Selected Excerpts from: Neil Barofsky, Bailout ( New York: Free Press, 2012)
Neil Barofsky was the special inspector general (SIGTARP) of the Troubled Asset Relief Program (TARP). TARP was designed to stabilize financial systems, restore economic growth and prevent foreclosures after the great financial meltdown beginning in late 2008. TARP was initially provided with $700 billion in bailout money, which was later reduced to $475 billion in the enactment of the Dodd-Frank Act.
p. xv - "Either I started playing ball and would then get a plum appointment or a lucrative job on Wall Street, or I'd end up discredited and unemployed."
p. 7 - "In doing so, we were going to be stepping on the toes of the Justice Department, a preview of the hostility I would later have to deal with at Treasury."
p. 9 - "DOJ apparently viewed our success as proof of its own failure, and following the logic that is unique to Washington, it worked to kill our case."
p. 19 - "I had no idea that the U.S. government had been captured by the banks and that those running the bailout program I'd be charged with overseeing would come from the very same institutions that had helped [cause] the crisis and then become the beneficiaries of the generous terms of their bailout." And despite my experience with DOJ, I couldn't have imagined the ugliness of the Washington that I'd experience as someone who went against the grain by challenging powerful government officials and the Wall Street powerhouses."
p. 53 - "Finally, I learned that one of the most important things for IGs was performance statistics, the metrics on which IGs were judged by Congress and the White House."
p. 66 - " 'The number one goal of most agencies, is, frankly, to try and make the principal [Washington-speak for the head of the agency] look good, no matter what the actual facts are, even if it means lying to or misleading the press,' she explained." (Kris Belisle, hired as SIGTARP's press person).
p. 67 - (Kris) " 'In Washington, everyone is obsessed with the news cycle, twenty-four to forty-eight hours.' ".
P. 73 - "Treasury didn't require the banks to report on how they were using TARP funds,"
p. 78 - "I didn't realize that the type of transparency that we were pitching risked exposing CPP as the pure bailout it was, given to teetering 'too-big-to-fail' banks, none of which were on the brink of extinction."
p. 85 - "The mortgage-backed securities were a huge lesson for the banks. At every state of their creation and sale, the Wall Street institutions offering them raked in huge fees, and every firm that participated in the transaction (from origination through the final sale of the bonds) enjoyed huge profits."
p. 92 - "The economic models used by the banks and the rating agencies to evaluate loan-backed bonds failed miserably in the lead-up to the crisis because they failed to incorporate certain scenarios that had come to pass, such as house prices declining across the country simultaneously. Betting taxpayer money on similar models seemed unacceptably risky."
p. 127 - "Treasury, by rolling out a hurried and poorly thought out mortgage modification programs, had just helped give birth to the Tea Party."
p. 131 - "It became clear that Geithner and his team must have been so desperate to get toxic assets off the banks' balance sheets that they hadn't adequately considered the potential for massive taxpayer losses from fraud."
p. 132 - "We saw Geithner's Financial Stability Plan for what it was: an unprecedented trillion-dollar playground for fraud and self-dealing."
p. 138 - On March 4, 2009, the news broke that Treasury had authorized the insurance giant AIG to pay $168 million in 'extension bonuses' to employees in its Financial Products Division, the very unit whose reckless bets had brought down the company."
p. 149 - I was furious that Allison [Treasury official] had sent his officials to Congress to trash us behind our backs;"
p. 150 - Barofsky refers to the "duplicitous nature of the world I now inhabited..."
p. 153 - "The chaos of HAMP lured a host of criminal predators running fraudulent advertisements for 'guaranteed Obama modifications' from coast to coast."
p. 156 - "Helping the banks, not home owners, did in fact seem to be Treasury's biggest concern."
p. 157 - "The HAMP interest rate could rise by 23% after five years."
p. 159 - "Those managing TARP didn't seem to want the public to know about it because it was considered to be too complex."
p. 173 - "As we parried back and forth, Geithner repeatedly reached a pitch of anger, regaling me with detailed expletive-filled explanations that established my apparent idiocy."
