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Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street Hardcover – July 24, 2012
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“Bailout is a jaw-dropping play-by-play of how the Treasury Department bungled the financial bailouts… With a prosecutor's logic and copious footnotes, Barofsky makes it clear things are rarely what they seem in Washington.” (USA Today)
“[Bailout] is an interesting behind-the-scenes account of how Washington tried to save the economy… [and] an enjoyable tale of how a prosecutor of Colombian drug gangs got drafted for the thankless task of policing a $700 billion bailout from a dank basement office of the Treasury.” (Fortune)
“[An] everyman account of the pervasive cynicism and insider-dealing of the D.C. establishment.” (The American Spectator)
“[One] of our favorite business books so far this year…The former special inspector general policing the $700 billion Troubled Asset Relief Program lifts the lid on the U.S. Treasury and settles scores… [an] illuminating memoir.” (Bloomberg Businessweek)
“A damning indictment of the Obama administration's execution of the TARP program.” (Washington Examiner)
“A quick, intense, read.” (Business Insider)
“[Barofsky] set out to account for the TARP spending in a transparent, nonpartisan manner. However, as he demonstrates in his energetically written first-person account, he and his staff met resistance every time they tried to share the truth with Congress, the White House and the American public… a courageous, insightful book that offers no cause for optimism.” (Kirkus (starred review))
“Blistering in its assessment of the Treasury Department's handling of the bailouts.” (Huffington Post)
“In his scathing new book, Barofsky says taxpayers got shafted while the rich got richer… a true expose…. Taxpayers who feel helpless in the midst of the extended economic recession are likely to feel energized to metaphorically blow up the system after reading Barofsky’s account.” (St. Louis Post-Dispatch)
“[An] explosive account of the mishandling of the Troubled Asset Relief Program funds.” (Fort Worth Star-Telegram)
About the Author
Neil Barofsky served as the Special Inspector General in charge of overseeing TARP from December 2008 until March 2011. For eight years prior, he was a federal prosecutor in the US Attorney’s Office for the Southern District of New York, during which time he headed the Mortgage Fraud Group. Currently, Neil Barofsky is a senior fellow at New York University School of Law. An alum of the University of Pennsylvania and the New York University School of Law, this is his first book.
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"...as I was walking out of the meeting, another IG commented on my most recent public fracas and said, "I wish I could do the same thing, but I've got kids in college. I need this job." (p. 54)
Barofsky soon learned that the entire financial regulatory apparatus in Washington had been carefully designed to benefit the banks-- the very institutions they were meant to monitor. As Neel Kashkari, assistant secretary at Treasury, warned him:
'"The banks view you as the TARP special prosecutor. They're terrified of you. They view their regulators differently. They know them. They trust the regulator who is on site all week with them. You are a lot different than the guy who has a beer with them every Friday night." Unbelievable, I thought. [Kashkari] actually seemed to be arguing that the banks' comfort with their thoroughly captured regulators was a good thing.' (p.100)
Such comments comport with others made in recent months by other financial regulators, such as Kathryn S. Wylde, board member of the Federal Reserve Bank of New York:
'"Wall Street is our Main Street-- love 'em or hate 'em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible."'
Barofsky outlines numerous instances in which Treasury blocked his office from reviewing documents, issuing subpoenas to wrongdoers, and threatened him with retaliation if he informed Congress of illegal uses of TARP funds. Treasury also threatened members of the press with restricted access if they ran stories critical of how TARP funds were being spent, and partnered regularly with the Obama White House to attack Barofsky's team through unattributed Op-Ed pieces in the Washington Post. Barofsky found himself placed in the strange position of relying upon Republican senators to protect him, even though he was a Democrat who had looked forward to the incoming Obama administration. Far from merely allowing taxpayer funds to illegally flow into the pockets of Wall Street banks, Obama's administration actively worked to steamroll the TARP IG's office, throwing its full weight behind Secretary of Treasury Geithner, whose capture by Wall Street is documented in devastating detail.
