Why Neil Barofsky’s Book “Bailout” Matters
Neil Barofsky’s new memoir Bailout, is not just a great read, it’s also a very important story about what happened after the financial crisis. Barofsky, who was the Special Inspector General for TARP, was in a vantage point to view the entirety of the Obama policy apparatus, from the use of TARP to pad bank balance sheets to Treasury’s PPIP program to the reorganization of the auto industry to the housing crisis. And he doesn’t disappoint, packing the story full of flashy anecdotes which give more than any book I’ve read a sense of what it’s like to be in DC in a powerful position where your goal is not to get along with the actors controlling the status quo. The book paints the atmosphere in DC’s melange of agencies, bureaucracies, and Congressional halls as a mix between the drudgery and petty bureaucracy of Office Space and the world-cleaving tension of Too Big to Fail. As a Congressional staffer, I worked a bit with Barofsky’s office, so I’m going to give a slightly different perspective on the book than what you might have read elsewhere. You see, what very few have picked up on, even those who liked this book, is that it’s essentially a story about the importance of Congressional oversight in reigning in corruption, and the problems of our imperial Presidency.
By way of background, it’s helpful to understand why Barofsky was even in DC and what his job actually was. As it turns out, the US government has a variety of mechanisms for preventing corruption. The one relevant to this story is the Inspector General position, which is a standard oversight “ombudsman” style operation that pretty much every government agency has. These officials are supposed to oversee their departments, writing reports about their activities and ferreting out problems and corruption. IGs tend to report their findings to Congress (usually to the special subcommittee on oversight for each specific committee), and Congress then takes action (or not). Barofsky was the Inspector General for the Troubled Asset Relief Program, or TARP, a position created by a skeptical Congress when Treasury Secretary Hank Paulson asked for $700 billion to buy toxic assets on the balance sheet of various banks.
To put it simply, this is the book that explains that in fact, yes, your suspicions of what Treasury was up to are correct. It’s not a series of hints and parsing of statements of various high level officials, it’s a straightforward account by a watchdog who fought with Geithner via bureaucratic tricks, the press, in Congress, and in meetings with Treasury and DOJ personnel. Throughout Barofsky’s 27 months in office, members of Congress on both sides of the aisle and Neil Barofsky’s office worked together to attempt to reign in the worst of Treasury’s abuses.
The book is a memoir, and it starts just before Barofsky went to Washington as SIGTARP, recounting briefly his career in the US Attorney’s office in the Southern District of New York. The Southern District is an office with jurisdiction over Wall Street, a track record of effective high profile white collar prosecutions, and a strong bipartisan alumni network. Barofsky talks about one of his cases going after the narco-terrorist cartel in Colombia, or FARC, and how he jousted with various government agencies – the DOJ and the State Department – to push the case forward in the face of bureaucratic stubbornness. Barofsky came dangerously close to being assassinated by the cartel, as he learned later. At one point during the case, while on the Amtrak train, he noticed a man staring at his computer screen, and it turned out to be Joe Biden. Biden told him that the biggest obstacle to enforcing international narcotics laws was not corruption or traffickers, but “the United States State Department.” It’s these little nuggets that are the heart of the book. For instance, at one point, Barofsky notes that if you see the media reporting on a high profile arrest of a criminal, it’s most likely that the FBI leaked the arrest to the press, since the agency is a notorious manager of its own self-important image. Barofsky also discusses another case, of a fraudulent commodities company called Refco, which introduced him to the complexities of the modern financial system, including the repo market. Barofsky presents himself, accurately, as a straight shooter New York Southern District prosecutor, someone who dislikes DC and just wants to do his work going after bad guys.
Of course, in 2008, he is called to Washington, as the last appointee of the Bush administration, to staff a new position overseeing the bailouts. He’s a Democrat, but somehow secures a Bush appointment, and he learns that it’s the bipartisan network of the Southern District alumni who get him the spot, because of his experience going after Refco. He heads to DC, and persuades his colleague Kevin Puvalowski to become his deputy. The book goes through setting up the offices, with the attendant bureaucratic problems of everything from getting office supplies to getting responses from Treasury to understanding what the role of an IG actually is to walking through how the various overseers of TARP and officials in the Bush and Obama administrations behaved over email and in meetings.
This book illustrates the bureaucratic pettiness and power of the Obama administration, as well as explaining the role of Congress in the process of running government. One of SIGTARP’s first initiatives was an attempt to find out how banks were using their TARP funds; Treasury didn’t want this done, and argued it was impossible to find out, since money is fungible. It was an absurd argument, of course, and Barofsky went ahead to try and send out surveys to TARP recipient banks. Yet, the Office of Management and Budget must approve all government requests for information to the private sector, and held up their surveys. Barofsky explained this slight delay to Barney Frank in a meeting, and Frank who immediately got on the phone and screamed at Geithner. The surveys went out. Score one for Congress. Again and again, in the book, Barofsky works with Democrats and Republicans in Congress to expose problems with TARP and the bailouts, prevents errors by the Federal Reserve and Treasury, and publicly shame the administration into improving their housing programs.
