Sunday, July 22, 2012

Neil Barofsky Speaks Out

When Neal Barofsky, a Democrat named by the Obama White House as Special Inspector General for the TARP Program resigned his position in March 2011, Bloomberg News describes the White House as being "privately relieved."  The New York Times lauds his book as a "must-read," but I may pass it up, since I have followed his official and unofficial body of work as the Special Inspector General.

When Barofsky seeks counsel from other special inspectors general about how to conduct himself in the role, he describes the following advice,
“The agency should perceive you as a constructive but independent partner, helping to make things better for the agency, so everyone is better off.” He also learned, he  says, that success as an inspector general meant that investigations come second. Don’t second-guess the Treasury. Instead, “focus on process.”
There we have it from his handlers, focusing on process ensures that the agency and its constituents (the big banks) are better off and nothing of substance changes. 

TARP and HAMP, programs of the Obama White House and its Treasury Department, were abject failures which threw billions at policies that benefited precious few homeowners. First and foremost, these programs were hare-brained in their design and therefore doomed to fail from the start. We've written before about the unregulated mortgage servicing industry and it being a stone wall to any rational, large scale mortgage resolution effort.  Commentators like Joe Stiglitz described the public-private partnership idea for purchasing troubled mortgage assets as "ersatz capitalism." To let TARP and HAMP go forward without a legal plan and funding to bring the mortgage servicers into line with the government's objective was simply dim witted or cynical.

Barofsky to his credit was the most visible public official taking the Treasury to task for its conflicts of interest in applying the programs and for its abandoning Main Street for Wall Street. It was unfortunate that no Senate Democrats stepped up to give him cover.

The title of Barofsky's book is, "Bailout."  Which one?  We should not forget Lehman Brothers and AIG.  Anton Valukas' report on the biggest bankruptcy in history deserves to be read also. From Secretary Paulson's gift to the big banks through TARP and HAMP to current proposals to reward investment banks for bailing out California homeowners with public money, economic policy in the Obama White House, driven by its big bank-friendly Treasury Department has been one unending bailout.

Mr. Barofsky's passion about these issues is admirable, and policy makers on both sides of the aisle should try to come to a consensus about making some badly needed changes.  Unfortunately, this won't happen in an election year, and Mr. Barofsky is on the outside now. This probably makes it easier to hijack and distort his message for political ends.

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