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Bailout: An insider's look at Washington's dirty laundry
Bailout is a jaw-dropping play-by-play of how the Treasury Department bungled the financial bailouts.
It's also a gossipy tell-all that quotes Treasury Secretary Tim Geithner four-letter word for four-letter word.
Author Neil Barofsky, former special inspector general for TARP, is a lifetime Democrat and Obama contributor. Yet, his first book is a field guide to the nether side of the Bush and Obama Treasury Departments.
This fast read is an expletive-laced introduction to the capital's moneyed culture, palatial offices and baffling protocols. Cabinet officials are treated as a cross between Princess Diana, the Pope and Bono, Barofsky writes.
Barofsky, a former drug prosecutor from New York, wasn't in the capital long when he noticed political appointees always fretting about where their next jobs will come from — and power brokers use that to manipulate them.
His replay of the Troubled Asset Relief Progran, or TARP, saga is frightening and enlightening. For example, handlers prepping Barofsky for his confirmation hearing gave him these actual instructions:
• If they give you a multi-part question, just pick the part you like best and answer it. Ignore the other parts.
•• Don't feel like you have to answer their questions. Just say what you want to say.
•• Tell them, if confirmed, you'll keep an open mind and you'll make whatever their concern is a top priority.
Barofsky deduced how welcome he was at Treasury when he saw and smelled his office. After touring tricked-out Treasury office suites with spectacular views of the White House, he headed down to his office. Literally.
His digs were partially underground, with odors wafting in from the neighboring cafeteria and from a broken sewer pipe. Their only view was of the ankles and shoes of tourists through the "Laverne and Shirley-like barred basement windows."
Barofsky, now an academic, writes that he produced the book because he was angered by government business as usual. He thinks the Tea Party and Occupy Wall Street had their roots in the same exasperation.
"The American people should lose faith in the government," he writes. "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."
With a prosecutor's logic and copious footnotes, Barofsky makes it clear things are rarely what they seem in Washington:
• The Home Affordable Modification Program was never meant to help homeowners, he writes. It was created to help banks handle the wave of 10 million foreclosures by assuring they didn't all hit at the same time. He quotes Geithner explaining it: "We estimate that they (the banks) can handle 10 million foreclosures over time. This program will help foam the runaway for them."
•• The bailout was first advertised as $700 billion, but Barofsky figures the total government commitment was $23.7 trillion. Most of that will never have to be spent because many commitments only backstop loans that are already backed by collateral.
•• The modification program often required no documents from homeowners — the same practice that led to many of the original bad mortgages.
•• Treasury effectively paid full value to banks for collateralized debt obligations that the banks were happy to unload. He dubbed Geitner's approach "Neville Chamberlain-esque."
•• Treasury did not halt bonuses to AIG executives, citing contractual obligations. But the same Treasury did nothing to uphold the contract rights of homeowners ruined by the modification program or car dealers thrown out of business by the auto bailout.
Barofsky laments that the Brown-Kaufman Amendment to the Dodd-Frank bill didn't fly, because it would have limited the size of banks. Dodd-Frank, as passed, relies on regulators, the approach pushed by Geithner and the White House.
After two years of watching regulators up close, Barofsy says no law can confer the mettle appoointed and elected regulators need to pass up lobbyists, campaign contributions and the lure of lucrative futures with Wall Street firms.
"We may be in danger of quickly returning to the pre-crisis status quo of inadequately capitalized banks that take outsized risks while being coddled by their over-accommodating regulators," he writes. "And, if that occurs, a repeat of the financial crisis will soon be upon us."
Canavan is a freelance writer based in Wilmington, Del.
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