This page has been archived and commenting is disabled.
Treasury Responds To SIGTARP On Allegations Of Continuing Cronyism
TREASURY DEPARTMENT STATEMENT 7-20-09 ON CHARGE BY THE TARP SPECIAL INSPECTOR GENERAL [SIGTARP] THAT TREASURY HAS NOT ADOPTED
ADEQUATE PROTECTIONS IN ITS PPIP TOXIC ASSET PURCHASE PROGRAM:
As
noted, Treasury’s policies and procedures incorporate practically all
of SIGTARP's recommendations. The only substantial recommendation that
Treasury has declined to accept is to require that PPIP fund managers
provide an investment team that is exclusively devoted to the PPIF and
that the team be walled off from other employees of the fund manager, a
procedure that the FRBNY has required in certain of its programs.
After careful review of this possibility and extensive consultations
with SIGTARP, the FRBNY and potential PPIP fund managers, as well as
review of the use of information barriers or walls generally, Treasury
decided not to impose such a requirement.
While
using a segregated team to manage the PPIF might reduce the possibility
that non-PPIF investors could benefit at the expense of taxpayers,
Treasury concluded that such an arrangement is simply not practicable
in the context of PPIP. The goal of the PPIP is to restart legacy
securities markets by providing capital for investment and promoting
price discovery. The PPIP is meant to be a catalyst and to stimulate
activity by other investors. In order to serve that purpose, the fund
managers who are selected for the PPIP must have the experience and
expertise to attract private capital and make investment decisions
about legacy assets based on limited market information. The managers
selected by Treasury already advise funds that have investments in
these markets. Indeed, that is one of the primary reasons they have
been selected. For the reasons discussed below, it is not practicable
or necessary to insist that they assign a segregated investment team to
manage PPIF assets. Instead, conflicts of interest can be adequately
addressed through the alternative procedures that Treasury has
developed.
- Requiring a segregated investment team would be likely to reduce investment performance of the PPIF. Any potential
benefits associated with walling off the PPIF investment team from the rest of their firm would be outweighed by a multitude
of very significant drawbacks, including the following: - Requiring a segregated team would significantly diminish or eliminate the program’s access to a PPIP fund manager’s “A
Team” of investment professionals. It is usual and customary for investment professionals to work across multiple funds
that invest in similar assets. Fund managers told us they owe a fiduciary duty to all investors and Treasury should
not expect to be treated differently. Were Treasury to require that PPIP fund managers provide a segregated investment
team, either the fund manager would not participate at all or Treasury’s investment would be managed by a junior team that
would not be able to consult with the PPIP fund manager’s most experienced decision makers. The likely results would
be lower returns to taxpayers as well as diminished ability for PPIP fund managers to raise private capital, because private
investors would be less likely to want to co-invest with Treasury in PPIFs if junior teams of investment professionals would
be managing those PPIFs. - Walling off a few professionals to make all investment decisions would run contrary to the team-oriented investment process
that all PPIP fund managers employ. PPIP fund managers have been selected based on their experience and firm resources.
This investment process allows the investment professionals working on the PPIFs to leverage the firm’s collective experience
and pooled resources across all investment areas and provides significant synergy to the investment process. Implementing
a wall would significantly reduce performance and thereby potentially harm the taxpayer. - Requiring segregated investment teams for PPIP would increase risk by limiting fund manager participation in the PPIP
and forcing Treasury to invest through a smaller number of funds and investment strategies. In addition to reducing
returns to taxpayers, requiring segregated investment teams would increase risks. - Many PPIP fund managers have indicated that they would withdraw themselves from consideration as potential PPIP fund managers
should Treasury require a segregated investment team. This would require Treasury to concentrate its investment into
the hands of a few PPIP fund managers, which runs contrary to Treasury’s goals of establishing a broad and deep market for
Eligible Assets as well as diffusing the influence of any particular PPIP fund manager. - Requiring
a segregated investment team would undermine protections against fund
manager misconduct. The team approach to investment decisions provides
checks and balances within the organization. PPIP fund managers
indicated that the transparent nature of their investment approach
within the firm draws on senior professionals across business units and
inclusive of senior management. This provides enhanced supervision and
balances any one individual PPIP fund manager from acting in his/her
own interests or other potential conflicts of interest. - “Walling off” personnel and establishing separate software/systems would be time-consuming, costly and not feasible for
many firms (especially smaller firms). - Requiring segregated investment teams for PPIP is not necessary to mitigate the risks that are presented by this program.
- The
PPIP does not present the same kinds of risks as those that led FRBNY
to require segregated teams for some of its programs. Treasury has
spent considerable time discussing conflicts concerns and mitigation
strategies with FRBNY compliance personnel in order to understand why
they elected to require segregated managerial teams for certain of
their programs. We learned that FRBNY requires such segregation for
its MBS, commercial paper funding facility, and Maiden Lane programs
because those teams are in possession of material, non-public
information of FRBNY, which could be leaked to the rest of the asset
manager’s organization. PPIP fund managers will not have material
non-public information from Treasury. Instead, they will make their
own investment decisions and Treasury will be a passive investor.
