Sigh. I feel like a disappointed parent.

When the details of the Open Government Directive were announced early last December I was unbelievably excited. Seriously. My long time hope that one day government would get “it” about the importance of putting public information online appeared to have arrived. Government data was going to become available as a default and that was going to start with an “inventory” (government's word) of the “high value information” (also their words, though less than ideal because who would ever agree what that means?).

Agencies were supposed to do two things with respect to releasing data: create an inventory of the “high-value information” currently available for download and identify high value information not yet available along with establishing a reasonable timeline for publication of that data online. It was that latter requirement that I salivated over. Certainly there are other important aspects of Open Government -- participation and collaboration are values we hold dear at the Sunlight Foundation. But yesterday was the day when the rubber was supposed to hit the road on data. For many agencies, they didn't even get out of the garage.

There are some very interesting data that's going to made available, almost immediately (and John Wonderlich, our Policy Director, has a post on it) but some agencies avoided the requirement entirely, some decided to say they'd make a plan to plan how to identify and release data, and others mentioned it but didn't explain how they would achieve it.

First, our quick review shows that a little more than half of the 30 agencies' plans we reviewed (18) specifically identified new data to be released -- 12 did not. (This includes some independent agencies.) The total number of data sets identified to be released -- approximately 89.*

89 data sets identified for release - across the entire federal government!? I'm speechless. I was looking for inventories of data (this is the Directive's word, after all) -- actual audits of what data each agency collects and dates of when new information would be made available. That is not what we got.

The Department of Health and Human Services (HHS) was among the best - identifying 14 new data sets to be released - and this is crucial data. While maintaining the privacy and identity of patients HHS will be releasing critical data about Medicare: everything from inpatient hospital stats to prescription drugs and hospice care. During an era on increased responsibilities for HHS this data is absolutely critical to keeping HHS effective and accountable.

Few agencies rose to the high water mark of HHS. Part of the problem might be attributable to cultural barriers and the illusion that some bureaucrats hold that this is "their" data vs "all of our" data. Part of the problem might have been time to pull the information together.

Maybe, a bigger part of this problem is a loophole in the Open Government Directive itself. By asking agencies to only inventory their "high-value" data it gave them an instant out for just about anything. Despite the White House's good intention in defining high-value as: "increase agency accountability and responsiveness; improve public knowledge of the agency and its operations; further the core mission of the agency; create economic opportunity; or respond to need and demand as identified through public consultation."

With a definition like that "high-value" could mean literally anything: if you collect a piece of data that is not to "further the core mission of the agency" why are you collecting it?

When you define a concept too broadly you end up not defining it at all. If we could roll back the clock on the Open Government Directive we would ask agencies to first list all data they collect and then create sub-lists of:

• data that is currently public but not online
• data that is currently public and online
• data that is not currently online but that will be put online and when
• for everything else, explain why it won't be put online

This would give us an instant picture of what the online (and therefore, public) landscape of federal government looks like and is an invaluable data set in its own right.

HHS, NASA, Education, National Archives and Records Administration and the Office of Personnel Management were the high water marks.

Defense, Homeland Security, Justice, State, Interior, Treasury, Veterans Affairs, US Agency for International Development and the Social Security Administration did not identify any new data to be made available - no inventories either.

Yes, I appreciate the extraordinary hard work put into the Open Government Directive by all those in the agencies and those spearheading it at Office of Management and Budget and the White House, and I wouldn't suggest that evaluating these plans based on just one of a couple dozen appropriate criteria is a totally fair reading of how successful this exercise was, but I have to look at it from what I feel is key for government accountability - data. That's my lens on the world.

We'll continue to evaluate agency plans all next week.

NOTES:

*We arrived at the 89 number via a very generous methodology. It all depends on how you define a "data set". Our complete inventory using a more exact methodology will be available soon.

Photo credit: "Idling" by Flickr user N1NJ4.

Earlier today, I gave a presentation on the executive branch's lobbying disclosure rules to the American Bar Association's Section of Administrative Law and Regulatory Practice at their 2009 Administrative Law Conference.

