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TARP's former Inspector General is mad as hell
September 11, 2012 7:44 PM   Subscribe

The American people “should be enraged by the broken promises to Main Street and the unending protection of Wall Street” writes Neil Barofsky, former Inspector General of the Troubled Asset Relief Program in his new book, Bailout, about his time in that office. His trenchant criticisms of Washington egos, moneyed interests, and political games has some calling him an "idealistic alien" and others vehemently defending him. Treasury Secretary Timothy Geithner comes off particularly poorly in Bailout, unsurprising in light of his well-known feud with Barofsky over the efficacy of the bailouts. (previously)
posted by shivohum (39 comments total) 20 users marked this as a favorite

 
Interesting..there was a sidebar in the Business front page of the NY Times today essentially claiming that they had called Barofsky to ask him what he thought about the govt selling something like a 250 billion dollar stake in AIG recently and the entire article was basically about how Barofsky can't admit he was wrong.
posted by spicynuts at 7:47 PM on September 11, 2012 [3 favorites]


The American people “should be enraged by the broken promises to Main Street and the unending protection of Wall Street”

I've wondered for years why there isn't more common outrage, OWS notwithstanding. I can only assume that the Koch Bros have had their machines working overtime in all manner of ways to keep the serfs docile, or at least unaware.
posted by hippybear at 7:47 PM on September 11, 2012


Here it is.
posted by spicynuts at 7:50 PM on September 11, 2012


The government only sold AIG on paper. Now, all the profit is in private hands. But, as soon as they get in trouble again, Uncle Sam will once again resume ownership.
posted by Malor at 7:52 PM on September 11, 2012 [1 favorite]


I've wondered for years why there isn't more common outrage

Because 500 channels of TV, a microwave, an XBox and a half way decent car are still pretty affordable even to those teetering on the edge.
posted by spicynuts at 7:52 PM on September 11, 2012 [7 favorites]


I hope planet money does an episode on this because that's the only way I've understood anything about the tarp bailout.
posted by sio42 at 7:56 PM on September 11, 2012 [2 favorites]


I've wondered for years why there isn't more common outrage, OWS notwithstanding. I can only assume that the Koch Bros have had their machines working overtime in all manner of ways to keep the serfs docile, or at least unaware.

I think it's more because it's fairly esoteric and anyway reporters aren't very good at doing in depth coverage of complex things.

Now here's Joe with Sports!
posted by Pogo_Fuzzybutt at 7:59 PM on September 11, 2012 [3 favorites]


oh I get it, today is Outrage Day. Never Forget Anything.
posted by ninjew at 8:02 PM on September 11, 2012


You seem to be outraged that today is Outrage Day.
posted by spicynuts at 8:13 PM on September 11, 2012 [1 favorite]


the entire article was basically about how Barofsky can't admit he was wrong.

That article is a great example of goal-post shifting:
A. "TARP will make a profit on this deal."
B. "No it won't".
A. "OK, but TARP plus some other stuff makes a profit on this deal."
B. "That's not my point."
A. "Ahah, you concede my point."
posted by kithrater at 8:23 PM on September 11, 2012 [1 favorite]


anyway reporters aren't very good at doing in depth coverage of complex things

Hell, let's start with basic things. I'm not sure I've met a reporter who understands how their own credit card works.
posted by allen.spaulding at 8:23 PM on September 11, 2012 [1 favorite]


I've wondered for years why there isn't more common outrage, OWS notwithstanding.

There is. Plenty of people can't stand President Obama and want him gone.
posted by Brandon Blatcher at 8:48 PM on September 11, 2012


I think it's more because it's fairly esoteric and anyway reporters aren't very good at doing in depth coverage of complex things.

