How the government will track $500B in bailout funds

“We thought that rather than the extremely expansive version our Democratic colleagues were pushing for, we ought to follow the model of the TARP approach, where we would focus on specific transactions,” Sen. Pat Toomey (R-Penn.) said Wednesday.

The effectiveness of the measures will hinge on how the new oversight entities are structured, what powers they have and — perhaps most importantly — who’s selected to run them, according to watchdogs and veterans of the bank bailout oversight programs.

“You can create an inspector general, but you have to make sure he or she has the necessary authority,” said Neil Barofsky, who served as the special inspector general overseeing TARP. “You have to pick the right person. It’s kind of a meaningless position if you don’t have someone who’s going to fight for independence and to bring the necessary transparency and have the experience to protect against fraud in a program of this size and scope.”

The bill would create a Treasury Department special inspector general to scrutinize the Treasury loans and establish an oversight panel tasked with protecting taxpayer dollars. It would also create “real-time public reporting” of Treasury transactions, according to Senate Minority Leader Chuck Schumer, including terms of loans, investments or other assistance to corporations.

In addition, the bill would prohibit the Treasury loans or investments from going to any business controlled by the president, vice president, members of Congress and the heads of executive departments.

The proposed Treasury funds include $46 billion for passenger airlines and other industries and $454 billion to support Federal Reserve lending programs to businesses, states and municipalities.

The bipartisan congressional oversight commission that the bill would establish to examine decisions by Treasury and the Fed would consist of five members appointed by the GOP and Democratic leaders of the House and Senate, according to legislative text circulated Wednesday.

“This is above board,” White House economic adviser Larry Kudlow said on Fox Business on Tuesday. “Everyone will get a chance to see it. Nothing’s going to be hidden.”

TARP was also subject to a special inspector general and an oversight board. Before she was elected to the Senate, Sen. Elizabeth Warren (D-Mass.) became a progressive icon in part because of her role leading TARP’s Congressional Oversight Panel, where she grilled figures such as then-Treasury Secretary Tim Geithner about the bank bailouts.