Book Review: Bailout; An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

If every novel or Hollywood movie starts with either the premise of “A Man Walks Into a Town” or “A Man Goes On a Journey,” Bailout by Neil Barofsky begins with the former.  Neil Barofsky plays the leading Jimmy Stewart hero role in this modern update to Mr. Smith Goes To Washington.

In late 2008, the outgoing Bush administration nominated Barofsky, a federal prosecutor from the US Attorney General’s Office in New York, to head up the Special Investigator General of the Troubled Asset Relief Program (aka SIGTARP).  After then-Treasury Secretary Paulson pushed through Congress the approval of $700 Billion in government cheese dedicated to propping up the US financial system, Congress had the foresight to demand someone who could, in Barofsky’s turn of phrase, “catch the rats” inevitably attracted to the cheese.

Much of the humor and pathos of Bailout derives from Barofsky’s naïve outsider status[1] crashing awkwardly into – or exploding spectacularly against – the self-interested forces of Washington.  Time and again, he brings his moral outrage and laugh-or-you’ll-cry innocence to a self-interested, power hungry town.

He’s brutally harsh on well-known characters such as Treasury Secretary Tim Geithner[2], Paulson protégé Neil Kashkari[3], and Treasury deputy Herb Allison[4], as well as lesser known players who make up the DC financial policy world.  He’s also hilariously open about his own deficiencies for the SIGTARP job, in his role as a bridegreoom,[5] or as an initially clumsy political player on the Washington scene.

I’m not in the least surprised that I loved this book, as I’ve been a dedicated fan-boy[6] of Barofsky’s SIGTARP reports on this site (here, here, here and here), trying my hardest to make more people aware of how good and rare a job he did as SIGTARP.

I am surprised, however, at how much this book should be the book everyone reads to understand our federal government in the early 21st Century.  I’m not going to insist yet that Barofsky’s Bailout is the Washington DC version of Michael Lewis’ Liar’s Poker, but the parallels are strong enough that I’m putting the comparison into the conversation.

Both relate hilarious and cringe-inducing stories of ambitious, smart, successful, and powerful jerks acting badly, for personal gain, to the public’s detriment.  Both walked away from short stints in their respective centers of power with the guts to risk complete ostracism from that center of power by eviscerating the players in hilarious character sketches and painful interactions.

Throughout Bailout, Barofksy reminds us that the only possible way he could succeed as the Top Cop of TARP would be to act with complete indifference toward his next job.  Any personal consideration of the professional consequences of his actions – like money or advancement or power or prestige or making friends – would keep him from pursuing his investigatory role to its fullest extent.

It helps that Barofsky, by his own description, has an almost Aspergers-syndrome disregard for niceties like human feelings or sympathetic tones when they get in the way of what he believes to be right.  He exudes a super-hero focus on righteousness – even more than I had realized when I first dubbed him the Norse God of Financial Accountability.

If Barofsky demonstrates any character flaw in Bailout, it’s this same self-righteousness, his personal conviction that he’s got the right answers that nobody else except he (and his SIGTARP deputy Kevin Puvalowski[7]) had in Washington.  He mocks the Treasury creators of TALF[8] and PPIP[9] for not fully understanding the potential for fraud in these programs or flays them for pushing plans with overly Wall Street-friendly terms.

On the one hand I have no doubt Barofsky’s mostly right (and neither does Barofsky), but on the other hand we hear the righteousness in his voice that must have rubbed the sleep-deprived-and-making-it-up-as-they-went-along TARP bailout folks in the Treasury department the wrong way.

To nitpick a bit more, Barofsky tends not to give much credence to the Wall Street view of the world throughout Bailout.  As a former Wall Streeter, my own instinct tells me that simply ignoring Wall Street’s concerns in late 2008 and early 2009, and pursuing the purer prosecutorial approach seemingly favored by Barofsky, could have led to its own disastrous consequences as well.  I’m not happy with Paulson’s and Geithner’s coddling of the Street, but Barofsky’s hard line might not have been optimal for the public good in the long run either.

Overall though, I admire his consistent choice to be right over being liked, and his consistent choice to push public welfare over private advantage.

