From the opening of this latest book on the government’s (mis)handling of the 2008-09 financial crisis, Neil Barofsky establishes his populist narrative from his two-plus years as the “TARP cop” overseeing the $700 billion big-bank bailout officially known as the Troubled Asset Relief Programme.
Mr Barofsky, a former Manhattan prosecutor, is the idealistic alien sent in an emergency to Planet Washington, where he does battle with the self-important, self-serving powers entrenched there or simply taking a spin through its revolving door to Wall Street. He is SIGTARP (in Washington-speak, the Special Inspector General for TARP). But ultimately he is outmatched, and evil triumphs over good.
In the preface to Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, it is April 2010, and after more than a year on the job, Mr Barofsky is meeting for a clear-the-air drink with one of his nemeses, Herbert Allison, the former head of the financial giants Merrill Lynch, TIAA-CREF and Fannie Mae, who came out of retirement to run the bank-rescue programme for the Treasury Department. Mr Barofsky is poised to let the hostess seat them at a front table of her choosing, but Mr Allison insists on a private table in the rear. Then he gets down to business.
“Have you thought at all about what you’ll be doing next?” Mr Allison asks Mr Barofsky, soon adding, “Out there in the market, there are consequences for some of the things that you’re saying and the way that you’re saying them.”
“Allison was essentially threatening me with lifelong unemployment,” Mr Barofsky concludes, and alternatively suggesting a plum government appointment some day if Mr Barofsky would simply “change your tone”.
When Mr Barofsky tells his deputy of the exchange, the deputy says, “It was the gold or the lead,” resorting to the lingo of their joint experience prosecuting Latin American drug kingpins in New York: cooperate and share the riches, or don’t and get plugged.
Mr Barofsky goes on to say that he did not really think that Mr Allison was threatening him; in fact, Mr Allison “was, in a very Washington way, sincerely trying to be helpful”. This introductory episode not only sets the book’s tone, it also embodies the contradictions and inconsistencies throughout the book.
He writes early on that “I had no idea that the US government had been captured by the banks,” and at another point describes his strategy to use the press to get the attention of Congress, and by extension an obstreperous Treasury: “Our message was simple: Treasury’s desperate attempt to bail out Wall Street was setting the country up for potentially catastrophic losses.” Yet, Mr Barofsky never really concedes that the predicted losses did not occur. He refers to the $700 billion bailout, never clarifying that less than $300 billion of that went out the door by the time TARP expired; that not a penny went to big banks during the Obama administration; and that those banks repaid taxpayers with interest.
To the extent that Mr Barofsky acknowledges that neither big losses nor big fraud cases occurred, he credits the anti-fraud measures he pressed Treasury to include in programmes and contracts. Yet his book is a chronicle of complaints that Treasury undercut, blindsided and ignored him. Perhaps the biggest criticism of Treasury Secretary Timothy F Geithner suggested by Mr Barofsky’s account is that Mr Geithner should have been a lot more conciliatory toward this zealous inspector general, if only to avoid becoming the biggest villain in Mr Barofsky’s morality tale. The headline grabber is an October 2009 meeting at which Mr Geithner erupts when Mr Barofsky tells him that TARP’s unpopularity and the public’s perception of Treasury as subservient to big banks is because of Mr Geithner’s lack of transparency about the department’s dealings.
Mr Barofsky, now a senior fellow at New York University School of Law, does a good job of describing the complex financial products at the core of the crisis. And he does open windows into how Washington works. For instance, Mr Barofsky develops backdoor relationships with the offices of friendly Republican lawmakers, leaking information back and forth to shape news coverage. Then he wonders why Treasury keeps him in the dark?
Mr Barofsky justifiably spends time on Treasury’s failure to get banks to stem home foreclosures. But he charges that Treasury helped give birth to the Tea Party “by rolling out a hurried and poorly thought-out mortgage modification program”; what actually spawned that movement was conservatives’ opposition to the idea of bailing out troubled homeowners, which Mr Barofsky so favours.
That his book is being released now, amid the presidential campaign, reflects perhaps the biggest contradiction of all: if Treasury has been making policies exclusively “by Wall Street for Wall Street”, as Mr Barofsky says, why then has a once friendly Wall Street turned so hostile to President Obama’s re-election?
An Inside Account of How Washington
Abandoned Main Street While Rescuing Wall Street
Free Press; 270 pages; $26
©2012 The New York Times News Service