My slides from the conference are available below.

Yesterday, I called the Treasury Department in one last ditch effort to find their TARP Lobbyist Contact Disclosure Forms. I did so as final due diligence before publishing this blogpost, earlier today, in which I evaluated the TARP lobbying disclosure rules. In it, I noted that the required disclosure forms were eerily absent from Treasury's website.

This afternoon -- voila! -- 2 disclosure forms appeared. One form is dated 10/9/2009, and the other is dated 9/22/2009. Now, Treasury is required to publish these forms within 3 days of the lobbying contact, so we know that both of these forms were published outside of the 3 day window required by Treasury's own rules. (At a minimum, they weren't published here.)

What is also interesting is that there are only two lobbying contacts reported. This leads to a couple of possible implications: (1) Treasury has more forms to publish, perhaps some of which are late; or (2) Treasury has no more forms to publish right now. For the latter to be true, either no one has talked to Treasury about spending TARP funds over the last month, or the lobbying disclosure rules don't have a lot of bite and missed capturing lobbying communications.

It will be interesting to see what appears on their website in the upcoming days and weeks. I am still waiting for that phone call back from Treasury about my question: where are the rest of the lobbying contact disclosure forms?

In September, the Treasury Department released its TARP lobbying disclosure rules, nearly eight months after a press release heralding their creation, and a month after an Inspector General report bluntly urged Treasury to promulgate the rules. The rules require that the Treasury Department document communications through which companies lobby for TARP funds. Commonsense rules that increase transparency regarding lobbying communications can have the beneficial effect of reducing the likelihood and appearance of corruption, fostering better dialog, and enhancing the public's faith in the political process.

The rules promulgated by the Treasury Department attempt to meet the great challenge of improved transparency, but fall short of their potential. They are hard to understand, difficult to apply, and full of contradictions and omissions that undermine stated policy objectives. The rules should be clarified, rewritten, simplified, and broadened.

My initial review of the rules identified some key differences between the TARP lobbying rules and the stimulus lobbying rules, which were issued over the summer and document lobbying over recovery dollars. In the following sections, I analyze the TARP lobbying rules in considerable detail. Before doing so, here are two measures the Treasury Department should consider.

First, Treasury should implement an online searchable lobbying database of all disclosures required under the rules, which is updated in real-time. The public database should be searchable by date, communicant, subject matter of the conversation, and so on. The burden of collecting that data could be reduced by allowing staff to submit reports online.

Regardless of whether this database is built, all of the documents that the lobbying rules require be disclosed should be available in an easy-to-find place online. So far, I have been unable to find the lobbying communication reports on Treasury's website. The rules require that those reports be made available online within 3 days of a disclosable communication taking place. A phone call to Treasury seeking assistance with finding the disclosures has not yet been returned.

Second, Treasury (and the administration generally) should reconsider the format it uses to promulgate rules. Short, terse, lawyerly language, such as that contained in the TARP lobbying rules memo, is difficult for most people to follow. Treasury should use straightforward language, and define all key terms. Moreover, linguistic sign posts, such as improved headings and sub-headings, would provide a welcome roadmap. Furthermore, adding charts and decision trees to help explain the rules would provide a welcome complement to dense prose.

Overview of TARP Lobbying Rules

TARP, the Troubled Asset Relief Program, was created by the Emergency Economic Stabilization Act of 2008 to stabilize the financial markets via a Wall Street bailout. The TARP lobbying disclosure rules seek to “limit the influence of lobbyists and special interest[s]” regarding how the $700+ billion in TARP money is awarded, and “ensure that [government] investment decisions are guided by objective assessments” in promoting the “health and stability of the financial system.”

The lobbying rules apply only to communications with Treasury officials regarding TARP funds. In doing so, they break down communications into two categories, oral and written, and impose different transparency requirements on each.

