TEXT OF STORY

Bob Moon: For all the positive spin the Treasury secretary was giving Congress about the bank bailout today, there was a counterpoint from the man charged with rooting out fraud and abuse in the program. Special Inspector General Neil Barofsky released a 250-page report. And as Marketplace’s Steve Henn reports, the watchdog office has already launched 20 criminal investigations.

STEVE HENN: Neil Barofsky’s looking into a wide range of allegations of abuse, everything from insider trading in the $700-billion bank bailout to allegations of fraud in the mortgage-modification program.

BERT ELY: I am skeptical.

Bert Ely is a banking consultant.

BERT ELY: I think we need to see a lot more in the way of specifics and details.

Several analysts say that major banks — already on the ropes and dependent on the government for their survival — would have to be nuts to risk breaking the law.

But Bill Black, a former bank regulator and law professor, believes that the public-private partnership designed to help investors buy troubled assets from banks could be a disaster in the making.

BILL BLACK: The TARP II program is a complete invitation to fraud and abuse.

And the Special Inspector General — Neil Barofsky — seems to share some of those concerns. He says the program is quote “inherently vulnerable” to fraud and collusion between investors.

So how would that work?

BLACK: A cash for trash scheme.

Black worries that Bank A could agree to buy Bank B’s bad assets at inflated prices if Bank B returned the favor. Normally that would be nuts.

BLACK: Except that I, of course, don’t have to put up my own money.

They borrow it from taxpayers instead, and if the assets lose value they don’t have to pay back the loans.

So Black says banks, by working together, could get high prices for bad assets and leave taxpayers with the bill.

In Washington, I’m Steve Henn for Marketplace.