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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2 Replies to “Book Review: Bailout; An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street”
Thanks. Hope we can someday have publicly funded campaigns and remove special interest money from our politics. In the mean time, just do the next right thing. Welcome to the Matrix y’all!
Publicly funded campaigns would help, but would not cure all the influence of money over politics. But I agree it would be a small, good, start.