p. 188 - "It was all part of the cloak-and-dagger routine in Washington. Hearings are cancelled at the last minute, but no one will tell you, leaving it to you to read the tea leaves and to infer from cryptic off-the-record comments what happened."
p. 197 - "Though some home owners might try to take advantage of the program by intentionally not making mortgage programs in order to qualify -- that risk paled in comparison to that created by Treasury by the way it had rescued the too-big-to-fail banks. Rather than requiring those executives to suffer the consequences of their failures, Treasury had handsomely rewarded those who had failed to do their jobs, saving their banks and making sure that almost all of them kept their jobs. and enormous bonuses that they had taken home before the crisis struck."
p. 217 - "This 'heads I win; tails the Government will bail me out' incentive system was still firmly in place. One of the best measures of moral hazard, though, was the metric that matters most to Wall Street executives, their pay. And rather than being scaled down in proportion to their epic failures in risk management, conpensation for the top twenty-five Wall Street firms in 2010 actually broke records at $135 billion."
p. 222 - "While Treasury and Wall Street were trumpeting that the big banks had all paid back their TRAP funds, the gaping deficits that became the focus of the fiscal debates are very much the result of the damage wrecked on the economy by the financial crisis. Even as the government spent more and more billions on stimulus and the bailouts, the recession sapped hundreds of billions in tax revenue out of its coffers. So those concerned with fiscal restraint should have been adamant about solving the too-big-to-fail problem and the fiscal horrors that would accompany the next fiscal crisis that it might cause."
p. 226 - Nearly 9 million jobs lost; 3.5 million homes underwater; and trillions in housing wealth lost. Under HAMP there were fewer than 800,000 ongoing permanent modifications as of March 31, 2012. -- a growth rate of 12,000 per month.
p. 229 - "The top banks are 23% larger than before the crisis." They have $8.5 trillion in assets; equivalent to 56 % of our county's annual output.
In his book, Neil Barofsky has painted a very bleak and dispiriting picture of what he found about how the national government works. He refers to the "ugliness of Washington" and the "duplicitous nature" of the world he inherited. He claims that careerism is rampant in the national government and that if you don't play ball you will find yourself discredited and unemployed. He depicts the Justice Department as trying to kill the case he is making as special inspector general monitoring TARP. He describes a Treasury official as trashing him before he, Barofsky, appears before a congressional committee. Treasury Secretary Tim Geithner is described as being in a "pitch of anger" and being generally unwilling to hear Barofsky's case.
Barofsky exposed deep flaws in the TARP and HAMP programs. Treasury didn't require banks to report on their use of TARP funds and its eagerness to get toxic assets off the books increased the potential for massive fraud. The public was not properly informed about the huge profits the big banks made through fast, loose and illegal operations. The HAMP program to help home owners was poorly promoted; produced a huge outpouring of fraudulent advertising that was not prosecuted; and was utilized by less than ten percent of underwater home owners. Readers of the excerpts published above will find further instances of how negatively Barofsky viewed his experience with TARP and the U.S. government.
ADDENDUM:
After Barack Obama was elected as president but before he was sworn in, he had an opportunity to provide major relief to underwater home owners. A $50 to $100 billion chunk of the $700 billion in TARP funds was initially designated to help underwater home owners, either directly through payments to them, or indirectly by easing the terms of their payment obligations. The outgoing Treasury Secretary Hank Paulson said he would not spend that chunk to aid home owners unless Obama agreed to support it. He didn't want to start it and then have Obama kill it after he became president. Former Rep. Barney Frank was intimately involved in the discussions and he described Obama as refusing his support, because he said the country couldn't have two presidents at one time. In other words, it was President George W. Bush's call.
Barack Obama's failure to support the bailout of home owners was a huge mistake, as ten or eleven million underwater home owners would have had substantial extra money to spend on the economy and the recovery from the financial crash in late 2008 would almost certainly have been much more robust.
Acronyms used: CCP - Capital Purchase Program --- HAMP - Home Affordable Modification Program was designed to aid underwater home owners. Underwater in this case means that home owners had insufficient income to pay their home costs. .
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