Presumably, oral and written communications are regulated differently because of the varying ease and comprehensiveness with which federal employees can report the contents of communications. As to oral communications, it is impractical (and probably unwise) for federal employees to transcribe or tape record conversations and place them online. Thus, the rules require that certain oral communications be reduced into written form, with a summary of the communication placed online. This reductive process raises the spectre of improper communications uncaptured by a written report, and likely led to the administration's ban on certain oral communications. By contrast, written communications (i.e., documents) submitted for consideration by Treasury officials can be readily published online in their entirety. As a result, there is less concern about incompletely recorded communications, as all of the information is available for public inspection.

The TARP lobbying disclosure rules can have one of three effects on lobbying communications. They can permit a communication to occur without restriction, prohibit a communication, or allow a communication to occur but impose public reporting requirements.

Unrestricted TARP-related Communications

Any person may ask a Treasury official a logistical question regarding TARP funding or implementation without hindrance. Oral and written communications are allowed, and do not trigger rules requiring Treasury employees to report the communication. Logistical questions include inquires concerning (1) the application process for TARP funding, (2) deadlines for making funding requests, (3) to whom an application should be submitted, and (4) Treasury practices or program requirements.

In addition, the lobbying rules do not impose limitations on oral communications with Treasury officials at “widely attended gatherings,” which is precisely defined in the Code of Federal Regulations. The reasoning behind this rule, presumably, is that airing the communication in public gives those persons holding contrary points of view the opportunity to respond, and also reduces the likelihood of improper influence exerted through the communication.

Bans on TARP-related Communication

At the opposite end of the spectrum, the TARP lobbying disclosure rules ban oral communications regarding specific applications for funds in certain circumstances. It is likely they do so because it is difficult to fully capture and report the contents of oral communications. Specifically, the absence of transparency raises questions about the integrity of agency deliberations.

The rules break down the process of awarding TARP funds into three time periods, summarized in the timeline below. First is the period of time leading up to submission of a “formal application for financial assistance.” Second is the period of time from the submission of a formal application for funds until their “preliminary approval.” Third is the time after granting approval of preliminary funding. It seems to me that there should be a fourth time period demarcated by when the Treasury Department grants “final approval” to the expenditure of funds.

The lobbying rules ban all oral communications between Treasury employees and anyone else (with exceptions discussed shortly) regarding applications for TARP funds during the period between a “formal application” for funds and “preliminary approval” of funding.

What exactly is a “formal application” for assistance, or the granting of “preliminary approval?” The rules don't define those terms. It is also unclear why the ban on oral communications is limited only to the time period between formal application and preliminary approval.

Presumably, an applicant could draft an application for funds with the assistance of a Treasury official, only after which, once the application is “formally” handed in, would the applicant be prohibited from speaking with that official. Moreover, the communications ban would be lifted once the application is preliminarily approved. After preliminary approval, the same applicant could then speak with Treasury officials to advocate for additional funds. Perhaps the ban ends early because an agency may wish to speak with an applicant regarding refining an application. Even if so, as discussed later, there is an exception to the ban that specifically permits conversations initiated by Treasury officials, thus weakening that argument.

Of course, Treasury may have wished to make the oral communications ban as narrow as possible in light of the burdensome nature of such a rule. If so, then requirements to disclose the contents of oral communications, which are discussed in the section on reporting requirements, logically should apply to all other oral communications along these lines. They do not.

Exceptions to the Ban

Before examining the rules regarding reporting communications, we should identify the exceptions to the oral communications ban. As mentioned before, both logistical communications and communications made at widely attended gatherings are not subject to the ban. The TARP lobbying rules carve out two additional exceptions: communications initiated by Treasury officials, and communications between a federal executive agency official and a Treasury employee.

The first exception to the ban, which permits communications between Treasury officials and any person, so long as the communication is initiated by a Treasury official, is relatively straightforward. The FAQ accompanying the lobbying rules provides some context. It explains that Treasury officials may initiate communications to obtain information about pending applications for the purpose of evaluating the applications, among other (unidentified) reasons. It clarifies that agency officials “should not receive, be willing to receive[,] or respond to communications concerning pending applications unless the official affirmatively seeks or requires information about the application.”

