WASHINGTON — A government official says the financial overhaul enacted last summer won’t deliver on its promise to end bailouts.
Special Inspector General Neil Barofsky said in a report released Tuesday that recent comments by Treasury Secretary Timothy Geithner and other top regulators suggest the government would rescue banks if one of them threatened the broader financial system.
Geithner said last month that despite the tools included in the sweeping financial law, “we may have to do exceptional things again” to prevent a crisis similar to the one that peaked in 2008.
“His acknowledgment serves as an important reminder that (the bailout’s) price tag goes far beyond dollars and cents, and that the ultimate cost . . . will remain unknown until the next financial crisis occurs,” Barofsky said in the quarterly report to Congress.
Barofsky provides independent oversight of the $700 billion bailout fund created in 2008.
He said in the report that the prospects for recouping taxpayer money are far better than anyone could have dared to hope just two years ago. He said the Treasury Department is likely to recoup most of the $160 billion of bailout money that remains in private hands.
But Barofsky noted that the bailout solidified the view among investors and bankers that the government will continue to save banks whose failures threaten the financial system. The handful of largest banks got bigger during the crisis by absorbing weaker rivals. A single failure now would cause even more damage, Barofsky said.
The Obama administration touted its overhaul of financial rules as a prescription to end future financial bailouts.
