The Treasury Department "lost credibility" when it said its first capital injections from the $700 billion financial rescue were for healthy banks, the inspector general for the Troubled Asset Relief Program said.
In a report issued today, the inspector, Neil Barofsky, said then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke had concerns about the finances of several of the nine banks in which the government invested $125 billion last October. Two of those lenders, Bank of America Corp. and Citigroup Inc., were later given more aid….
"Treasury may have created unrealistic expectations about the institutions' condition and their ability to increase lending," he wrote. "Treasury and the TARP program lost credibility when lending at those institutions did not in fact increase and when subsequent events—the further assistance needed by Citigroup and Bank of America being the most significant examples— demonstrated that at least some of those institutions were not in fact healthy."