The second exception, for communications between a federal executive agency official and a Treasury employee, is also relatively straightforward. The FAQ provides minimal additional insight into the rule, explaining merely that oral communications are permissible at any time. Presumably, the purpose underlying this rule is that members of the executive branch need to be able to speak about pending applications, and their need to do so outweighs any risk of improper influence or inadequate disclosure.

Notable here is that this second exception is narrower than that which exists in the stimulus lobbying rules, which allows communications by federal agency officials. The addition of the word “executive,” as Mike Stern ably explains, cuts Congress out from being able to lobby decisions-makers regarding the awarding of these funds. The White House is not similarly limited.

Overview: Reporting Requirements for TARP-Related Communications

The TARP lobbying rules impose reporting requirements on certain communications. Those rules depend upon whether a communication is oral or written. As a general rule, communications must be reported on the Treasury Department's website within three days. Presumably, those reports will appear at http://financialstability.gov/latest/reportsanddocs.html, although I have not been able to find them to date.

Reporting Requirements for TARP-Related Oral Communications

Although, in the vast majority of instances, oral communications are permitted with Treasury officials regarding TARP funds, those communications will often trigger public reporting requirements. Those requirements vary based upon whether the communication is with a registered federal lobbyist or someone else. This creates a large reporting gap.

Communications with federally registered lobbyists, regardless of whether the communication concerns general policy matters or a specific application for funding, must be summarized and publicly posted on the Treasury Department's website within 3 days. (Note that communications regarding logistical information or that take place at widely attended gatherings need not be summarized and reported.) That summary must include the date of the contact, identify the parties to the conversation, the names of the lobbyist's clients, and a “general, one-sentence description of the subject of the conversation.” In addition, any written materials submitted in connection with the meeting must also be posted online.

By contrast, Treasury officials do not need to report oral communications if the person they are speaking with is not currently a federally registered lobbyist.

Registered lobbyists comprise only a portion of the people who lobby on specific matters. To have to register as a lobbyist, a person must spent at least 20% of his or her total time on “lobbying activities” over a six-month period, and make at least one “lobbying contact.” (See this CRS Report for more details as to who must register as a lobbyist.) Consequently, many persons these rules would seemingly intend to cover, such as corporate CEOs and communications directors, who have substantial but not frequent communications with government officials, are not covered. Smart lobbyists will be able to easily navigate around this disclosure requirement via their colleagues.

Reporting Requirements for TARP-Related Written Communications

Certain written communications must be posted on the Treasury Department's website within 3 business days of the communication. This publication requirement is riddled with qualifications and exceptions that make it hard to understand and fail to capture relevant communications.

The rules recognize three broad categories of communications: general communications, communications regarding policy matters, and communications regarding specific applications for funds. General communications include communications on logistical matters, and are never required to be publicly disclosed. Communications on policy matters and specific applications for money must be disclosed in some circumstances.

Communications on Policy Matters

Only some written communications regarding policy matters must be disclosed. The key factor in determining whether disclosure is required is identifying whether the person making the communication is a lobbyist. When the person is a lobbyist, the communication must be disclosed; otherwise, the communication need not be disclosed.

It is unclear why the rule requires Treasury officials to disclose policy communications with lobbyists, but not the people these lobbyists represent. An easy work-around for those who wish to avoid the disclosure rules would be for the lobbyists to draft communications, but have a CEO, or other person who is not required to register as a lobbyist, send the letter.

Communications Regarding Specific Applications for Funds

Communications regarding specific applications for funds is slightly more tricky to understand, mostly because it creates a third class of people to whom the rules apply. The three groups of people are: federal lobbyists, TARP applicants or their representatives, and all other people.

All written communications by federally registered lobbyists regarding specific applicants for TARP funds must be publicly disclosed. There's a qualifying requirement, namely that the lobbyist must be writing on “behalf” of a client or employer. The word “behalf” is ambiguous, as it be defined “as a representative of or a proxy for” or “in the interest or aid of (someone).” Using the former definition, a lobbyist could be directed to ask for funds for someone other than his employer, and thus the Treasury employee would not be required to report that communication. However, that strikes me as an unreasonable interpretation, as one main purpose of the rules is to limit the (undue) influence of lobbyists and special interests through public disclosure.

