In Wall St. bailout, U.S. overpaid by $78 billion

A congressional watchdog has concluded that the federal government gave financial institutions a $78-billion subsidy last year by overpaying for stocks and other assets as part of its massive Wall Street rescue plan.

In a report scheduled for release today, the congressional oversight panel for the bailout funds found that in some cases the government paid dramatically more than the value of the stocks at the time of the transactions.

Ailing insurance giant American International Group Inc., deemed by the Treasury Department to be too big to be allowed to fail, received $40 billion for assets valued at $14.8 billion, the panel found.

The findings added to the frustrations of lawmakers angry about the $700-billion rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry M. Paulson.

The misgivings come as new Treasury Secretary Timothy F. Geithner is preparing to place the Obama administration’s imprint on the program with a new framework for aiding banks, loosening credit and helping reduce foreclosures. Geithner plans to unveil the changes Monday.

In a bright spot for the rescue program, the same banks that received capital infusions from the Treasury Department have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month.

The oversight panel examined 10 transactions, including eight made under a capital purchase program designed to put liquidity into the banks in hopes of easing credit. That money went to banks considered financially healthy but in need of capital to make loans.

Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies facing serious financial difficulties.

Overall, the panel and the analysts it retained to conduct the valuation study found that the Treasury Department used taxpayers’ money to pay $62.5 billion more than the value of assets in the 10 transactions it examined. By extrapolating to the more than 300 institutions that received money, it concluded that the government in effect paid $78 billion more than the actual value of the assets at the time.