It was never my intention to turn my output today into some sort of Collected Works Of Neil Barofsky fandom, but Jackie Calmes' poorly argued "takedown" of the former Special Inspector General for the Troubled Asset Relief Program's new book, "Bailout," simply cannot be passed over without comment. So! In for a penny, in for a pound, as they say.
In general, Calmes' ersatz review in The New York Times, titled "Bad Banks, Big Bailouts and Bruises," comes off as a lengthy valentine to the Treasury Department officials who are so soundly savaged in Barofsky's book. Naturally, it's reasonable to expect these officials to offer some pushback, and in fact, Treasury Secretary Tim Geithner has let his feelings be known with regard to Barofsky's account.
Similarly, it's not unreasonable to expect some to want to carry a brief for Geithner, especially in our current election-year atmosphere. Chances are, after all, that Republicans will widely embrace "Bailout" -- their base is so uniquely averse to TARP that Barofsky's critiques make him an ally of convenience. That said, it's not controversial at all to remind you that the GOP remains opposed to the sort of rigorous financial sector oversight that Barofsky champions. (Republicans have, for the most part, directed their anti-regulatory ire at Elizabeth Warren and the Consumer Financial Protection Bureau.)
But if Calmes wants to effectively make a case against Barofsky's account, she should be required to have actually read the book -- or, at the very least, to actually contend with the arguments it makes, instead of ignoring them. But throughout her "review," that's exactly what she does, preying on those who haven't read "Bailout" in order to make a fake case against it.
From the outset, she argues that Barofsky's account contains a series of internal contradictions that she goes on to spectacularly fail to prove, substituting a lot of arm waving for honesty:
He writes early on that "I had no idea that the U.S. government had been captured by the banks," and at another point describes his strategy to use the press to get the attention of Congress, and by extension an obstreperous Treasury: "Our message was simple: Treasury's desperate attempt to bail out Wall Street was setting the country up for potentially catastrophic losses." Yet despite such repeated condemnations of the decision-making process in both the Bush and Obama administrations, Mr. Barofsky never really concedes that the predicted losses did not occur.
Calmes is doing a lot of glossing over. In his book, Barofsky over and over again documents numerous instances of SIGTARP preventing catastrophic losses and prosecuting wrong-doers. SIGTARP made plenty of cases against bankers who saw TARP as a cheap way to get back in the fraud business. Books were cooked to obtain TARP proceeds, and banks made fraudulent loan guarantees to borrowers after promising that their deals had the blessings of Treasury. And these were absolutely losses that Barofsky predicted would occur -- he warned Treasury officials that without a substantial public campaign to inform the public of TARP, it was an open invitation to this sort of activity. Nobody listened, and Barofsky's prediction came to pass.
Additionally, SIGTARP put forth an enormous effort to assist homeowners who were the victims of predatory lending practices, an effort that consumed a considerable amount of its available bandwidth and left Barofsky feeling like his team was stuck in a futile game of "Whack-A-Mole." These, too, were predictable results of policy flaws that Barofsky saw ahead of time, and they surely represent "catastrophic losses." (Just ask the homeowners involved.)
What's really dumb about this is that Calmes admits that SIGTARP was successful in these efforts, though she blithely limits those successes to three examples among many -- "an Alabama-based bank, a Tennessee man with a $10 million Ponzi scheme, a San Diego mortgage telemarketer." Here, she sells SIGTARP short. She also sneers that these scofflaws were "far from Wall Street." Perhaps she doesn't understand that the Special Inspector General for the Troubled Asset Relief Program is responsible for total oversight of the Troubled Asset Relief Program, and is not, as she seems to assume, some sort of generalized "Robo-Cop" stomping up and down Maiden Lane?
Perhaps, in Calmes' view, victimized homeowners are just too small-ball. Well, in that case, let's take three TARP-related programs that Calmes never mentions by name (despite the fact that the staggering majority of Barofsky's account concerns these programs): the Home Affordable Modification Program, the Term Asset-Backed Securities Loan Facility, and the Public-Private Investment Program.
In all three cases, Barofsky contends that the programs were hastily created for the purpose of scoring political points, invited fraud and abuse, and greatly favored Wall Street banks at the expense of taxpayers. Additionally, his concerns about these programs were routinely ignored. (The basic trend was that whenever SIGTARP evinced concern, it would be told that these programs were a work in progress and their concerns would be taken into account, and then a day later, the programs were suddenly being rolled out for media consumption.)
It is honestly galling that Calmes simply dispenses with HAMP by saying, "Mr. Barofsky justifiably spends time on Treasury's failure to get banks to stem home foreclosures" (and then waving away Barofsky's observation that the hastily-produced program inspired Rick Santelli to go on his televised, Tea Party-birthing "loser mortgages" rant). The atrocious failures of HAMP have been relentlessly documented. As The Huffington Post's Arthur Delaney -- himself a relentless documentor of HAMP's failures, whose enterprise reporting on the matter confirms and upholds Barofsky's account -- notes today, "Barofsky frequently criticized the administration's anti-foreclosure efforts during his tenure as the Special Inspector General for the Troubled Asset Relief Program."
