Audit of $700B Financial Sector Bailout Fuels Criticisms of Paulson, Bernanke

Lawmakers from both ends of the political spectrum are revolting against the Treasury Department's execution of the $700 billion financial industry bailout plan after the first comprehensive report on the rescue package found more oversight was needed.

In response to the report, released this week, House Republicans on Wednesday warned Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that without greater accountability Congress will be in no mood to release to the Treasury the second half of the $700 billion.

"The government has burned through nearly $350 billion of (bailout) funds and is pledging trillions of dollars more through other programs, yet little is understood about how these investments are contributing to the nation's economic recovery," 12 House Republicans, led by Minority Leader John Boehner, wrote to Paulson and Bernanke.

Congressional Democrats want the financial rescue money to be used to help homeowners through the Troubled Asset Relief Program, or TARP, which has been in place in since Oct. 3.

The House Financial Services Committee intends to hold a hearing next week on oversight if TARP, FOX News has learned.

President-elect Barack Obama also said he wanted to use a significant portion of the money to stanch foreclosures by helping struggling homeowners with their mortgages.

"The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes," he said.

The Government Accountability Office said Tuesday that the Treasury Department has no mechanism to ensure that banking institutions limit their top executives' pay and comply with other restrictions.

The auditors acknowledged that TARP was less than 60 days old and has been adjusting to an evolving mission. But they recommended the Treasury work with government bank regulators to determine whether the activities of financial institutions that receive the money are meeting restrictions on executive pay, dividend payments and repurchasing of shares.

In a response to the GAO, Neel Kashkari, who heads the Treasury Department's Office of Financial Stability, said the agency was developing its own compliance program and indicated that it disagreed that it needed to work with regulators.

So far, the government has pledged to pour $250 billion into banks in return for partial ownership. It also has agreed to provide $40 billion to troubled insurer American International Group. In addition, $20 billion of the money was invested in Citigroup and another $20 billion went to the Federal Reserve to help ease credit stresses.

Lawmakers quickly pounced on the GAO's findings.

"The seemingly ad hoc implementation of TARP has led many to wonder if uncertainty is being added to markets at precisely the time when they are desperately seeking a sense of direction," the GOP letter said.

The lawmakers asked for an explanation of the government's exit strategy from the "sweeping involvement in private business." They also demanded that Paulson and Bernanke explain what they intend to do with the second $350 billion "for maximizing its effectiveness" and pressed them for more information about government loans, the risks associated with the loans and expectations for repayment.

There is concern among Democrats as well. House Financial Services Committee Chairman Barney Frank said Treasury's response comes "very close to telling the institutions that they will be free to use the funds as they wish."

"The bad news was confirmation by the GAO in its first report about the program that Treasury has no way to measure whether taxpayer funds invested in banks are being used in accordance with the purpose of the law to increase lending," Frank said. "The much worse news is Treasury's response that it does not even have the intention of doing so."

The Associated Press contributed to this report.