It is worth emphasizing that the TARP lobbying disclosure rules have created a new class of people, TARP applicants or their representatives, for the purpose of disclosing certain types of written communications. Some, but not all, written communications from TARP applicants or their representatives regarding specific applications for funds must be disclosed. This category of people is significantly broader than federal lobbyists, and would likely cover the corporate CEOs, communications directors, and many others who have a vested interest in directing how TARP funds are used. It is unclear why this category of communicant was not used to help refine the ban on oral communications or rules requiring disclosure of oral communications. Doing so would have contributed significantly towards closing many of the loopholes identified above.

Regardless, Treasury employees must publicly disclose written communications from TARP applicants or their representatives, but only in limited circumstances. Specifically, written communications must be disclosed only when an application for funds is pending. This likely mirrors the ban on oral communications, which prevents some oral communications while an application is pending. As a result, it seems likely that written communications prior to a “formal application” for funding need not be disclosed. In addition, it is unclear whether applications are still considered “pending” after the agency gives preliminary approval to a funding request, or whether an application ceases being pending once an agency gives it final approval. The text provides no hint as to when the “pending” period ends. The disclosure rule would be more logical were it to apply all the way through final approval, although either interpretation is valid.

Even so, this discussion of “lobbyists” and TARP “applicants or their representatives” leaves out additional people who have an interest in swaying Treasury administrators to disburse funds (or change policy). These financial regulations omit business that are partners with companies that stand to receive government funds, or that are partially controlled by likely beneficiaries, and other persons with financial interests. Moreover, agents of foreign governments, who often lobby on behalf of companies based in their countries and who are registered under the Foreign Agents Registration Act, are ignored entirely. It is unclear why the rules would skip business partners and others that have pecuniary or political motivations with regard to influencing whether specific applications for funds are granted, or general policy matters that will affect future funding.

What's Next?

After the administration promulgated the stimulus lobbying rules, it reconsidered whether the rules worked as intended. During that rethinking process, the administration met with public interest organizations and others, and ultimately revised the rules. The Treasury Department should engage in a similar public process and reconsider whether its lobbying disclosure rules fully meet the transparency standards articulated by President Obama.

According to the Hill, yesterday the Treasury Department released its rules regarding "Communications With Registered Lobbyists And Other Persons About Emergency Economic Stabalization Act Funds." The rules are available on Treasury's web site, but there's no press release and no obvious hyperlink as of the time I am writing this blogpost, nearly a day later.

In late August, I wrote about the Special Inspector General's report that dinged Treasury for taking so long to release its rules for TARP (financial bailout) lobbying. It took Treasury 226 days to release these rules, since January 27th when the agency issued a self-laudatory press release announcing its plan to "develop new rules to increase transparency and curtail potential lobbyist influence."

Having now (quickly) read the TARP lobbying rules, they pretty much follow the Recovery Act lobbying rules initially promulgated on April 7 and revised on July 24.

Here are a few differences between the TARP lobbying rules and the final stimulus lobbying rules that I've noticed so far:

• The TARP lobbying rules permit communications regarding a specific project once it has received preliminary approval, whereas  the stimulus lobbying rules don't allow those communications until the project has been awarded. Thus, the TARP rules leave open a window of opportunity for lobbying between "preliminary" and "final" approval. I don't have a sense of how long that window is open or the "final" approval process.

• The TARP lobbying rules are a bit unclear (at C(iii)), but seem to permit oral communications with Treasury employees regarding applications for financial assistance that, instead of encompassing all federal employees, encompass only federal executive agency officials. The stimulus lobbying rules are much broader, and permit communications with more federal and some state officials. Treasury's closing these exceptions may have the effect of reducing the amount of outside pressure placed upon the agency to spend money. These rules have also cut Members of Congress out of the lobbying picture -- reducing the ability of lobbyists/financial interests to get Members of Congress to lobby for them. It is unclear (but unlikely) that doing so raises Constitutional questions regarding Congress' oversight powers.