Not just that, but much of that complexity has been manufactured as an intentional barrier to understanding, designed to conceal a lot of potential for abuse in intricate structures with fancy jargon. And it works on politicians, too --- is it any surprise that our government officials have failed to regulate that which they don't even understand?
posted by qxntpqbbbqxl at 8:50 PM on September 11, 2012


Not surprising that the Barofsky piece spicynuts linked is by Andrew Ross Sorkin, the guy who made waves after distorting Paul Krugman's position on nationalizing weak banks and refusing to apologize. To me, he's the least trustworthy of all the Times' business columnists. His trotting out of the standard false opposition, "As distasteful as the rescue effort was, it should be clear by now that without it, we faced an economic Armageddon," at this late stage is to me obvious evidence of his shallowness and intellectual dishonesty. From the first link above it's clear that what Barofsky is attacking most is the *way* the bailout happened, i.e., the almost complete lack of any conditions or requirement of transparency about how the money would be spent:

It’s important to remember that there were a number of different objectives for TARP. It did meet one of its primary objectives, which was to help prevent the entire collapse of our financial system. … The other goals, which have more of a focus on helping Main Street institutions and individuals and businesses definitely small enough to fail — those goals all came short.

So, for example, TARP was supposed to be used by the banks to restore lending, help pump that oxygen into the lifeblood of the economy, and it just didn’t happen. One of the reasons why it didn’t happen is the money went to the banks with no strings attached, no conditions, no incentives, just essentially piles of money given to them without any instructions whatsoever and sort of this hope that somehow or other they use the money to achieve the policy goals of the administration. Of course, that never happened and you just look at the malaise the economy has been in in the years ever since.


Notice Sorkin relegates all this to a sentence at the end: "There may still be parts of the bailouts to debate: how they were executed, whether they were as effective as they could have been and, perhaps, whether taxpayers should have received an even bigger return for their investments given the risk." Emphasis mine. I look forward to reading Sorkin's take on the more complex questions he can't seem to get himself to admit exist here. But I'm not holding my breath.
posted by mediareport at 8:52 PM on September 11, 2012 [5 favorites]


His trenchant criticisms of Washington egos, moneyed interests, and political games has some calling him an "idealistic alien" and others vehemently defending him.

NYT’s Jackie Calmes’ “Grossly Inaccurate” Hit Piece on Neil Barofsky
posted by homunculus at 9:05 PM on September 11, 2012


Neil Barofsky: Tim Geithner’s principal hypocrisy
posted by homunculus at 9:10 PM on September 11, 2012


"mediareport" and "homunculus" posts are right on!

Of course the press and the Obama administration is going to eviscerate Barofsky; it's election time!

And, of course the banks are going to support Romney, because they damned well got everything they wanted from a Democrat and his administration, because that Democrat (Obama) walked into a cesspool of financial malfeasance that really would have sunk our economy, and he was treading water and pulling every string he could not to have the economy go under as almost every one of his Wall Street/investment bank-related advisers was predicting would happen.

Now that these financial wolves have stabilized their businesses, they are back supporting the one party they know they can count on to make things easier, because they have goteen almost everything they will ever get from Obama. btw, the largest corporate bundler for Obama in 2008 was Goldman Sachs. Just look at that contributor's list! And you wonder why there are no bankers in jail?

Now that Obama's patina has worn off, and everyone sees him for the I'll-do-anything-to-stay-in-office pragmatic moderate-left politician that he always was, some are afraid that Borofsky's book will help bring down the house. It won't.

I think Obama is going to take ti all in November, but don't hold your breath that our happy group of financial thieves will get their due. They won't. Obama is now officially a part of their class; he will continue to network with these folks at places like Davos, and through various philanthropic ventures after he has left the Oval Office. The harm caused by this Plutocratic cabal - the lives and businesses ruined - will fade into the past. Americans will continue on, licking their wounds, and adapt.

