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America's plan to rid banks of billions of dollars of toxic assets is open to fraud and could benefit investors more than taxpayers, a top level report to Congress said today.
Neil Barofsky, appointed special inspector for the $700 billion (£481 billion) Troubled Asset Relief Programme in December, warned that subsidies for the public-private investment partnerships could expose taxpayers to higher losses without any equivalent increase in the potential to make profits.
"Aspects of the scheme make it inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering," he said.
The US Treasury has given fund managers until Friday to pitch for the right to manage public-private portfolios of illiquid assets mainly based on sub-prime mortgages which have been bought from banks.
Barofsky called on the Treasury to impose strict rules on the funds created and said investors should be screened and their stakes made public.