Perhaps the most important revelation in the book is a meeting with Geithner that Barofsky recounts, where Geithner says that Treasury’s housing initiatives were successful, despite their inability to stem the tide of foreclosures. The programs were meant, Geithner says, to “foam the runway” for banks, spread out foreclosures since banks couldn’t take a hit all at once. The publicly stated rationale for administration housing initiatives, in other words, was simply a lie. The Obama administration didn’t try to prevent a foreclosure crisis, they just spaced it out to help the large banks. This is very important information, and it’s useful that it has come out now.
Institutionally, Barofsky identifies his major points of leverage as the press and Congress (as well as working with DOJ to send some bankers who stole TARP money to jail). His reports generated outrage, and Congressional action. As a result, Treasury had to routinely modify their programs in response to this scrutiny. Congress just loved what Barofsky was doing, because he was validating the suspicions that Treasury was handing taxpayer money over to the banks, and being specific about how that was happening.
I particularly liked Barofsky because he essentially positioned his office as an extension of Congressional oversight. During the period of the bailouts, institutionally, Congress was badly outgunned by the Fed and Treasury, who were working with banks and bank lobbyists to share information and put out aggressive PR. When I was a staffer for Congressman Alan Grayson on the Financial Services Committee in 2009-2010 during this same period, I saw enormous skepticism towards Treasury and the White House. In one of my first staff meetings with Treasury, Congressional staffers literally laughed at Treasury staffer answers to simple questions. But we didn’t have the ability or time to really investigate what was going on. For example, I was one staffer covering five to seven issues for my boss, there was also fundraising, politics, travel to the district, constituent services, the health care fight, NASA reauthorization, cap and trade, and so forth. SIGTARP was one of the few reliable entities we could work with that was dedicated to ferreting out problems with the bailouts. Grayson was obsessed with a really bad deal Treasury had signed with Citigroup to guarantee a couple hundred billion dollars of Citi’s bad assets, so he sent a letter to SIGTARP asking them to look at it. The result was this report, a thorough and high-quality examination of the Citigroup-FDIC-Treasury-Fed deal circumstances surrounding it. That was how Barofsky built such credibility and influence, by leveraging the natural institutional desire on the part of Congressional actors to have oversight and better information over the programs they were voting for or against.
Think about this for a second. Congress’s approval rating is in the toilet, and the legislature is used as a scapegoat for any number of problems. The public likes the President, broadly speaking, but thinks of Congress as immensely corrupt and inept. Barofsky’s book essentially says that the public has this story backwards – it was Treasury, he argues, who was uninterested in preserving taxpayer dollars from fraud. And it was Congress, figures like Barney Frank, Darryl Issa, Richard Shelby, and others, who were the major forces behind what little accountability there was towards the banks. Even more shockingly, Barofsky notes that actors in the Bush administration, from Hank Paulson to Neel Kashkari, were more honest and reliable than those in the Obama administration. Barofsky, a self-described Democrat, found this surprising.
Ultimately, this book is about political corruption, and how it actually works in subtle forms in DC. Barofsky begins Bailout with an instructive anecdote. Sitting in a restaurant with millionaire banker turned Treasury official Herb Allison, he recounts how Allison tried to bribe him. Allison implied that if Barofsky goes softer on the administration, he’ll get a judgeship, or something along those lines. If he does not, well, Barofsky’s going to have a tough time finding post-government work, and he has a young family, so that might be something he should keep in mind. Barofsky’s colleague and deputy Kevin notes that this is a very similar operating model of the drug cartels, who offer either the “gold or the lead”. It’s more subtle and less violent in DC, but the principle is the same. In my experience, this rings true. Winning reelection is far less important than playing ball.
If there’s one problem with the book, it’s that Barofsky never follows this analogy to its logical conclusion. Treasury’s programs, he says, are inept, incompetent, wasteful, intellectually captured, etc. DOJ is afraid to prosecute big cases, unable to go after bankers, etc. Various Treasury officials were deceptive in proposing various programs or engaged in spin or outright lies. But Barofsky never comes out and says either that the Bush or Obama administration pursued policies that were corrupt, for ulterior motives that would accrue to their personal gain. He never argues that TARP itself was itself a scam, or that the lawyers at the Justice Department will personally profit from their government work protecting the banks. Allison offered him the gold or the lead, but Barofsky doesn’t explicitly draw the implications of what that means.
But this is a small criticism. Bailout is a fabulous book, and it rings true to what I saw from my small corner of Congress, and what many of you saw when following the bailouts and the policies pursued by the Bush and Obama administrations. Finally, someone who was there in a pivotal role has a book telling this story.