We have been royally screwed, along with the rest of the world, by these bankstards, and they're still up and running numbers with their fiber-link-hig-speed-trading, commodity manipulations, derivative adventures, and slow-but-sure-reappearing "fees" in our personal banking and credit lives. All is well for the the Plutocrats. They won.
posted by Vibrissae at 9:29 PM on September 11, 2012 [5 favorites]


Sheila Bair, former head of FDIC, echoedmany of these same sentiments. Geithner's main goal was always to save the banks, not the economy. Bondholders and shareholders in the distressed banks should have had to eat the losses.
posted by benzenedream at 10:19 PM on September 11, 2012 [2 favorites]


I've wondered for years why there isn't more common outrage, OWS notwithstanding.

There is. Plenty of people can't stand President Obama and want him gone.


Whether you or I or anyone support Obama is beside the point in this particular FPP. TARP was designed and implemented under GWB. Obama hasn't necessarily improved the way it's been handled (despite efforts to do so in various ways), but it's a legacy program which wasn't designed well from the get-go.
posted by hippybear at 10:45 PM on September 11, 2012 [2 favorites]


it's hard to fault any work done to avert the crisis. no matter what was done, it was destined to fall short. when trillion(s!) of dollars of imaginary wealth suddenly evaporates out of a REAL system that had grown dependent on it actually existing.. i mean the least they could do was print more.

all the fiscal bumps in the road had been continually papered over for so long that everything was just made of that paper now.

the working economy that traded wealth tokens for things actually manufactured, bought, sold, traded, etc slowly took a back seat to the economy that was fueled by this continually created paper, which was methodically manipulated upwards by the banks. and i think the banks knew this to be necessary. the graphs were always indicating this would happen. all that stuff that growth was based on, was itself based on the existence of cheap energy. in a future without that cheap energy, they found a way to decouple growth from actual energy inputs into the system. sort of.

the fake wealth system fueled the real wealth system to a point where it overshot it's own capacity to support itself.
posted by ninjew at 11:40 PM on September 11, 2012 [3 favorites]


Maybe part of the problem is that no one really understood the entire financial "system" that well because it had become too complicated, and certainly no one could have predicted at the time how well TARP as it was would even work. The biggest problem at the time was providing "liquidity" or capital to the banks and preventing a complete collapse - and as the article states that succeeded. It would have been a much more complicated and bureaucratic task for the government to directly manage individual home owners and individual small business loans than to just loan money to banks. Maybe helping homeowners hold onto property with negative equity that they could not afford and was continuing to fall in value for who knows how long would not have been the best either. But the bonuses that were handed out to executives at the time for completely destroying their companies was absolutely obscene. Unbelievable.

It doesn't seem to me like it is too late for the government to help previous homeowners who were wiped out by the housing bubble - or small business who can't get loans. Maybe it is a better time to try it now, while Wall Street is out of self-destruct mode.
posted by Golden Eternity at 12:04 AM on September 12, 2012


btw, the largest corporate bundler for Obama in 2008 was Goldman Sachs. Just look at that contributor's list! And you wonder why there are no bankers in jail?

Goldman Non-Prosecution: AG Eric Holder Has No Balls
posted by homunculus at 12:05 AM on September 12, 2012


There is an excellent 1 hour long econtalk interview with Barofsky.
posted by sien at 2:10 AM on September 12, 2012 [2 favorites]


Ugh. both Geithner and Barofsky are completely right about somethings and totally wrong about other things.

If you think liquidity and confidence was the main problem then TARP did ok. Not perfect, but OK.

If you think solvency was the issue then sure Barofsky is 100% correct. No matter what he's right that the capital was too cheap to the banks, but thats because once treasury decided the problem was liquidity and confidence they decided to attack the problem with a sword rather than an x-cto knife and the price they could charge banks for capital was basically a function of the cost of raising equity for the least distressed bank they forced to take TARP. Don't forget that once you get below the big money center banks most regional banks did not have asset quality issues out of scale from what they had seen previously.

Basically Barofsky is a lawyer who thinks the problem was solvency and his behavior and response is very congruent with that.

