The watchdog agency overseeing the Troubled Asset Relief Program (TARP) said Friday that the Treasury Department paid banks $78 billion more for assets than they were worth.

The Congressional Oversight Panel said the Treasury dispersed $254 billion for capital purchases of bank assets worth about $176 billion under the TARP program.

“The loss estimate is conservative,” said House Financial Services Committee member Rep. Alan Grayson, (F-Fla.). “It could turn out that those assets in the end are worthless.”

The $700 billion TARP program has been under scrutiny since it began in October because of a general lack of understanding of how the program is being run and where the money is going.

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The congressional report is the latest in a series of revelations about the taxpayer-provided bailout money. An ongoing investigation by Money Morning has detailed how banks have used the first $350 billion: They’ve used the capital to finance investments in other banks and to pay bonuses to executives. Then they audaciously refused to say where the money went, or how it was used, Money Morning has shown.

The Congressional Oversight Committee detailed what the Treasury has spent so far in the TARP program.  In addition to the $194.2 billion spent on direct equity investments in banks, $40 billion funded a program to shore up American International Group, Inc. (AIG), $52.5 billion was set aside to stabilize Citigroup, Inc. (C) and Bank of America Corp. (BAC), and $20.8 billion was earmarked for Detroit automakers.

Neil Barofsky, TARP’s special inspector general, said in congressional testimony Thursday that he will ask companies to detail their planned use of the funds, including how they will comply with executive compensation rules. He will also ask the companies to document how the funds were used and to give the inspector general’s office accuracy certifications, Forbes reported.

“The most significant failing from a transparency standpoint: Understanding the process and criteria Treasury used to decide who would receive TARP funds and what the recipients have done with the hundreds of billions of dollars that have been invested,” Barofsky said.

The public’s stake in the nation’s banking system continues to mushroom as President Barack Obama’s team works to pull the economy out of the deepest recession in at least two generations. TARP, which is part of the $8.5 trillion the government has pledged to stabilize the economy, has guaranteed $350 billion to banks and the auto industry so far, with another $350 billion set to be allocated in coming months.

“Our money – and our economy – are on the line, and we all have a stake in the outcome,” Harvard Law School professor Elizabeth Warren told the Senate Banking Committee. Warren heads the five-member congressional oversight panel overseeing TARP.

So far, TARP hasn’t succeeded in clearing bad assets from banks’ balance sheets, which would allow the companies to lend money and get the economy going again, Gregory Miller, chief economist at Sun Trust Banks Inc. (STI), told Bloomberg News.

“It hasn’t cleaned up the asset side of bank balance sheets and it hasn’t helped bank uncertainty about bank balance sheets at all,” Miller said. “Uncertainty has now overwhelmed economic decision making.”

The lack of transparency has put TARP administrators on the defensive.  Neel Kashkari, appointed by the Bush administration to run TARP, on Dec. 5 told the Mortgage Bankers Association that the government isn’t “looking for a return tomorrow.”

“We are looking to try to stabilize the financial system, get credit flowing again, and over time, we believe that the taxpayers will be protected and have a return on their investment,” he said.

Indeed, former Treasury Secretary Paulson, who was succeeded last month by Timothy Geithner, originally promoted TARP as a possible moneymaker.

“This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” Paulson said Oct. 20.

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