President Barack Obama promised in 2009 that 3 to 4 million homeowners would see their payments reduced thanks to mortgage modifications under HAMP. But the Treasury Department put banks in charge of the modification process, and during the program's first year and a half, homeowners widely reported that banks had deliberately lost their paperwork or charged them fees when they tried to apply. Fewer than 1 million borrowers remain in permanent HAMP modifications today.
"One particularly pernicious type of abuse was that servicers would direct borrowers who were current on their mortgages to start skipping payments, telling them that that would allow them to qualify for a HAMP modification," Barofsky writes in his book. "Home owners who might have been able to ride out the crisis instead ended up in long trial modifications, after which servicers would deny them a permanent modification and send them an enormous 'deficiency' bill ... Borrowers who might otherwise never have missed a payment found themselves hit with whopping bills that they couldn't pay and now faced foreclosure. It was a disaster."
I trust you can see why Calmes' contention that "Mr. Barofsky never really concedes that the predicted losses did not occur" is utter bunk. They did occur, the banks were to blame, and Barofsky repeatedly sounded the alarm.
But, if you're interested in a catastrophe of a more recent vintage, let's look at today's Washington Post article titled "N.Y. Fed quiet on Barclays' admission of rigging Libor." Once again, Geithner is in the line of fire, regarding what he knew about the rate-fixing scandal, when he knew it, and whether or not he took steps to prevent taxpayers from being victimized by fraud. And, importantly, one of the programs that Barofsky criticized for being subject to abuse and over-favorable to banks at the expense of taxpayers has a central role to play:
Still, the Fed proceeded to use Libor as a benchmark to determine how much insurance giant American International Group would pay back the government during its bailout. The measure also was used in the fall of 2008 to set the interest rate for the emergency lending program called the Term Asset-Backed Securities Loan Facility, or TALF.
Of course, while Barofsky was on the job, it was hard to conceive that this rate-rigging was going on, which is why it matters if Geithner knew about it "four years ago" -- at the same time TALF was launched -- and whether or not he actually "sounded the alarm ... to regulators," as Geithner contends.
It seems pretty clear that had Barofsky been one of the regulators informed, the LIBOR scandal and how it related to distorting the market where TALF was concerned would have easily been a chapter in "Bailout." The Post catches up with Barofsky, today, and gets him to weigh in on the matter:
"That number [Libor] determined how the taxpayer would be compensated," said Neil Barofsky, who was the chief watchdog of the financial system's $700 billion bailout. "That's putting the Federal Reserve's imprimatur on a rate it has suspicion to think was fraudulent. The Federal Reserve's use of that and Treasury's use of that in the bailout sends a powerful message to the market: 'Hey don't worry about this, we're endorsing it.' "
He added that the Fed's response can be measured by the fact that no one has reformed Libor.
"Hey don't worry about it, we're endorsing it," basically sums up how Treasury felt about HAMP as well. And today's reporting from the Post does nothing but bolster Barofsky's credibility.
Finally, though, we have Calmes' concluding paragraph, which reads for all the world like she believes she has delivered a coup de grace:
That his book is being released now, amid the presidential campaign, reflects perhaps the biggest contradiction of all: If Treasury has been making policies exclusively "by Wall Street for Wall Street," as Mr. Barofsky says, why then has a once friendly Wall Street turned so hostile to President Obama's re-election?
If you're living in America, and you can't figure out why "Wall Street turned so hostile to President Obama's re-election," then you haven't been paying sufficient attention. In the first place, people on Wall Street have made it pretty clear that their major beef with Obama is that he refuses to characterize them as all-knowing, all-wise, fully redeemed individuals. Instead, he has been critical of the role they played in the financial crisis. And that's what hacks them off. As Jamelle Bouie of the American Prospect observes: "By criticizing Wall Street--and placing some blame for the crisis on their shoulders--Obama is diminishing the psychic rewards of working in the financial sector. People respect bankers far less than they did in the past, and that's what Wall Street is reacting against."
Additionally, it's not uncommon for major industries to walk on both sides of the street where their support for a politician is concerned -- various members of the health care lobby did it during the Affordable Care Act's legislative process, and they continue to do so now.
But I can make this much, much simpler. The year is 2012 and there is an election and there's a guy named Mitt Romney who favors deregulating the financial sector entirely and returning it to the oversight regime that preceded the 2008 crash. Wall Street knows they'll be getting a better deal from him, so they support him.
Do I really have to spell this out for Jackie Calmes? Apparently, yes!
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