Although Treasury has broadly defined the criteria for Eligible Assets
for the PPIP, Treasury will not be involved in the PPIP fund manager’s
investment decision making and analysis process, nor will it provide
feedback or guidance on what a PPIP fund manager should be purchasing.
To the extent there is a parallel to any of FRBNY’s programs, the
analogous program is TALF, in which FRBNY does not require a segregated
team because it does not pass any non-public information to TALF
recipients or any related agents. - Treasury’s Rules contain key mitigation controls and procedures that provide much stronger protections for taxpayers interests
without the drawbacks of “walling off” investment professionals. - The Rules require each PPIP fund manager to adopt and follow a fair and equitable trade allocation policy. Treasury will
approve that policy and Treasury and the oversight bodies will be able to review compliance with that policy. - The
PPIP term sheets give Treasury and SIGTARP access to data outside of
the books and records of the PPIF. Treasury and SIGTARP will be able
to review all trades in Eligible Assets by the PPIF and any other fund
managed by the PPIF manager no less frequently than on a monthly basis
(although some fund managers have stated that they can provide daily
access to this information should Treasury or SIGTARP require it).
This allows monitoring and auditing of all funds managed by the PPIP
fund manager’s firm that trade in Eligible Assets and allows Treasury
and SIGTARP to see the flow of Eligible Assets throughout the firm.
Treasury will hire a consultant with robust trading analysis systems to
review such data. Thus, Treasury will be able to evaluate whether the
PPIP fund manager is purposely disadvantaging the PPIF relative to
non-PPIF funds. - The PPIP term sheets strictly prohibit a PPIP fund manager from trading with affiliate funds.
- Treasury will have the unilateral right to remove the PPIP fund manager for cause and has certain rights to remove the
PPIP fund manager without cause with the consent of 51% of the private investors. - PPIP fund managers have internal/external audit and corporate governance processes. The PPIP fund managers have impressive
track records and reputations and all maintain strict internal policies regarding ethics and compliance. Each maintains
internal and external auditors and corporate governance processes. - While “walling off” investment professionals could further limit the risk that bad actors could inappropriately share
information, doing so will not eliminate these risks. Walls are permeable and can be evaded by individuals determined
to do so. Only through the development of a fair trade allocation policy and robust reporting/ monitoring of the PPIP
fund manager’s compliance regime can we protect the interests of taxpayers. Specifically, Treasury believes the best
control over the risk of inappropriate activities like front-running and improper affiliate transactions is to monitor and
analyze actual trading data on a frequent basis.
In summary, Treasury believes the rules and procedures outlined above constitute a comprehensive and robust regime for
preventing or mitigating manager conflicts of interest. [TD: hahahahahaha. Cliff Stearns please be reading this and don't wait until it is too late this time] These rules and procedures will further the purposes of the
PPIP and provide better protection for taxpayers without imposing the risks of requiring a segregated PPIF investment team.
Treasury
is in the process of expanding this department in connection with the
launch of the PPIP program. Treasury will devote whatever resources
are necessary to ensure that the compliance and risk regime it has
developed for PPIP is fully implemented. The compliance function as it
pertains to PPIP will include not only Treasury employees but third
party professional advisors, including advisors to monitor trading and
allocation activity in legacy assets across each fund complex.
Treasury staffing levels will be sufficient to oversee the independent
compliance function within each PPIF as well as the ongoing independent
audit function that is required to be performed on all PPIP fund
managers. Treasury compliance staff will also maintain regular
dialogue with each PPIF fund manager’s compliance department.
»
- 3979 reads
- Printer-friendly version
- Send to friend
- advertisements -
Andddd.....
Ha. We'll let those geniuses in Congress decide whether Turbo Timmy is doing enough to keep the public informed.
Oh, boy...
PHFFFFFF...
Couldn't resist with the acronyms.
PHUCK
O'Reilly chanting right now how OB will take the country into BK
Okay, it was fun while it lasted. I'm no mathlete at any level.
thats some deep reading. bookmarked for later.
The sad part is all guys on both sides of the table know this whole thing is a scam and a wealth transfer.
Is the more or less tiny PPIP the only issue here? SIGTARP apparently had a ton of complaints and the first paragraph waves a hand at them saying all is well and spends all the rest of the time on PPIP -- which is already a failure because it attracted no private money to speak of. I sense distraction here from the other SIGTARP issues.
Treasury will hire a consultant with robust trading analysis systems to review such data. Thus, Treasury will be able to evaluate whether the PPIP fund manager is purposely disadvantaging the PPIF relative to non-PPIF funds.
Hehehe.
Well, now I feel SO much better....
I say we recommend Paulson, Bernanke, and Geithner for sainthood, what say you?
Drunk Flagging. If youre an Anon, youre flagged for as long as the vicodin and vodka allow me to be awake.
"Specifically, Treasury believes the best control over the risk of inappropriate activities like front-running and improper affiliate transactions is to monitor and analyze actual trading data on a frequent basis."
Wow, so front-running is "inappropriate!"
So, what are the penalties for "improper" or "inappropriate" activities?
This document is ridiculous, and basically gives carte blanche to these traders.