Financial reform and budget cuts often induce the government to get creative. Making the best of resources and doing more for less become pivotal when performance and taxpayer confidence is on the line, but how government goes about that can have mixed results, according to TARP regulatory observer Amy Poster and Deloitte government analyst, Bill Eggers (pictured.)
Both experts weighed in on the latest episode of the Federal Spending webcast late last month during which host Eric Kavanagh tackled two diverse expense categories that share at least one common thread: financial significance.
The first half of the show focused on the Troubled Asset Relief Program (TARP), featuring expert guest Amy Poster of iHarbor Capital. Poster recently completed a stint as a federal regulator focused on TARP. She noted that TARP allocated the lion’s share of its $432 billion to the financial sector in 2008. Banks received 74% of the total, while the auto industry and housing market received 17% and 9%, respectively.
Poster, whose role was to audit and analyze various programs borne of TARP, called the disparity staggering. “TARP may have helped prevent the collapse of the financial market, but at the expense of consumer programs,” she said.
To wit: part of TARP, the Home Affordable Modification Program (HAMP) sought to help homeowners deal with the mortgage crunch. Widely underutilized, the program fell short of expectations. “It’s been a mitigated failure,” said Poster. “Only 6.6%, or $3 billion, of the $45.6 billion that was allocated to the housing program has been spent. It’s shocking, but true.”
According to Poster, a high number of applicants did not qualify under HAMP, essentially forcing consumers to turn to private institutions. Poster cited a government study which determined that HAMP mortgage reductions were 35% more than what private banks were offering– a huge savings in cost, but unrealized by most consumers.
A lack of foresight seems to be the culprit. “The Office of Financial Stability that oversees all of TARP had good intentions,” said Poster, “but the programs were rolled out too quickly to get into the weeds of what was necessary to make it successful.”
Poster pointed out that while TARP did enjoy some success–namely the exit for Chrysler–the jury is still out on General Motors and its financial arm, Allied Financial. Further, the government still owns 77% of common stock in AIG, an investment that has many biting their nails.
“What I find troubling is the market sensitivity of the U.S. taxpayer trying to get out of these investments,” said Poster. “In order for the taxpayer to break even, the U.S. treasury has to be able to sell the stock for somewhere around $52.30.” However, she said AIG stock is nowhere near that. The closest it came was last year, at $38.00.
Cutting losses and cutting budgets are two sides of the same sword, noted Bill Eggers of Deloitte.
He says that cutting is usually an exercise that ironically uses a blunt instrument to dole out cuts across the board. “It ends up being more of the same with less money,” he said. “The inevitable result is typically not more for less, but less for less.”
Eggers recently published “Public sector, disrupted,” a report on how seemingly impossible innovations can provide opportunities for governments to more efficiently shape public services and processes. The key, said Eggers, is to do things differently. Innovations in technology, especially ones that are disruptive, can drive down costs without hurting performance.
“Thanks to disruptive innovations, much of our world looks radically different than it did just a decade or two ago,” said Eggers. Pointing to examples in the private sector like air travel, cinema and communication–once expensive and cumbersome–Eggers said we see falling prices and improved service. And the public sector is starting to catch on.
“Today, the military trains more joystick pilots who are piloting unmanned aerial vehicles or drones, than it does bomber and fighter pilots combined,” Eggers said. Once considered science fiction, drones are now 50% of the actual U.S. fleet of aircraft, and their performance has increased without a huge spike in cost.
The intelligence community has also made strides in innovation, combining open source with deep data analytics. “Typically, secret sources are very, very costly between the satellites and the listening and so forth,” said Eggers. But now, with social media and data mining, intelligence agencies are able to glean as much if not more information for a fraction of the cost. “That’s going to dramatically change how we think about intelligence.”
Not to be outdone, NASA is probably the most involved in employing disruptive innovation. As a method of building a space industry ecosystem, NASA prolifically puts their data out to the public, challenging ordinary (albeit, science-minded) citizens to find solutions to space-related problems.
Disruptive innovation is doing more than shaping process it’s shaping the entire approach to the workforce. According to Eggers, the average lifespan of a given skill set will soon go down to five years, making continual training and education a must if one is to stay relevant within a profession.
Said Eggers: “It’s a pretty amazing time, but it means we’re all going to have to up the game. The way to do that is by continually learning and engaging in collaborative communities.”
Listen to the show.
AOL Episode Page
Past episodes of Federal Spending
Amy Poster’s Article on TARP: Download the PDF
Bill Eggers’ Article on Disruptive Innovation: Download the PDF
This Federal Spending show is produced by Inside Analysis in collaboration with Breaking Gov. Please share your thoughts on Twitter with #FedSpend. Federal Spending is an apolitical program designed to follow the money, not the politics or personalities. We broadcast Thursdays at Noon ET for one hour. Guests may stream the audio live without registering.
Contact Info:
Host: Eric Kavanagh, eric.kavanagh@bloorgroup.com – 512.426.7725
Producer: Rebecca Jozwiak, rebecca.jozwiak@bloorgroup.com – 817.320.3495