Geithner is a finance guy who thought the issue was liquidity and confidence and his actions have been congruent with that.

If you look at how loan losses have tracked Geithner was right, but we as tax payers should have gotten paid more to back stop private capital.

I will say having had a front row seat (like had a bunch or meetings with TARP guys) that the TARP guys basically started out with a pile of cash and an acronym and no idea what to do. That's why it all felt like they were winging it. They were.

BTW - that previously is awesome - especially the guy claiming every bank in the US was insolvent.

Also Gret-Gret and ARS are best not read, or if you must read them ask yourself who benefits from the narrative they are pushing and assume that's who their source is.
posted by JPD at 5:21 AM on September 12, 2012 [5 favorites]


> > I've wondered for years why there isn't more common outrage, OWS notwithstanding.

> There is. Plenty of people can't stand President Obama and want him gone.

Whether you or I or anyone support Obama is beside the point in this particular FPP.


I think the point is that there's plenty of outrage, but people don't know how to USE that outrage effectively, either because they don't understand how the system works or because they DO understand and it makes them feel helpless.

Barofsky says he doesn't understand why people aren't pissed off about this. But "people not being pissed off" isn't the problem.
posted by EmpressCallipygos at 5:49 AM on September 12, 2012


Or as a population enough people do understand what happened and the outrage isn't as acute as you think it ought to be.
posted by JPD at 6:16 AM on September 12, 2012


Funny how much talk that Naked Capitalism piece has about the Administration defending "its" AIG Bailout for election reasons--when the AIG bailout began in September 2008 and Obama didn't take office until January 2009.
posted by saulgoodman at 6:49 AM on September 12, 2012


Did anyone see the movie Inside Job? It explains really well just how corrupt the system is and just how screwed the taxpayer is.
posted by Vindaloo at 7:19 AM on September 12, 2012


Lessig / Barofsky 2016.
posted by ZenMasterThis at 7:36 AM on September 12, 2012


just how screwed the taxpayer is.

I would say that a good, solid, tiny percentage of the 'taxpayers' like the way it's all worked out just fine.
posted by spicynuts at 8:05 AM on September 12, 2012


Inside Job was a very watchable documentary..

for a more Hollywood-like drama about the banks' side of what happened, that is surprisingly even-handed, Margin Call is really good. it's on Netflix streaming now, too.
posted by ninjew at 9:43 AM on September 12, 2012 [2 favorites]


Or as a population enough people do understand what happened and the outrage isn't as acute as you think it ought to be.
posted by JPD at 9:16 AM on September 12 [+] [!]


you guys are going to wish you had been nicer to hippies like barofsky when the first teabagger administration gets sworn in. with headline unemployment stuck efectively permanently between 8-9% and GDP on the lower track "geithner was proved fucking right" rings rather hollow.

anyway, of course barofsky is a lawyer: solvency v. liquidity is a red herring, the issue was transparency and what to do about the congressional mandate to aid "underwater" homeowners. opacity about TARP was sold as necessary to boost "confidence" but there is ample evidence that it served as cover for backscratching deals.

also, you guys cant be both "the smartest guys in the room" and winging it because you dont know what to do. pick a story.
posted by ennui.bz at 9:46 AM on September 12, 2012


where did I say smartest guys in the room? And what did I say was wrong with Barofsky. I generally agree with his view that the terms weren't punitive enough. Where we disagree is why.

If you think Solvency vs Liquidity is a red herring then you are just acknowledging your own lack of understanding of what was going on at the time. It is very much NOT a red herring, it is actually the entire argument over how the rescue programs were constructed. What Geithner was proven right about was that it was a liquidity crisis. That's it. I didn't say anything else about his opinions on stimulus or on dealing with underwater borrowers.
posted by JPD at 11:37 AM on September 12, 2012


but there is ample evidence that it served as cover for backscratching deals.

