TARP probe delayed over paperwork rule

The Obama administration has told special investigators in the Treasury Department to delay a comprehensive examination of how banks and other corporations are using $350 billion in federal bailout money because of possible conflicts with federal paperwork statutes.

The delay sparked an angry response from the senior Republican on the Senate Finance Committee, Charles E. Grassley of Iowa, who called the action “very disturbing” and said the administration had “sent a terrible signal by creating all sorts of red tape.”

Neil M. Barofsky, special inspector general for the Trouble Asset Relief Program, or TARP, was set this week to begin asking every bank that received money from the bailout to document its use of the money and plans for complying with the program’s restrictions on executive pay.

Amid growing criticism of the Treasury Department’s handling of the bailout, the probe is the most expansive effort to determine whether banks are fulfilling the bailout’s mission of unfreezing credit and expanding lending to help lead an economic recovery.

But before Barofsky could send out the letters, the Office of Management and Budget, the White House’s agent for managing the executive branch, told Barofsky that his plan could run into trouble with the Paperwork Reduction Act.

The 1980 law is enforced by the OMB and was intended to reduce the paperwork managed by the federal government and reduce the burden on the private sector to generate paperwork for the government. The OMB could have issued a rare emergency waiver of the law.

On Friday evening, an OMB official said the agency was conducting an “expedited review.” He said he knew of no fundamental disagreement about the investigation, but rather that the delay involved making sure proper procedures were being followed.

The dispute was disclosed Friday by Grassley, who cosponsored the legislation to create the special inspector general. Among many others, Grassley has been critical of the lack of transparency in the TARP program.

The OMB had told Barofsky, a former federal prosecutor, that he would have to issue a notice of proposed inquiry to the banks, give them 15 days to wait for comment and then justify to the OMB that he had taken into account the banks’ concerns, Grassley said.

Barofsky “should not have to jump through bureaucratic hoops in order to gather basic information that the government could have and should have required as a condition of the receipt of TARP funds in the first place,” Grassley told OMB director Peter Orszag in a letter. Grassley also disputed whether the paperwork law applied to the investigation.

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ralph.vartabedian @latimes.com