Why don’t more people go to Washington and do the right thing?  Barofsky clearly provides the answer: Because everybody is always looking to the next job.  You don’t uproot bad actors if those bad actors might actually help you get the next plum position.

At Bankers Anonymous I remain obsessed with the nexus of finance and politics that brought us to the brink of financial apocalypse in 2008.  Bailout isn’t the book for understanding the Wall Street side of the crisis, but it’s the best so far for understanding what deeply embedded conflicts of interest prevent government officials from doing the right thing to prevent a Credit Crisis.

Nothing I’ve seen shows any resolution of those conflicts of interest.

 

Please see related post: All Bankers Anonymous Book Reviews in one place.

 

 


[1] I have to admit his Mr. Smith Goes to Washington naiveté throughout the book has to be a bit of a pose, given that he’s a badass prosecutor who went after Colombian drug lords and white color financial criminals, experience which I imagine prepared him for interacting with the less savory aspects of human behavior.

[2] Barofsky argues that the original tax evasion problem that came up at Geithner’s confirmation hearing in 2009 illustrates Geithner’s basic disrespect for law and truthfulness.  Let’s just say that based on Bailout we should be glad to see the back of Treasury Secretary Tim Geithner in a second Obama administration.  I’m still going to be so pissed when Geithner announces he’s joining Goldman Sachs as senior partner upon leaving office next month.

[3] Barofsky grudgingly calls TARP architect Kashkari a reasonably straight-shooter.  I love this typical Barofsky backhanded compliment: “Sure, he was combative, not always forthcoming, and excessively deferential to Wall Street, but Kashkari had generally been straightforward with me.  I don’t think he ever flat-out lied to me, which in Washington put him into rarefied air.”

[4] The book’s forward alone, in which Barofsky relays Herb Allison giving him a classic drug-lord choice of “Gold or Lead” is worth the price of the book.  Barofsky sums up – with that one anecdote – everything you need to know about Washington DC in the 21st Century, and why people so rarely act for the public good when that conflicts with their private interest.  Allison opens his Gold-or-Lead proposals with “[Y]ou’re a young man, just starting out with a family, and obviously this job isn’t going to last forever.  Have you thought at all about what you’ll be doing next?”  When Barofsky professes only an interest in doing this job well, not focusing on the next job, Allison gets nastier, saying his tone is losing him credibility, people are talking badly about him.  Barofsky calls his bluff, after which Allison reverts to bribery again, asking him what kind of job he’d like?  An appointment?  A judgeship?  Basically anything to get Barofsky to play ball.

Powerful people worry too much about their potential next job to do the right thing in their current job.  In fact, the better-selling but largely uninteresting Andrew Ross Sorkin book Too Big To Fail suffers from precisely this problem.  Sorkin was too worried about enhancing his future journalistic career by protecting future sources such as the CEOs of Wall Street to criticize any of them in any interesting way.  Which is why the book should have been called Too Connected to Criticize.

[5] You have to love the story he tells on himself on the night of his own wedding rehearsal, unable to tear himself away from engaging over Blackberry in political fights with Treasury colleagues.  “Even when Karen tried to walk me through the drill for the ceremony, I couldn’t stop.  As she explained, ‘So we’ll come down this elevator and then walk down these stairs to this area, where we’ll have the ceremony,’ I responded, annoyingly, ‘Treasury is going to fight this.  Kevin’s right, they’re going to flip.  It’s going to shine a light in an area they want to keep dark.’  ‘And this is where the band will set up,’ Karen said, ignoring me and pointing out where the party would occur. ‘Treasury could just go out and tell the banks to respond with the ‘all money is green’ argument, and the banks will just say that they can’t respond to the request.  We’re going to have to get real specific in the subpoena,’ I blurted out, more to myself than her.  ‘This is where the buffet will be; we can taste some of the food tonight at dinner if you’d like,’ Karen placidly continued.  She very smartly refused to engage with my obsession, and she finally got some degree of peace after I walked into the pool with my Blackberry still clipped to my bathing suit, frying it.”

[6] For example, the post in which I named him the Norse God of Financial Accountability.

[7] Puvalowski is Barofsky’s buddy from the US Attorney’s office in New York who became his deputy at SIGTARP.