Evidence. give it to me. And I'll acknowledge that the fed did give out overly friendly deals to entities willing to take troubled assets off their hands. But I don't think that's what you mean.
posted by JPD at 11:40 AM on September 12, 2012 [1 favorite]


If you think Solvency vs Liquidity is a red herring then you are just acknowledging your own lack of understanding of what was going on at the time.

So you're saying the bond markets now prove that if everyone had just opened their books very carefully, everything would have been ok? Why was the "stress test" such a dog and pony show?

But of course I don't understand, I'm just a random asshole on the internet. But neither do most of the reporters at the nytimes, the president, various congress critters, etc and so on. And further, without transparency in the bailout process it's kind of impossible for anyone to actually know what's going on.

It was never the job of the IG to decide whether the crisis was about solvency vs. liquidity, it was whether the actions of the Treasury complied with the law. The suggestion you are making is that somehow his very telling criticism of the process of TARP and in particular HAMP is a result of policy difference rather being in the heart of something rather crooked. The implementation of HAMP blatantly disregarded the legislation passed... the only reason why Geithner hasn't been shown the door for that alone is that Congress was more concerned with hiding from public criticsm of TARP than actually doing anything for ordinary people.
posted by ennui.bz at 12:33 PM on September 12, 2012 [1 favorite]


So you're saying the bond markets now prove that if everyone had just opened their books very carefully, everything would have been ok? Why was the "stress test" such a dog and pony show?

I thought it was the case at the time that if they were to mark their books to market it would have shown a solvency problem, but if they were to instead value troubled assets based on outcomes of similar historical bank failures and a return to more realistic asset prices (as the more experienced experts were arguing) it showed a liquidity crisis. Seems to me it might be hard to separate the two. If you don't fix a liquidity problem it easily becomes a solvency problem?
posted by Golden Eternity at 1:41 PM on September 12, 2012


So you're saying the bond markets now prove that if everyone had just opened their books very carefully, everything would have been ok?

Not everyone, but most. There were legitimately insolvent institutions - but those were for the most part non-deposit taking institutions. The problem was the marginal TARP participant was like a mid-sized regional bank that was all deposit funded and whose asset issues (AKA bad loans) were in line with history, a fact that became clearer by mid 2009 or so.

Why was the "stress test" such a dog and pony show?

Because people were scared and in times of fear the doom mongering crowd starts to make a lot more sense to people. Not unreasonably. Its usually better to run.

The suggestion you are making is that somehow his very telling criticism of the process of TARP and in particular HAMP is a result of policy difference rather being in the heart of something rather crooked.

Well no. Most of his criticism of TARP is predicated on the idea that Treasury did not do enough to maximize the return on investment for taxpayers and that the banks were never forced to pursue the greater lending policy goals of TARP. The reality was that the way TARP was structured from the get go basically gave the government no say in anything - and this was because Treasury decided to force everyone to take TARP, and in order to do that they basically had to give it to them with very limit constraints on management. If they had not then the marginal TARP recipient would have sued Treasury. That was the last thing they wanted.

HAMP was a debacle in everyway - it was just not well thought out. Neither was TARP obviously, but at least it fell into keep the banks in business.

If you don't fix a liquidity problem it easily becomes a solvency problem? Sort of. Forced liquidations push down asset prices. If you force everyone to mark to market (A silly concept because it assumes the market is always correctly valuing assets - which is totally bogus) then yeah, it can become a solvency issue. If you don't mark to market and hold to maturity it isn't an issue.
posted by JPD at 5:07 PM on September 12, 2012 [2 favorites]


An interesting tracker of how TARP and other assorted programs are going, from ProPublica.
posted by kithrater at 10:01 PM on September 13, 2012 [1 favorite]


Killing Dodd-Frank Softly: To block financial regulations, industries and their congressional allies delay, delay, delay—and if necessary, sue.
posted by homunculus at 2:33 PM on September 17, 2012


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