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Feb 12 2013

An insider’s view of how the bailout fix happened

Neil Barofsky was a career federal prosecutor who was appointed by George W. Bush at the end of 2008 as the Special Inspector General overseeing the Troubled Asset Relief Program (SIGTARP) that was a major part of the bailout program following the financial collapse, and he continued in that role under president Obama until he resigned in March 2011.

In his book Bailout: How Washington Abandoned Main Street While Rescuing Wall Street, he describes the corrosive atmosphere he encountered, where the goal among all the key players seemed to be not to ferret out wrongdoing and protect the public interest but to look out for the well-being of themselves and of the big banks. He is particularly harsh on Timothy Geithner, the outgoing Treasury Secretary. Needless to say, the knives were out for Barofsky in a big way. I would be very surprised if he gets another job in Washington after his revelations.

Matt Taibbi gives the book a rave review.

[T]he officials who administered the TARP bailout fought transparency at every turn, failed to do due diligence on the health and viability of bailout recipients, seemed totally uninterested in creating safeguards against fraud, and generally speaking spent more time bitching about the media and plotting against the likes of Elizabeth Warren and, eventually, Barofsky himself than making sure the largest federal rescue in history wasn’t a complete waste of money.

Bailout is a kind of Alice in Wonderland tale of an ordinary, sane person disappearing down into a realm of hallucinatory dysfunction, with Tim Geithner playing the role of the Mad Hatter and Barofsky the increasingly frustrated Alice who realizes he’s stuck at the stupidest tea party he ever was at.

Barofsky left SIGTARP in early 2011. He’s teaching at NYU now and after writing this book, essentially unemployable in Washington. That sucks for him, but the benefit for the rest of us is this trippily entertaining account of how crazy Washington is.

If you follow issues like Too-Big-To-Fail or Wall Street corruption long enough, you realize that the reason things don’t get done about them by our government has very little to do with ideology or even politics, in the way most of us understand politics. Instead, it’s a bizarre, almost tribal mentality that rules our capital city – a kind of groupthink that makes extreme myopia and a willingness to ignore the tribe’s ostensible connection to the people who elected them a condition for social advancement within. Most normal people don’t get to see what that place is like, because most of the rearview-mirror accounts of that world are written by people who somewhere along the line became infected by the Beltway disease. Only a few true outsiders make it out alive, and only a few of those write books. This is one of the best.

I am going to order the book and may have more comments about it once I’ve read it.

The person Obama has nominated to replace Geithner as Treasury Secretary is the current White House Chief of Staff Jack Lew. I did not know much about him and had the vague idea that he had been all his life a career political operative and not part of the Wall Street network and that hence there might be some hope that he would be a restraining force on the out-of-control banking sector. But this morning NPR had a report that said that he had spent time as chief operating officer of a major division at Citigroup during the period when his division was indulging in the riskiest kinds of investments that led to the financial collapse. This was the bank’s Alternative Investments unit that maintained a hedge fund that bet against the housing market just as it was about to implode. Lew received a bonus of almost $1 million from Citigroup shortly before the bank received the biggest amount of bailout money. He now disowns any responsibility for those events. (Don’t they all?)

Furthermore, Lew gets the ringing endorsement of Robert Rubin, the poster child for the rottenness of the Wall-Street-government revolving door, who was the one who recruited Lew to Citigroup. So it looks like Obama is continuing his policy of catering to the needs of Wall Street and, given that Republicans love Wall Street too, expect his nomination to sail through Congress because they all look after their own. Lew does have the reputation of supposedly defending some programs for the poor during the budget battles with Congress but that is the classic playbook of the Democratic party, giving the poor some scraps at the back door while feasting with Wall Street in the dining room.

In an interview on The Daily Show, Barofsky talks about the curiously petty and venal mentality of the people he encountered in Washington and their refusal (or inability) to see things in any way other than that which benefited the banks. You should see the full two-part interview to appreciate how the corruption runs deep while the people involved in it are so shallow.

Part 1:

Part 2:

(These clips were aired on February 7, 2013. To get suggestions on how to view clips of The Daily Show and The Colbert Report outside the US, please see this earlier post.)

2 comments

  1. 1
    Didaktylos

    It’s true that a reformed poacher makes a good gamekeeper – but they’re not supposed to carry on poaching …

  2. 2
    Marcus Ranum

    It’s true that a reformed poacher makes a good gamekeeper – but they’re not supposed to carry on poaching …

    Why limit your options? Think of it as a sort of poach/no-poach hedge: either way, you’re coming out ahead!

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