A former government official responsible for overseeing the 2008 bailout funds said Treasury Secretary Steven Mnuchin was defying the law by locking in excess funds from the Federal Reserve’s emergency loan programs.

Neil Barofsky, a former special inspector general of the $ 700 billion Distressed Assets Relief Program (TARP), said placing $ 455 billion of remaining money in the general treasury fund violated the law on coronavirus aid, relief and economic security (CARES).

“[Mnuchin’s] by inventing it couldn’t be any clearer, ”Barofsky told Yahoo Finance Live in an interview on Wednesday.

Mnuchin last week ordered the Fed to close nine of its 13 backstops to various financial markets and return approximately $ 429 billion in unused CARES-affected money. The Treasury will also return about $ 26 billion in funds to lend directly to businesses, for a total of $ 455 billion.

On Tuesday, Bloomberg announced that the Treasury was going transfer the money to the general fund as opposed to the Exchange Stabilization Fund (ESF), which means the money could not be redeployed under a Biden administration without Congressional action.

Mnuchin argued that he is the interpreter of the CARES law. But Barofsky retorts that if that were the case, he would have no reason not to put the money in the ESF, where the Treasury would at least have the option of reusing the money for emergency purposes.

“The only justification for taking what is a legally questionable act to move these funds out of the reach of the Biden administration is to salt the Earth, limit their options, and leave the country in a more dangerous place for political gain. “said Barofsky, now a partner at the law firm Jenner & Block. “Complete shutdown. There is no legal justification for this.

Flashbacks to TARP

Barofsky was appointed by President George W. Bush in 2008 to oversee the TARP funds used to save banks, insurance companies and car manufacturers during the Great Financial Crisis.

The story continues

He told Yahoo Finance that there is a precedent for reallocating emergency funds, highlighting the Obama administration’s efforts to redirect $ 225 billion from TARP to the general treasury fund. Barofsky said an act of Congress was needed to move that money.

For the money of the CARES law, Barofsky points out Second. 4027 of the bill, which notes that on January 1, 2026, all remaining funds must be transferred to the general treasury fund for deficit reduction.

“The law does not allow him to do this until 2026,” Barofsky said.

Ultimately, Barofsky said the Biden administration could choose to ignore Mnuchin’s decision and reallocate funds to the ESF once the White House changes hands. But he said he didn’t expect the Biden administration to take such aggressive action, adding that he also wouldn’t bet on the Fed launching legal action.

As Mnuchin clarified, the ESF still has less than $ 80 billion for the Treasury and the Fed to restart its liquidity facilities if necessary. But the scale of these facilities would be much smaller than that of the 455 billion dollars initially committed.

Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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