MICHAEL R. CRITTENDEN
The Wall Street Journal
February 25, 2009

WASHINGTON — The U.S. government’s rescue of the financial system is vulnerable to fraud that could potentially cost taxpayers tens of billions of dollars, government watchdogs warned lawmakers Tuesday.

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Neil Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program, told a House subcommittee that the government’s experiences in the reconstruction of Iraq, hurricane-relief programs and the 1990s savings-and-loan bailout suggest the rescue program could be ripe for fraud.

He also said fewer than 5% of banks receiving government aid have responded to a request about what they have done with their bailout money.

The comments come as the Obama administration prepares to pour more money into the financial sector. Federal banking regulators begin a series of “stress tests” at the largest U.S. banks this week to determine whether they need greater infusions of government funds to survive a worse economic downturn.

“History teaches us that an outlay of so much money in such a short period of time will inevitably draw those seeking to profit criminally,” Mr. Barofsky said.

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