In one passage, Geithner shrugs off the fact that HAMP-- the program intended to provide homeowners temporary relief by allowing them to refinance --had failed to make a difference in the foreclosure rate. Barofsky's office had warned Treasury early on that the program was designed to fail because it created financial incentives for mortgage services to drag the process on for underwater borrowers, collecting fees all the while, only to abandon the process and hit the homeowner with huge final bills in the end. Geither explained that despite these problems, the banks would be fine, stating: "We estimate they can handle ten million foreclosures, over time. This program will help foam the runway for them." Barofsky reflects:
'A lightbulb went on for me. Elizabeth [Warren, chair of the Congressional Oversight Panel] had been challenging Geithner on how the program was going to help home owners, and he had responded by citing how it would help the banks. Geither apparently looked at HAMP as an aid to the banks, keeping the full flush of foreclosures from hitting the financial system all at the same time... So HAMP would "foam the runway" by stretching out the foreclosures, giving the banks more time to absorb losses while the other parts of the bailouts juiced bank profits that could then fill the capital holes created by housing losses. HAMP was not separate from the bank bailouts; it was an essential part of them." (p. 157)
Barofsky also explains why the much-touted Dodd-Frank bill makes the financial system more dangerous by allowing banks to grow larger while retaining smaller capital cushions. The piece of legislation which would have actually ended too-big-to-fail was the Brown-Kaufman amendment, which would have forced the biggest banks to become smaller. It was killed by Timothy Geithner and his Democratic allies on the Hill, leaving only Dodd-Frank left to contend with. Rather than seriously attempt to break up the banks, Dodd-Frank reposed tremendous discretionary powers upon-- you guessed it --the Treasury Secretary in deciding whether a bank was large enough to pose a risk to the economy. Barofsky sums up: "Dodd-Frank didn't change the postcrisis status quo of the too-big-to-fail banks; it cemented it." (p. 220)
Barofsky artfully lays out many other examples of financial misconduct by Treasury and its allies in Congress and the White House, including the AIG bonuses, the auto industry bailout, and more. By quietly building his case with the calm, logical demeanor of a prosecutor, he has created a damning portrait of a government utterly in the pocket of the very banks it was meant to regulate. While the political parties lob social issues over the net at each other, cheered on by their respective fanbases, few observe the reality: there is only one political party, and its sole client is Wall Street.
Barofsky does an excellent job of relating his experiences and in the process showing how and why it is seemingly so difficult to get anything done in Washington. Prior to taking the job heading up SIGTARP, Barofsky was a top prosecutor with the US Attorney's Office in New York City where he handled cases involving everything from drug cartels to financial and mortgage fraud. One of his cases dealing with FARC guerillas/druglords in Colombia was to give him an early taste of what dealing with Washington was ultimately going to be like:
"In the FARC case, however, Rich was asking us to be the ones to invade someone else's turf....three different offices in Washington ... had been investigating the FARC - unsuccessfully - for years: DOJ's Narcotics and Dangerous Drugs Section, the Counter Terrorism Section, and the US Attorney's Office for the District of Columbia. Together with the leadership at the Drug Enforcement Administration (DEA) and the FBI, they had developed an official FARC narrative: though certain rogue groups within FARC, called 'fronts,' might have been engaged in narcotics trafficking, the organization as a whole was not. That narrative was fully supported by the State Department, which likely wanted to keep its options open in case an opportunity arose to broker peace between FARC and the Colombian government. It also justified DOJ's tepid results after years of investigation: only a handful of charges against FARC guerrillas. I was to learn while at SIGTARP that 'adopting a narrative' was a tried-and-true tactic in Washington: define the status quo as a success, and then ignore all evidence that suggests otherwise."
A number of Washington figures from both the administrative and legislative branches appear in Barofsky's account. It was interesting to see how some - in both parties - were actually trying to do their job and get things done, while others merely treated everything as an unending series of petty turf wars and still others were either deliberately obstructive or - and one cannot escape the conclusion - manifestly corrupt.
Highly, highly recommended for anyone who wants to know and understand exactly what went on, who was responsible, for one of the most massive acts of financial incompetence and collusion at the highest levels of government in US history.