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Why Neil Barofsky’s Book “Bailout” Matters

The former Special Inspector General for TARP gives a riveting - and highly disturbing - account of what went on behind the scenes in Washington in the wake of the 2008 financial crisis.

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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.