US economy bail-out goals 'not met'



Lending to businesses and consumers has fallen according to Mr Barofsky. The US economic bail-out programme has done little to ensure that financial crises do not occur in the future, a key watchdog report has said.



While conceding that "some aspects of the financial system are more stable", it said that a number of the bail-out's key goals "have simply not been met".



Most notably, banks are still too big and lending has not increased. The $700bn (£440bn) Troubled Asset Relief Program (Tarp) was approved by Congress at the end of 2008. It has been widely credited with playing a vital role in turning round the fortunes of the US economy, which returned to growth during the second half of last year after a long and deep recession.



Fundamental problems


But it has failed both in hitting key targets and in putting in place measures to prevent future financial crises, according to the watchdog charged with overseeing the programme. "It is hard to seen how any of the fundamental problems in our financial system have been addressed to date," said special investigator general Neil Barofsky.



"Even if Tarp saved our financial system from driving off a cliff back in 2008," he warned, in the absence of "meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car".



Mr Barofsky said some US banks remained "too big to fail", while investors were more convinced than ever that the government would step in to save them in the event of another crisis.



There was little incentive, therefore, for banks to curtail risky trading activities, he argued. His report also highlighted the failure of Tarp to increase financing to US businesses and consumers - a key aim of the programme. "Lending continues to decrease," it said.



Banking reform


Mr Barofsky also said Tarp had failed to help struggling homeowners and to relieve unemployment.



"The Tarp foreclosure prevention programme has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation." The unemployment rate in the US stands at 10%, but fell slightly between November and December.



Earlier this month, US President Barack Obama proposed a tax on big banks to try to recoup some of the taxpayers' money spent through Tarp. He also outlined far-reaching reforms of the banking sector specifically designed to prevent another crisis, including limits on the size of banks and restrictions of some risky trading practices.




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