Bailout: An Inside Account of How Washington Abandoned Main
Street While Rescuing Wall Street
By Neil
Barofsky
(Free Press, 270 pages, $26)
Neil Barofsky can be forgiven a little posturing. Early on in
his short stint as Special Inspector General for TARP — the bank
bailouts — he realized that he had no choice but to set aside
bureaucratic caution and seize the mantle of whistleblower and
reformer.
Barofsky, who before receiving an appointment from the Bush
administration had spent his career prosecuting mortgage fraudsters
and drug runners, makes it clear he didn’t set out to rock the
boat. It was only after he realized how completely Wall Street had
captured the regulatory system in Washington that he discerned that
there would be no way for him to fulfill his oversight role without
being harshly critical of the establishment.
A Democrat, Barofsky is as unsparing of the Obama administration
for its handling of TARP as he is of the Bush team. He faults Bush
appointees, including Treasury secretary Hank Paulson and TARP
“czar” Neel Kashkari (both alumni of Goldman Sachs), for ladling
out hundreds of billions of dollars to Wall Street banks and
automakers without concern for the interests of taxpayers or
consumers. But Barofsky takes special care to document the failures
of current Treasury Secretary Tim Geithner in his mismanagement of
the bank bailouts, his bungled administration of a program to help
distressed homeowners, and his role in deforming the Dodd-Frank
Act.
Barofsky’s everyman account of the pervasive cynicism and
insider-dealing of the D.C. establishment is the key to
Bailout.The book isn’t intended to be a comprehensive
narrative of the crisis and bailouts. Barofsky gives only a
cursory explanation of the banking sector’s collapse. He doesn’t
ever fully engage with the best arguments in favor of TARP,
especially the broader case that TARP, whatever its shortcomings,
prevented the country from entering a second Great Depression. Nor
does Barofsky devote much space to the strongest counterarguments
to that claim.
Instead, Barofsky focuses on reporting the shortcomings of
Geithner et al. Barofsky claims to have been surprised by the
self-interestedness he encountered, and readers of his book surely
will be as well. He depicts government officials as, apart from a
handful of constantly thwarted good guys, devoted to sharing
taxpayers’ spoils with friends.
In telling his story, Barofsky bumps up against a few
uncomfortable facts, ones he doesn’t fully acknowledge or pursue.
One is that his best allies in government were Republicans,
specifically Iowa senator Chuck Grassley and Rep. Darrell Issa of
California, both of whom helped Barofsky expose mismanagement and
abuse of bailout money. Although Republicans have every incentive
to discredit the Obama administration, nevertheless their
willingness to help when congressional Democrats wouldn’t cuts
against the prevailing narrative concerning Republicans’
relationship to Wall Street. On the other hand, Barofsky’s kindest
words are reserved for liberal darling and aspiring Democratic
senator Elizabeth Warren, who was working in an oversight role at
the time.
The most uncomfortable fact, though, is Barofsky’s portrayal of
Tim Geithner as, simply, the bad guy — almost pathologically
anti-accountability and pro-Wall Street. Barofsky’s treatment of
the man who appointed Geithner, President Obama, is particularly
awkward. Obama plays only a minor role in the story, but his
presence is always looming behind each of Geithner’s many
misdeeds.
Geithner is a tough character to explain. Unlike any other of
the regulators Barofsky criticizes, Geithner didn’t come from Wall
Street. He is a career bureaucrat, having started at the Treasury
Department and worked his way up the ladder, eventually being named
president of the New York Fed just before the crisis hit. Yet he’s
widely perceived as being closely connected to Wall Street. In
August of 2010, the New York Times even ran an
article about Geithner’s struggles to correct the persistent
misapprehension that he worked at Goldman Sachs.
Geithner was also an oddball among President Obama’s inaugural
economic team: National Economic Council head Larry Summers,
Council of Economic Advisers chair Christina Romer, and Office of
Management and Budget director Peter Orszag were all chosen for
their academic brilliance. Geithner was chosen because he was
already familiar with the crisis that was still unfolding during
early 2009. Nevertheless, Geithner is the only member of the
original team still in office today: Summers and Romer long ago
returned to academia, while Orszag walked through the revolving
door to a cushy job at Citigroup.
Barofsky’s first experiences with the newly installed Geithner
were “unsettling”: Geithner called a meeting of Treasury officials
and lectured them on interactions with the press, “as if he was
angry with us.” Geithner’s attitude toward Barofsky’s efforts was
“utterly dismissive.” The best anecdote in the book comes when
Barofsky confronts Geithner for a lack of transparency in
disbursing TARP funds. “Neil, I have been the most f—king
transparent secretary in the history of the Treasury in this
country’s entire f—king history!” Geithner screamed.
Personnel is policy: if a Republican president appoints the
former CEO of Goldman Sachs to be Treasury secretary, it should be
no surprise that this appointee would
literally get down on one knee and beg the Speaker of the House
to bail out the banks on terms favorable to them.
Obama, however, campaigned against the influence of special
interests, and appointed a technocrat to the Treasury. Perhaps
Geithner will take a top job on Wall Street after he steps down
early next year. Doing so would explain a lot about his
motivations. Otherwise, Obama might be left to wonder how he ended
up with such a weak record on the banks.
