Improve bailout plan oversight

The skeptical reaction of lawmakers to the Big Three automakers' plea for financial help reflects a major public concern about government bailouts. Those doubts are underscored by a report from the Government Accountability Office, which questions the effectiveness of the financial sector bailout, to this point.

The GAO noted in its report this week that the Treasury Department was unable to say whether the $150 billion it has spent so far is having a positive effect on the economy.

Another major shortcoming, cited by the congressional watchdog agency, is the absence of information about how financial institutions are using the funds, including for executive compensation.

The GAO recommends collecting information in two major areas. To determine the overall effectiveness of the Treasury cash-for-banks program, it urges tracking interest rate spreads, mortgage rates, and the number of mortgage issues and foreclosures.

The GAO reports, as of the end of November, none of these indicators has turned upward.

More controversially, the GAO wants Treasury to collect, bank by bank, the information on how each institution is using its new capital. "Treasury should work with the [federal] bank regulators to establish a systematic means of monitoring and reporting on whether financial institutions' activities are consistent with the purposes" of the bailout, the GAO concluded.

The Treasury Department and the Federal Reserve Board insist that the recovery is best measured in broad terms, not bank-by-bank.

Their position reflects the belief that banks should be trusted to make the right allocations of capital according to their individual opportunities and needs, including the retention of talented employees.

The opposite view, taken by the congressional auditors, implies that all banks should give first priority to restoring credit operations, the reason why Congress enacted Treasury's Troubled Asset Relief Program.

Congress should follow the GAO's advice and demand that banks open their books. Bankers could soon rue the day they had to turn to Congress for taxpayer funds and accept operating orders from politicians. That should be an incentive for getting the government off their books and their backs as soon as possible. And it should be a warning to the automakers and their union of a downside to the bailout road.

Meanwhile, the GAO needs to keep prodding Treasury to report as much data on the effects of the Asset Relief Program as possible.

As the GAO observes, more monitoring and reporting are required to "help assure an appropriate level of account- ability and transparency."