[8] Term Asset-Backed Securities Loan Facility.  A Federal Reserve program to lend public money to restart private investment in asset-backed securities after that portion of the market froze in the second half of 2008.  TALF proposed to provide loans of 95 cents on every private dollar invested, with non-recourse to the borrower.  For an introduction to some other non-recourse lending handouts from Washington to Wall Street, please read footnote #3 to this posting.

[9] Public-Private Investment Fund.  A Wall Street-friendly program providing 92 cents of federal funds for every dollar invested via PPIP to encourage private fund managers to purchase distressed assets off the balance sheets of big banks.  Also non-recourse to the borrower.  Again, see footnote #3 on this post for why that’s so awesome for Wall Street.

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In Praise of SIGTARP, Part I –Truth in Government

As a recovering banker, a main obsessive question of mine remains “How did we get into this mess?”

By “mess,” I mean both the Credit Crunch itself and our collective response to it, at the government and personal levels.

My obsession drives me to read reports by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).  As a first draft of financial history, the SIGTARP reports have become essential to understanding the bailouts of Citigroup, AIG, other TBTF[1] Banks, and smaller banks as well.

Perhaps it’s a function of my low expectations for a government-produced document on finance.  Perhaps it’s my contrarian nature.  I’m not sure.  But I do know there’s something refreshing and downright exciting about the reports coming from the office of the SIGTARP.

I love SIGTARP so much I want to highlight the key things everyone should know from the reports, on the off chance you aren’t as obsessed with reading government documents as I am.

Two great things, just for starters, to know about SIGTARP’s reports.  First, they’ve got the ring of honesty.  Second, they remind me why I do have faith in our system of government and finance, despite all the reasons to lose faith, and despite all the crazy fringe talk we get bombarded with on a regular basis.

In the April 2012 report, just to cite one happy example, you will find such pleasing curiosities as a Treasury official who tells you her colleagues in another part of Treasury are lying to you, to wit:

“It is a widely held misconception that TARP will make a profit.[2]  The most recent cost estimate for TARP is a loss of $60 Billion.  Taxpayers are still owed $118.5 billion”

Now that’s what I’m talking about!  Some straight talk from the federal government.[3]

Another example of facts cutting through the haze of political speak:

“TARP’s explicit goals of preserving homeownership and promoting jobs were evidence that Congress wanted to help homeowners during the crisis, not just banks.  However…Only 9% of the TARP funds set aside for mortgage modifications have been spent to help a fraction of eligible homeowners after more than three years…after two years, only 3% of the funds obligated [for the Hardest Hit Fund] have been spent to help only approximately 30,000 homeowners.”

In other words, the government’s largest federal programs for mortgage modification and homeowner relief are poorly designed or poorly implemented, or both.

I’m not happy about this.  But I don’t particularly care to blame Congress, or the President, or a bunch of nameless bureaucrats we’ve never heard of.

I am happy, however, to read a technocratic document like SIGTARP’s quarterly report that gives me the hstraight dope about what is working and what is not working in the financial bailout.  The honesty of the reporting gives me hope that people are willing to work on practical data, practical solutions, and do not seek to score points against the other side only for ideological reasons or political gamesmanship.

Too often we fall down the rabbit hole of financial discourse online, where the avatars of pitchfork wielding right-wing trolls do imaginary battle with the avatars of left-wing demagogues who make the Scarecrow’s Occupy Gotham scene seem like a plausible near-future alternative.  I’m pretty sure Dark Knight villains Two-Face, Bain, Joker, and the Scarecrow actually exist, because I feel like I read their stuff in the comments section of respectable online financial outlets.

It’s enough to induce despair, which is always the goal of the Dark Knight’s foes.  That forum has plenty of Gotham-City shouting and fear-mongering but precious little listening, and even less understanding or analysis.

Who can fight against the financial darkness?  SIGTARP can.

I love SIGTARP so much I created my first fictional comic book hero[4] in his honor.  I love SIGTARP so much because he makes me believe in my country’s government again, which is no small feat.

Would you like to feel better about our country and the government’s ability to self-criticize and therefore, possibly, learn from its mistakes?  I suggest you brew some tea and curl up with a nice SIGTARP report sometime.  You’ll feel a lot better.

 



[1] Too Big To Fail, but you knew that.

