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Inspectors general fight for independence, while Obama brings the “Chicago Way” to Washington.
HOUSE OVERSIGHT COMMITTEE CHAIRMAN Rep. Edolphus Towns was clearly angered to learn that the Treasury Department had no idea what financial institutions were doing with taxpayer money they got from the Troubled Asset Relief Program (TARP), the $789 billion Wall Street bailout rushed through Congress in October 2008 amid panicky talk of a global economic meltdown.
Treasury Secretary Timothy Geithner’s department had “taken the position that it will not even ask TARP recipients what they are doing with the taxpayers’ money,” the nine-term Democrat from Brooklyn said at a July 21 hearing of the committee. “In short, the taxpayers now have a $700 billion spending program that’s being run under the philosophy of ‘don’t ask, don’t tell.’”
The chairman’s fellow Democrat, Maryland Rep. Elijah Cummings, was similarly outraged.
“For us to get past this economic situation that we find ourselves in, the public has to believe that we’re doing the right thing,” Cummings said. “If we can’t show them that we are doing the right thing with their money, we’re going to have problems.”
This sudden outburst of Democratic concern about fiscal responsibility was caused by the quarterly report issued a day earlier by “SIGTARP” Neil Barofsky, the special investigator general assigned to watchdog the banking bailout bonanza. By mid-July, Barofsky had already launched 35 separate criminal and civil investigations involving alleged misuse of TARP funds, and his report disclosed that Geithner wasn’t even requiring the beneficiaries of the program to submit itemized accounts of where the money was going. So far as anyone at Treasury knew, American taxpayers were footing the bill to provide lingerie and jewelry for the mistresses of hedge-fund executives.
Barofsky’s report landed like a bombshell on Capitol Hill amid a
growing mood of bipartisan indignation fueled by evidence that the
main result of the TARP bailout was to pad the bottom line of giant
Wall Street firms. A week earlier, Goldman Sachs had reported
record second-quarter profits of $3.4 billion, scarcely nine months
after taking $10 billion in bailout money at the height of last
fall’s hysteria about a worldwide financial apocalypse. News of the
earnings windfall at Goldman Sachs sparked a two-week stock market
surge that saw the Dow Jones Industrial
Average gain more than 800 points, but it also contrasted starkly with projections of double- digit unemployment and rising home foreclosures. Clearly, the mood was ripe for one of those recurrent populist epochs that erupt whenever the ordinary American on Main Street gets the idea that fat cats on Wall Street are using their leverage in Washington to perpetrate a swindle.
And here was SIGTARP, testifying to a congressional committee that the Treasury Department was asleep at the switch. Chairman Towns railed, “Earnings at the largest banks and the bank holding companies such as JP Morgan and Goldman Sachs are up, yet lending remains down. It is unacceptable that profits go up, while lending goes down. The taxpayers have invested very large amounts of money in these banks, but what have we gotten in return?”
The committee’s ranking Republican, California Rep. Darrell Issa, compared Geithner’s refusal to impose transparency requirements to disgraced Ponzi schemer Bernard Madoff’s assurances to the investors he bilked for millions: “Both Bernie Madoff and Treasury are saying ‘just trust me’ without showing us the books.”
SIGTARP demonstrated how a watchdog can bite, and the July hearing drew new attention to evidence that the Obama administration is trying to blind, muzzle, or neuter inspectors general like Barofsky, whose job is to expose “waste, fraud and abuse” in government agencies.
A month before Barofsky’s committee testimony, Sen. Chuck Grassley (R-IA) had sent a letter to Geithner, asking about “a dispute over certain Treasury documents that were being withheld from SIGTARP auditors on a specious claim of attorney-client privilege.” Grassley’s letter went on to say that “this disagreement then escalated into broader questions about whether SIGTARP is subject to your direct supervision and direction.” The fight to maintain the independence of IGs, to protect their status as watchdogs, not lapdogs, is emerging as one of the most important early battles of the Obama era.
LESS THAN SIX WEEKS BEFORE the Barofsky hearing, on Wednesday, June 10, Gerald Walpin was trying to take a nap in his car while his wife drove north on the New York Thruway en route to a judicial conference in Bolton Lake, New York. Walpin, 77, was the inspector general assigned to watchdog the federal AmeriCorps volunteer program. His nap was disturbed when his cell phone rang and the IG found himself talking to Norman Eisen, special counsel to the president for ethics and government reform. Eisen presented Walpin with a choice: resign or be fired. And the IG had exactly one hour to make that decision.
When Walpin asked the motive for this ultimatum, he says the White House lawyer told him that President Obama had decided it was “time to move on” and that the president wanted to have “someone else in that position.” This was shocking enough, but doubly shocking considering that only a year earlier, Obama had cosponsored a bill that required 30 days’ notice to Congress before an IG could be terminated.
The White House ultimatum to Walpin-who has suggested his firing was provoked by his investigation of a charity founded by one of Obama’s Democratic allies, Sacramento mayor Kevin Johnson-was the first shot fired in what soon began to look like a pattern of pressure against inspectors general.
Walpin’s plight immediately came to the attention of Sen. Grassley, widely known as the congressional patron saint of IGs and other government whistle-blowers. The day after Eisen’s call to Walpin, Grassley sent a letter to the president, saying that he was “deeply troubled” by the quit-or-be-fired ultimatum. He noted that Walpin had “identified millions of dollars in Americorps funds either wasted outright or spent in violation of established guidelines,” and said, “In other words, it appears he has been doing his job.”
In doing his job, however, Walpin had unearthed the misappropriation of hundreds of thousands of dollars of AmeriCorps grants to Johnson’s St. HOPE Academy. According to the Associated Press, Walpin discovered that Johnson-a former NBA star elected mayor of California’s capital city last year in a campaign consciously modeled on Obama’s-had used AmeriCorps funding “to pay volunteers to engage in school-board political activities, run personal errands for Johnson and even wash his car.”
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