Jan 31, 2010 11:48 AM by Associated Press

Watchdog: Bailouts created more risk in system

An independent government watchdog is warning that the response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future.

Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP, says the problems that led to the last crisis have not yet been addressed, and in some cases have grown worse.

In his quarterly report to Congress, Barofsky writes institutions considered "too big to fail" have grown larger and failed to restrain lavish pay for executives. He says banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

Much of Barofsky's report focuses on the government's growing role in the housing market, which he says has increased the risk of another housing bubble.


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