

The leadership of the National Automobile Dealers Association has met with government officials on numerous occasions, asking them to adjust the standards so dealers can get the financing they need.

Treasury Secretary Timothy Geithner will testify before the COP next Tuesday.