Neil Barofsky on the failures of TARP

Assistant U.S. Attorney in the Southern District of New York Neil Barofsky testifies during a confirmation hearing before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill November 19, 2008 in Washington, D.C.

Image of Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street
Author: Neil Barofsky
Publisher: Free Press (2012)
Binding: Hardcover, 288 pages

Jeff Horwich: The Troubled Assets Relief Program -- TARP -- you might recall that was the formal name for what we often just call "the bailout." In 2008 Congress allocated $700 billion to stabilize the U.S. financial industry.

Congress and President Bush assigned one man to build a team, and police all that spending. Until February 2011, Neil Barofsky was the special inspector general for TARP. His book about the experience comes out tomorrow. It's called: "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street." Neil Barofsky, good to talk with you.

Neil Barofsky: Great to be here.

Horwich: So Neil, what was the job that you believed, in your core, that you were appointed to do?

Barofsky: Well essentially, that was set out by Congress. When they created TARP they created a special inspector general that was supposed to be the taxpayers advocate in many ways -- to look out for fraud, to make the necessary recommendations to treasury, to bring them in line, so that the banks and participants in TARP wouldn’t take advantage of loopholes or conflicts of interest and at the same time lock people up when they tried to steal from the program.

Horwich: So, when you got to the Treasury Department, from whom you were supposed to be nominally independent what was the job that they wanted you to do?

Barofsky: Well essentially, they wanted me to back down, I think. Every time I started to raising some concerns, the pushback I got was remarkable. I remember within the first couple of days, I started hearing a refrain that I heard over the course of a couple of years -- from the Bush administration to the Obama administration -- saying “Neil, we hear what you’re saying about your concerns about fraud and potential abuses in this program but really you don’t have to worry about it because these are banks, they are not going to risk their reputations by taking unfair advantage and possibly profiting off of the taxpayer.”

Horwich: You write a lot about your disillusionment with the Home Affordable Modification Program -- TARP money that was supposed to go to banks to help people stay in their homes. In your view, what happened to it?

Barofsky: Well, the program has been an abysmal failure; supposed to help up to four million people, even today it’s only 20 percent of that number and it doesn’t look like it’s going to get much better. We confronted Tim Geithner about this and his response was very telling. He wasn’t talking about how the program could be improved to help homeowners. He said the program, would help and I quote here “foam the runway for the banks.”

And by that he explained the banks could deal with a certain number of millions of foreclosures over a certain period of time but anything more than that could put the financial system and those banks in jeopardy. With that in mind, there’s little surprise that the program has been such a failure for everyone other than the large banks.

Horwich: There are a lot of folks in Washington who would probably say you didn’t play the game right and if you had you might have accomplished more. Can you look back and say you actually accomplished anything in your role?

Barofsky: I think we had a tremendous amount of accomplishments and I think when you look at the fraud losses for TARP -- which are going to be historically far, far below anything that one would imagine for a program its size and scope -- I think probably that’s going to be our most meaningful success. But you’re right I certainly didn’t play the game. At one point in 2010, I was told by the person who was running the TARP at the time, that if I didn’t change my tone, as he put it, I was going to do great harm to myself and my ability to get a job on Wall Street or a more plum appointment within the administration.

That’s a really dangerous precedent. Because of the revolving door between Washington and Wall Street, there’s that incentive for all the regulators to pull their punches, play the game and get their big payday at the end of the rainbow. And I think that’s one of the fundamental problems that we need to change if we want to avoid having another financial crisis. 

Horwich: The former special inspector general for the TARP, Neil Barofsky; his new book is “Bailout.” Thank you.

Barofsky: Thank you very much.

About the author

Jeff Horwich is the interim host of Marketplace Morning Report and a sometime-Marketplace reporter.
Image of Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street
Author: Neil Barofsky
Publisher: Free Press (2012)
Binding: Hardcover, 288 pages

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