When President Obama was campaigning back in 2008, one of his most solemn promises was to have a more transparent administration than his predecessor, George W. Bush. If the Treasury is any indication, however, then the administration has lost its passion for candidness. Over just the past few days, on three separate occasions the Treasury has been taken to task for its efforts to obscure the facts. Has it broken its promise?
A $40 Billion Loss for AIG?
The first, and perhaps highest profile accusation of concealing truth comes from the persistent pebble in the Treasury's shoe -- Special Inspector General for the Troubled Asset Relief Program Neil Barofsky. Remember that great news from a few weeks ago that AIG might be able to pay back all but $5 billion of its massive bailout? Mary Williams Walsh from the New York Times reports that Barofsky has a different calculation.
He says that the Treasury concealed $40 billion in likely losses for taxpayers from the AIG rescue. That's not exactly peanuts. He further asserts that the Treasury is providing incomplete information, and calls this an "failure in their transparency."
Naturally, Treasury disagrees. Spokesperson Mark Paustenbach responds:
The charge by Mr. Barofsky that our AIG valuation was done for political gain is pure nonsense. After the restructuring, Treasury will own 1.65 billion shares of the company, and those shares have a readily identifiable price on the New York Stock Exchange. Anyone capable of basic multiplication can do the math. We have been upfront from the beginning about our plan to exit taxpayers' investment in AIG in a responsible way.
So this boils down to whose estimate you think is more accurate -- Treasury's or Barofsky's. Perhaps we'll know more in November, when an auditor examines AIG's financial statements.
Wiggling Out of Freedom-of-Information Act Requests?
A reporter has few weapons in fact-finding, but one old standby is the Freedom of Information Act request (FOIA). Government agencies must provide information to the public when they request it, so long as doing so does not violate several standards of sensitivity and personal rights. But the Treasury appears to be making tremendous efforts to release as little information as possible about its financial stability programs.
On Monday, Bloomberg reported on its own difficulties in acquiring information through a FOIA inquiry by reporter Mark Pittman in 2009 requesting that the Treasury identify $301 billion in securities it guarantees, which are owned by Citigroup. Here's what the article says:
More than 20 months later, after saying at least five times that a response was imminent, Treasury officials responded with 560 pages of printed-out e-mails -- none of which Pittman requested. They were so heavily redacted that most of what's left are everyday messages such as "Did you just try to call me?" and "Monday will be a busy day!"
To make matters worse, J.P. Freire of the Washington Examiner discovered that the Treasury has hired outside consulting firm Phacil to help -- precisely with minimizing the data disclosed through FOIA requests:
Officials at the Treasury Department's Office of Financial Stability contracted with a small consulting firm that has given nearly $25,000 to Democratic candidates since 2005 (and no money to Republicans) to hire "Freedom of Information Act (FOIA) Analysts to support the Disclosure Services, Privacy and Treasury Records." The firm is currently advertising a job opening for a FOIA analyst with experience in the "Use of FOIA/PA exemptions to withhold information from release to the public." (Emphasis Freire's)
That certainly looks like a smoking gun. This morning, after Freire's article ran, Phacil changed the job description (without notice) to read more benignly:
Use of FOIA/PA exemptions to withhold information from release to the public that is considered classified, sensitive or falls outside of FOIA/PA guidelines (my emphasis)
While there's a practical point in the Treasury wanting to minimize the time it spends dealing with FOIA requests, it shouldn't contract with a firm that seeks a talent for withholding information as a key qualification for processing inquiries.
When I inquired to Treasury about this, spokesperson Steven Adamske said that Phacil was originally contracted in 2007 under the Bush administration, but was now a subcontractor, i.e. not directly contracted by the Treasury. But the latest TARP monthly report (.pdf) from the Treasury, posted on October 12, 2010 continues to list Phacil as under contract. I'm awaiting further explanation from Treasury on this relationship, and I will update this post when I get one.* (See below for update.)