• Both sets of rules allow oral communications regarding particular projects right up until a formal application is filed, as contrasted with the interim version of the recovery act lobbying rules that stopped oral communications when the government official thought that a proposal would be filed. As a result, both the final stimulus lobbying rules and the TARP lobbying rules allow lobbying right up until the last moment. This may allow more give and take between the government and those engaged in lobbying, but may also increase the possibility of undue influence.

Considering the nearly-identical nature of the TARP lobbying rules with the stimulus lobbying rules, it is curious why it has taken so long for Treasury to promulgate these rules, and why it seems to have done so in such a quiet manner.

The similarities also cause me to wonder whether this iterative process of producing lobbying rules may lend itself to creating regulations that could ultimately have much broader applicability.

Recently, as part of our work  with Pew on Subsidyscope.com, we’ve been taking a close look at the performance of investments made through the Treasury’s Troubled Asset Relief Program (TARP). My colleague Ryan Sibley and I investigated an inconsistency between the language Treasury initially used to describe the TARP Capital Purchase Program (CPP) and the language found in a footnote on the final contracts. In many cases the change may have diminished the value of Treasury’s investments; at a minimum, it’s resulted in confusion over the program’s actual terms.

Under CPP, Treasury purchases a stake in ailing banks in the form of preferred shares and warrants – the intention being that these assets will be sold, once the banks recover, allowing the government to recoup its original investment. The pricing of these assets is critical to ensure that Treasury, and in turn taxpayers, receive a fair deal. If the price is too high Treasury receives a smaller stake in the bank and will not get as good a return once the assets are sold, potentially resulting in a subsidy to the bank.

Most of the assets Treasury received under CPP were in the form of preferred shares, a special kind of stock with a guaranteed dividend payment. However, Treasury also received a smaller number of warrants to buy common stock equal to 15% of its investment. The warrants set a “strike price” for the stock based on the current market price, allowing Treasury to buy stocks at that price on a future date – up to 10 years from the date the warrants are issued. If the strike price was set at $20 and the market price for the stock returns to or exceeds the strike price Treasury would be able to buy the stock for $20, pocketing any difference. However, if the price never returns to $20 the warrants would be worthless.

The inconsistency we discovered involves how strike prices are set. The term sheet Treasury posted on its Web site when CPP was announced last October describes a method for calculating the strike price based on the average market price over the 20 days before a transaction closes. However, in the final contracts with CPP recipients Treasury chose to calculate the 20-day average based on the date the banks initially applied for CPP funds; in many cases these dates differ by weeks. In the intervening period the stock prices for many banks declined, resulting in a difference in the final strike price of as much as 30% when comparing the two methods of calculation.

We examined 228 CPP transactions and found that 185 (82%) received less favorable pricing as a result of the language change. On average the new language raised the strike price of the warrants by 8% (to Treasury’s detriment); the difference was worse for many of the larger transactions. For example, with Bank of America, which received $25 billion under CPP, the strike price found in the final contract was $30.79. It would have been $25.94 based on the language found in the term sheet, a 16% difference to Treasury’s detriment. (See this Google spreadsheet for a full list of transactions and our calculation of strike prices.)

It’s important to point out that the strike price should not be confused with the “value” of the warrant. While the strike price is one factor, the final determination of value depends on future performance of the stock. As a result, “options pricing” as it is called, requires simulating the possible outcomes to judge the likelihood that the market price will return to the strike price. This is both complex – the most common method for doing this, the Black-Scholes equation, garnered a Nobel Prize in 1997 – and is far from an exact science. (See this recent New York Times article on the challenges of quantitative finance, including a discussion on Black-Scholes.) That said, the less favorable the strike price, the less likely it is that Treasury will be able to use the warrant to help recoup its investment.

Also, it’s worth noting that Treasury was fully within its rights to change the program language. In fact, Treasury may have been attempting to ensure a better deal for taxpayers on the assumption, although incorrect, that prices would rise after banks initially joined CPP, in turn inflating the final strike price.

