The Troubled Asset Relief Program inspector Neil Barofsky has almost nothing good to say about the way the Treasury has handled the TARP. He released his latest report to Congress today.

His first criticism. which echoes a previous one, is that taxpayers are unlikely to ever get their investments in GM and Chrysler back. Chrysler’s sales problems are so severe that some auto industry analysts believe that the company cannot make it. The government’s $49 billion investment in GM will only be returned should GM’s “market cap” goes above $100 billion if the company goes public again. That would mean that GM would have to be worth nearly as much as Toyota (NYSE:TM).

The more stinging criticism from Barofsky is that the Treasury has been secretive about how banks that received TARP money used the capital. The Administration promised taxpayers that their investment in turning around the economy would be tracked and fully transparent. Members of Congress and the public have certainly hoped that some of the money put into troubled banks would come back out as loans to people and businesses. Instead, the capital appears to be going to management bonuses.

“Despite the aspects of TARP that could reasonably be viewed as a real success, Treasury’s actions in this regard have contributed to damage the credibility of the program and the government itself,” Barofsky wrote in the 256-page report that the public is about to see.

The problems with the transparency of the TARP goes back to its earliest days. It was never clear why Henry Paulson, then the head of Treasury, made a number of big banks take money that they may not have needed. It is equally unclear why institutions like Citigroup (NYSE:C) and Bank of America (NYSE:BAC), which were deeply troubled, were not forced to take more.

Paulson has an excuse. The credit systems was failing as he pushed money into banks as a ham-handed way of saving the system. That need has gone away. The Treasury should not find it difficult to report on what is happening to the TARP funds now.

Douglas A. McIntyre

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