[2] Meaning: Please pay no attention to my Treasury colleagues quoted in the Wall Street Journal who wrote the following “Overall, the government is now expected to at least break even on its financial stability programs and may realize a positive return”

[3] Usually it’s the journalists who tell us the government is lying, so it’s nice to see the rare government official willing to make the same claim.

[4] You have to admit SIGTARP does sound like Norse God, no?

 

 

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In Praise of SIGTARP, Norse God of Financial Accountability

“…But in 2012, the people became restless.  They mistrusted the 1% who lived far away in beautiful, unattainable, icy Jotunheim.

And the people quarreled amongst themselves.  They could not agree with one another or keep the peace.  The people were the 99%, and they divided into warring ideological camps, visiting bloody internecine raids upon the other side.

One group, the Teaparty tribe, worshiped the demigod Free Market and raged against encroachments from their sworn enemy, Big Gov, who dwelt smugly in the elaborate Federalist castles of Washington DC.

The others, the Occupy tribe, supplicated before the Mother Goddess Collective Action, and they named their enemy Big Bank, who ruled cruelly from the executive suites of New York skyscrapers.

Periodically one tribe drew blood from the other side in a furious ideological battle.  But even amidst the carnage, both sides wished for a savior, a hero who could unite them.  The One.

In the beginning, little did the people notice online publications from Neil Barofsky, which showed the 99% their common enemy lived in both Washington DC and Wall Street.  Who was this Neil Barofsky?  At first he appeared to be a mild-mannered grunt, a common civil servant, toiling in the basement of the US Treasury from 2008 to 2010.  But on July 25, 2012, with the publication of Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, he became known to the world as SIGTARP[1], Norse God of Financial Accountability!

At last revealed in all his glory, SIGTARP arrived, flanked by Amazons!

The 99% needed a hero to unite them, to show them how both Washington and Wall Street betrayed them all.  SIGTARP unfurled his fearsome flag of financial accountability.  The two tribes put down their weapons against one another and turned toward the new banner.

They finally understood the truth.  Big Government and Big Bank conspired together to keep them down.  A new unity began to emerge, as the armies of the 99% integrated.

No longer needing his disguise as Neil Barofsky, SIGTARP ripped off his itchy wool suit to reveal rippled musculature and a mighty pen describing infernal, festering corruption.  Under the Bailout banner, SIGTARP and the newly united 99% began their determined march upon Jotunheim.”

 

Ok, I haven’t read Bailout yet, as it was just published today.  Based on today’s NY Times Review, the book suffers from some simplistic moralizing and, perhaps, Barofsky’s savior-complex.

But – and I mean this in earnest – I have had a serious man-crush on Neil Barofsky for a while now.  As SIGTARP, he managed to accurately review the TARP process, while maintaining critical distance from both Washington and Wall Street.[2]  I will highlight in the next few weeks some of the excellent reporting done by his office.  For all the unhappy things that may be said about the cynical nexus of Wall Street and Washington, SIGTARP has given me hope in the last year that our system can be resilient and accountable.  A hero may yet rise.

Thank you SIGTARP!

“No problem, kid,” answers a booming, disembodied voice, before soaring upward, headed toward Jotunheim.



[1] SIGTARP stands for Special Investigator General  for the Troubled Asset Relief Program, the Congressionally appointed watchdog over the $700B TARP program created in 2008 at the height of the Credit Crunch.

[2] Not an easy trick!  As the NY Times review excerpts from the book preface, Barofsky met in 2010 with Herb Allison, former head of TIAA and Fannie Mae:  “ ‘Have you thought at all about what you’ll be doing next?’ Mr. Allison asks Mr. Barofsky, soon adding, ‘Out there in the market, there are consequences for some of the things that you’re saying and the way that you’re saying them.’  ‘Allison was essentially threatening me with lifelong unemployment,’ Mr. Barofsky concludes, and alternatively suggesting a plum government appointment some day if Mr. Barofsky would simply ‘change your tone.’  When Mr. Barofsky tells his deputy of the exchange, the deputy says, ‘it was the gold or the lead,’ resorting to their joint experience prosecuting drug kingpins in New York: Cooperate and share the riches, or don’t and get plugged.”

 

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