The fundamental problem is one of transparency and clarity in communicating the program’s terms. Today the Treasury’s website still presents key documents that incorrectly describe the strike price calculation – only by reading the footnote on the last page of the contract would a visitor to the site realize that the actual terms differ from the terms described in many more prominent locations. Perhaps then it’s unsurprising that even some of the participating institutions have incorrectly communicated the strike price calculation in SEC statements and press releases. And even as recently as January, Bloomberg ran an article incorrectly describing the terms.

Given the magnitude and complexity of programs like CPP we should ask for all the clarity we can get.

Update: This FAQ from the Federal Reserve has a good run-down on the stress tests.

This week, FDIC chair Sheila Bair issued a statement to reassure bank shareholders against the threat of nationalization that "a 'stress test' for some 20 of the largest banks this week will help federal policymakers determine 'what type of additional capital investments the government may need to make.'" While this may help federal regulators assess the stability of the big banks, the public may remain largely clueless. This is due to a Treasury Department decision to not release the results of "stress tests."

On February 11, the New York Times reported that "exams for 18 or so of the biggest banks are set to begin immediately, and the first results could arrive within weeks. They are not expected to be made public for every institution." This seems less than adequate. Marc Ambinder of The Atlantic makes the point that results will be kept private except,

They don't have to be. And won't banks who're found to be in good shape be eager to brag about their health? ("I'd image they'd want to should that from the mountaintops," a government official told reporters today.") Ok -- so you have a bunch of banks revealing their test results -- presumably, the banks that are healthy will be more open, leaving the banks that are less well capitalized keeping the secret. But won't it then be obvious which banks are in real trouble?

After the missteps and general opacity of the first TARP, the level of trust among the public is quite low. Many would find the assertion that a bank is "healthy" as incredulous. What is needed is transparency for these "stress tests."

Calculated Risk laid out a fairly good format for this back on February 12. They first explain that tested banks will likely fall into three categories: 1) Healthy. 2) In need of further TARP aid. 3) Nationalize or sell. Here's what they say about releasing the "stress tests":

The NY Times article suggests that the results will not be made public for every institution, but that will just lead to rumors and speculation. It would be better to announce the category of all 18+ banks at the same time (in 30 days or so). At that time announce the capital infusions for the category 2 banks, and the nationalization of the category 3 banks.

Do it all at once, band-aid style. The release of this information is vital to restoring the trust of the American people in the government's effort to rescue the banking sector and restore credit.

The tests are described by the New York Times as follows:

The new test is likely to be more stringent than the standards used to determine which banks would receive money under the first round of the federal rescue. And unlike in the government’s initial investments, the amount of capital that banks receive will be based on the depth of their problems.

Regulators plan to assess the potential losses a bank could face over the next two years, rather than the typical one year, according to government officials close to the situation. They are also expected to look at banks’ exposure to derivatives and other assets normally carried off their balance sheets, and make sure that banks also carry an additional capital cushion. Their assumptions will be guided on a “worst case” basis.

The exams could be used not only to determine which large banks would receive additional aid but also to help weed out small, unhealthy banks, hastening consolidation in the industry.

Numerous outlets have reported, and catalogued here, that political influence - campaign contributions, lobbying - has been part and parcel of the bank recovery (bailout) plan passed by the Congress and carried out by the Treasury Department. The Center for Responsive Politics reports that bailout recipients spent $114 million on political influence over the course of 2008. According to the Los Angeles Times, the special inspector general for the bank recovery Neil Barofsky is beginning an audit into political influence in the bailout.

Amid growing public consternation with the federal banking bailout, the Treasury Department's special inspector general has opened an examination of political influence in handing out some of the $350 billion in federal bank bailout funds, The Times has learned.

The audit, which has just begun, is broad in scope but will focus on lobbying activities by financial institutions and what the special inspector general, Neil Barofsky, has called "outside influences."...

