With all the bad news about jobs coming out, most of the focus has rightly been on the plight of working people across the country. The big banks which helped usher in this economic crisis have been largely forgotten. The general assumption is that they're doing just fine. And they are, thanks in large part to you and me, the American taxpayer. But as we try to struggle back to prosperity, have we learned the lessons that led to this crisis? One man in the middle of it all says absolutely not.
In 2008, Neil Barofsky was working as a prosecutor in the U.S. Attorney's Office in the Southern District of New York, taking down drug lords and white-collar criminals, when his boss urged him to take on a new case: overseeing the $700 billion Wall Street bailout, known as TARP. The Bush White House wanted to know if Barofsky, a lifelong Democrat who had recently contributed to the Obama campaign, was interested in moving to Washington, DC to become TARP's Special Inspector General, a watchdog over how the money would be spent.
By December, 2008 Barofsky was nominated, confirmed, and had hit the ground running. Nearly two and a half years later, Barofsky has resigned and is back in New York. He recently sat down with me and shared some alarming news.
"You can't look at what happened in the run-up to 2008 and see how it's not going to repeat itself, given what we've done," Barofksy told me in a lengthy interview that aired Tuesday on HDNet's "Dan Rather Reports."
What we've done, Barofksy says, is use taxpayer money to create an explicit promise to the big banks that they will be bailed out again. The landmark financial reform bill known as Dodd-Frank was supposed to end this problem, and President Obama and Treasury Secretary Tim Geithner have repeatedly stated there will be no more taxpayer-funded bailouts. "You shouldn't believe them," Barofsky says. "Not right now." That's because, at the government's urging, the banks are even bigger than they were in 2008, and much of what Dodd-Frank proposes has not been implemented.
While TARP may have achieved its goal of averting a financial Armageddon, Barofsky says the program had other goals too. The Bush Administration sold the legislation to a skeptical Congress as a way to help homeowners stay in their homes. "The program was supposed to restore home owning. It was supposed to keep up to 4 million people in their homes and not lose them to foreclosure." Instead, he says the TARP program has helped 600,000 homeowners, while one million people a year are having their homes repossessed.
Another promise of TARP was to jump-start lending to small businesses. But Barofsky says, the government failed to require the banks to actually lend out the money they were given.
Barofsky says it's enough to make your blood boil.
"There were no strings attached," Barofsky says. "So what happened was, the banks got this money and they decided it was in their best interest and the best interest of their shareholders not to lend it out, but to use it to accumulate capital."
"You should be outraged," Barofsky told me. "Because that wasn't the deal. Perhaps you should be a little bit mad at Wall Street. But you really should be mad at your government for not fulfilling the promise that they made to you... when we gave all the money to the banks."
Barofsky says that only days after he took the job, he suggested that the Treasury Department require banks to publicly report how they were using the bailout money. "Dan, you would have thought I had declared a Communist revolution from their reaction. I was told that this idea was terrible." It took more than a year before the Treasury Department reversed itself and implemented his suggestion. "But by then, the largest banks were well on their way to pay back the funds." And, he says, the ability to force Wall Street, either by carrot or by stick, to lend to Main Street was lost.
Barofsky resigned in March. He's now teaching law at New York University and telling anyone who will listen that there will be a "next time" and it will be much worse. He, for one, remains skeptical that Wall Street and Washington can get it together to fix this mess.
We will be posting more outtakes from our interview on the Dan Rather Reports Facebook page in the coming days.