No matter who is responsible for hiring Phacil, the Treasury should avoid using contractors that openly seek to "withhold information from release to the public." That's essentially the opposite of transparency.
How a 36% Return Is Really a 5.6% Return
Finally, the Treasury also appears to have engaged in a little more creative accounting regarding their toxic asset portfolio. Bloomberg recently reported that the securities had a 36% return. (Update: Treasury says that they estimated the return between 19% and 52%) That sounds great, right? It was so good that we noted the finding yesterday. But Ash Bennington from CNBC's NetNet talked to a finance professor, Dr. Linus Wilson University of Louisiana at Lafayette, who questions this calculation:
Dr. Wilson began by explaining the derivation of the 36% figure: "If you take a simple average of the eight fund returns, you get a 36% annualized return. That's what Bloomberg did."
But, according to Wilson, there are other factors which must be accounted for in calculating the actual rate of return.
"Two thirds of the taxpayer's investment is in debt: Taxpayers are receiving a meager 1% return on two thirds of their investment -- only the one third that is in equity is doing well."
From that, it sounds like he says Treasury is taking a simple average instead of a weighted average. Wilson says they're also annualizing returns in a way that makes them look twice as nice. But again, this all boils down to whose math and calculations you believe. Unfortunately, since the Treasury doesn't release the detail about the securities they hold (as Bloomberg can attest to!), it's hard to get a clearly valid third-party confirmation of its claims.
If the Treasury really is out for better transparency, then it certainly should approach these situations differently. For the performance of its holdings, it should provide accurate, plausible best-case and worst-case scenario estimates compiled by unbiased third-party sources -- not just its own optimistic view of how things will turn out. Moreover, if there's some good reason it cannot provide information to reporters, then it should provide that reason -- not worthless e-mails that may have been compiled by a firm hiring its employees based in part on their talent for skirting disclosure. These methods of obscurity are the opposite of what Americans were told to expect from President Obama.
Update: From Treasury:
Treasury initially contracted with Phacil-for FOIA support-during the Bush Administration, in late 2007. The Phacil contract was awarded pursuant to a sole-source process (through the SBA 8(a) program). The original contract was for one year. Treasury exercised two additional one-year options on the Phacil contract. The contract expired on September 12, 2010. Main Treasury (DO) does not have any current contracts with Phacil. However, we understand that Phacil may work as subcontractor pursuant to an existing agreement between Treasury and Central Research, Inc. for FOIA support. The Bureau of Engraving & Printing has a separate contract with Phacil for "HR Support Services."
Perhaps it's good that the contract has expired, but it was almost certainly in place over the period that the Bloomberg inquiry was being "answered," and renewed at least once under the Obama administration.
And a subsequent update: More from Treasury, regarding the document I found stating that Phacil was approved by Treasury in May 2009:
At the time (May 2009), Phacil was working under a contract with Treasury, specifically, the Office of Disclosure Services ("DS"). DS in turn entered into an internal agreement with OFS, pursuant to which Phacil provided administrative FOIA assistance to OFS -- including intake, perfecting requests, database entry, and tracking. OFS reimbursed DS for the work, which then paid Phacil pursuant to the contract.
The Phacil contract with Treasury expired on Sept. 12, 2010. And Phacil never had a contract with OFS. The attached link provides a list of all OFS contracts, and Phacil is not listed: http://www.financialstability.gov/impact/contractDetail2.html
So Treasury did, indeed, have a contract with Phacil through September 12, 2010. And the Office of Financial Stability subsequently utilized Phacil through an internal contract with the Office of Disclosure Services.
One more Update: This time, from Phacil:
We at Phacil believe deeply that Freedom of Information is critical to our democracy. At the same time, we are committed to following the guidelines/rules regarding release of information according to the Freedom of Information Act which protects privacy and national security. We thank J.P. Freire at The Examiner for bringing to our attention the incomplete job description.
So according to the company, the job description was incomplete. If so, that was a pretty big mistake. Glad to see it got corrected.