Sen. Charles E. Grassley of Iowa, the senior Republican on the Senate Finance Committee, asked Barofsky earlier this week for an investigation into possible political meddling in the Troubled Asset Relief Program, or TARP. Grassley has been among the most vocal critics of how the program is working.

Barofsky apparently had already decided on such an investigation. He disclosed his plan deep in a 189-page document sent to Congress on Feb. 6, saying he had begun a "general audit reviewing outside influences on the [TARP] application process."

The investigation hints at what could be a long, drawn-out legal drama. Barofsky, a former federal prosecutor, has his own multimillion-dollar budget and is aligning his office with other federal law enforcement agencies, pledging "robust criminal and civil enforcement against those, whether inside or outside of government, who waste, steal or abuse TARP funds."

It is imperative that the final audit results released by the special inspector general's office be made available online as required under the recently passed Improving Government Accountability Act. This act requires, among other provisions strenghtening inspector general offices, that all inspector general reports be made available online 1 day after their release.

The possibility that political influence has effected the bank bailout exists and could be a serious problem for the continuance of the program. Aside from the review that Barofsky is preparing, new disclosure rules need to be enacted for lobbyists engaging with government officials in all bodies and at all levels.

Starting today, the Subsidyscope Web site tries to bring a little order to the government’s bewildering economic rescue effort. A project of The Pew Charitable Trusts and the Sunlight Foundation, the site will offer data and analysis on federal market interventions of all types over the next several years. What better place to start than the bailout – the acronym-rich array of stock purchases, loans and loan guarantees that seems to grow bigger each day?

We begin by offering a database of transactions under the Treasury Department’s Troubled Asset Relief Program, better known as TARP. Here you can find the name of each institution that got TARP money; its location; its size (as measured by total assets); and the amount and date of the transaction. We also show a breakdown of the potential subsidy costs of these stock purchases and loans, as estimated by the Congressional Budget Office. TARP transactions become subsidies when the government pays more than market value for stock or makes loans at below-market rates. About a quarter of the $247 billion allocated by Treasury as of Dec. 31 constitutes a subsidy, the CBO reports. In our chart, you’ll see that the subsidy rates for some transactions – e.g., loans to General Motors and Chrysler, estimated by the CBO at 63 percent – are quite high. The average rate for all transactions is 26 percent.

We’ll add numbers, graphics and documents to the site in the coming weeks and months. The aim is to make Subsidyscope a source of comprehensive, easy-to-understand information on the bailout and other massive federal programs.

As news spreads that a consensus Wall Street bailout plan is being finalized, and leaders negotiate between proposals submitted from the Treasury Department, Senator Dodd, Representative Barney Frank, and others, two separate conversations are taking place. One is public, as the nation struggles to evaluate the urgency of the economic situation, and to understand the best course of action.  The other, however, is not public, as the compromises and deal making -- the real stuff of urgent policy-making -- are held in the dark.

The Sunlight Foundation is calling on Congress to publish the proposed bailout legislation as soon as possible, to give constituents and lawmakers themselves as much time as possible to examine the specifics of the proposal before it's voted on.  We will post the draft legislation to PublicMarkup.org as soon as possible, to give citizens a chance to weigh in on the proposal's specifics.

Congress faces urgent pressure from the Administration and from constituents to act. Regardless of the course of action Congress ultimately chooses, this is a decision that must be made in full public view. If citizens don't have a chance to evaluate the legislation, how can Congress possibly represent their constituents' needs?

The need for sunlight is especially required for urgent or emergency legislation. All too often, Congress praises transparency as a democratic value, but violates it in practice. Any lack of transparency in consideration of this legislation would be especially ironic since lawmakers have blamed the current crisis on financial malfeasance that was hidden from public view.

We have called the relevant congressional committees and have asked for copies of the new consensus legislation.  As soon we get it, we'll be posting the text of the legislation online at PublicMarkup.org.

Now more than ever,  Congress must represent the needs of all Americans, and to give everyone - citizens and lawmakers alike -- a chance to participate actively in the legislative process.

Before the bailout proposal is considered by lawmakers, it must undergo an even more important test: evaluation and assessment by the public.