A new and authoritative insider's report on how the Troubled Asset Relief Program (TARP) bailout funds were administered confirms what increasing numbers of analysts have concluded and millions of Americans have directly experienced to their considerable cost. In his recently published book, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, Neil Barofsky, who served as Special Inspector General of TARP in both the Bush and Obama administrations, confirms what most of us have come to suspect. The big banks were bailed out with our money and the rest of us were sold out.
This is not to argue that the bailout was unnecessary. It clearly was essential in order to prevent a complete meltdown of the financial system in 2008. The problem is that huge sums - up to $700 billion -- were handed over to the biggest banks without any mechanism -- or will -- to hold them accountable for how those funds would be used. It was fiscal mismanagement on a colossal scale, not simply through incompetence but primarily because senior Treasury officials were too close to the banks and too ready to accommodate them at the expense of everyone else.
Most egregiously, the interests of the American taxpayers who funded the bailout, especially those homeowners who were the primary victims of the banks' misdeeds, through lost equity or even foreclosure, have been largely disregarded. Likewise, small business people have been unable to secure loans from these rescued banks that are again making record profits and controlling an ever-increasing share of the nation's wealth. Too big to fail in 2008, they are now bigger and an even greater threat to the financial system.
According to Barofsky, the sweetheart deal the banks received "seemed to border on being corrupt," and any effort on his part to address these issues was met with obstruction by Treasury Secretary Timothy Geithner and other senior Administration officials. For example, Geithner allowed the banks' managers to continue to pay themselves exorbitant salaries and award huge bonuses to their staffs, despite behavior that had brought about the near collapse of the nation's economy.
What is especially disturbing is to read about the gross mismanagement of those TARP funds designated for the relief of homeowners facing foreclosure through no fault of their own. Of the $50 billion that was intended to help these folks, the ridiculously small amount of $1.4 billion had actually reached them by March 2011 when Barofsky stepped down. Again, he blames Geithner - in this case for failing to address the obvious inadequacies of this part of TARP. It did not ensure that the allocated money got to those homeowners who needed it in a timely fashion, resulting in home foreclosures that could have been avoided. In addition, it did not have adequate anti-fraud measures, thereby enabling widespread abuse.
Most distressing of all is Barofsky's conclusion that, having helped too-big-to-fail banks get even bigger and having failed to put any effective constraints on their risky behavior, the country remains very much at their mercy. The reforms that were enacted post-2008 have been watered down to the point of being a joke. As he puts it, "the incentives are to cheat, and cheating is profitable because there are no consequences."
Based on his experience in Washington observing up-close how the TARP bailout moneys were abused by the big banks, with Treasury Department collusion and at the expense of the country as a whole, Barofsky comes to the conclusion that Americans have plenty of reasons to distrust their government.
They should deplore the captured politicians and regulators who took their taxpayer dollars and distributed them to the banks without insisting that they be accountable for how the bailout money was spent. They should be revolted by the financial system that rewards failure and protects the fortunes of those who drove the system to the point of collapse and will undoubtedly do so again. They should be enraged by broken promises to Main Street and the unending protection of Wall Street.
He is right, of course. Therefore, we must take steps to set things straight, including ending the problematic revolving door between Washington and Wall Street and finding the constitutional or legislative means to stop the purchase of our government by "big money." We also need to hold bank CEOs and other corporate officers personally liable for their misconduct. Simply fining companies does not work since they obviously see this as just another cost of doing business. Unless we undertake these essential reforms without delay, our economic system and democracy itself will be at serious risk. A good start would be seeing more CEOs in handcuffs. No one should be too big to jail.