The Troubled Asset Relief Program (TARP) bailouts helped people avoid foreclosure and saved the economy, right? Neil Barofsky invites us to consider again in his new book, Bailout – An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.
Neil Barofsky was the Special Inspector General in charge of TARP. He witnessed the implementation of the $700 billion bailout rushed through by Congress soon after the financial crisis. A self-declared Democrat, he makes it clear that he speaks against the current administration not from political bias but experience.
Reading the book, it is absolutely stunning to see the dismissiveness present in many members of the Treasury Department (mostly Obama’s administration, but also for the last few months of the Bush administration). Barofsky blatantly pointed out opportunities for fraud and waste while handing out government money, but his recommendations were almost completely ignored by the Treasury Department. As a result, the government refused to force banks to report on how they were using TARP money, refused to take steps to make sure the law was giving money to the right people, and refused to help homeowners.
In fact, as Barofsky points out in his book, TARP was nothing more than a hand-out to the big banks.
The proposed $700 billion bailout program was opposed by constituents on both sides, allegedly at a ratio of 99-1. Yet, as Barofsky describes, the program ended up costing much more than originally thought:
“We found that the programs had maxed out at $4.7 trillion. As loans were repaid and programs were successfully wound down, the amount outstanding by the time we conducted our review was $3 trillion…
The following year, we updated our research and found that the total amount outstanding had increased from $3 trillion to $3.7 trillion.” (pg.162 & 165)
One could argue that the added $3.7 trillion to the national debt would be justified if it would truly help “3 to 4 million homeowners avoid foreclosure,” as President Barack Obama stated. However, as Barofsky reveals, the bailout actually increased foreclosures as the government refused to regulate mortgage servicers that were taking advantage of homeowners. For millions of applicants, papers were “lost” multiple times, and “trial modifications” never became permanent:
“Once we discredited Treasury’s stated HAMP goal of 3 to 4 million modification “offers”, it continued to move the goalposts and seemingly adopted a new HAMP goal every month. In its “Two Year Retrospective,” released in early October, 2010, for example, Treasury declared that the nearly 700,000 failed trial modifications (compared to just 467,000 successful ongoing permanent modifications at the time) were successes because “every person” who had received a trial modification was “getting a significant benefit” through temporarily reduced payments.” (pg. 198)
The “struggling” banks received 100 cents on the dollar for their bad mortgage debts from the government, essentially allowing them to increase their size and influence. As Barofsky summarizes,
“The top banks are 23 percent larger than they were before the crisis. They now hold more than $8.5 trillion in assets, the equivalent of 56 percent of our country’s annual output, up from 43 percent just five years ago.” (pg. 229)
What about the bailout of the auto industry? Barofsky demonstrates how the government actually pressured Chrysler and GM to close more dealerships, destroying jobs.
“The auto team [of the Treasury Department] had pressured the companies to close the dealerships, and as a result, both companies had dramatically accelerated their terminations… According to several analyses, those decisions had put up to 100,000 dealership jobs into jeopardy… Treasury ignored one of the few non-Wall Street sources that it consulted, a representative from the nonprofit Center for Automotive Research who warned that deep cuts could actually do more harm than good… Finally, it appeared that GM and Chrysler’s termination process had been done completely without oversight, resulting in arbitrary terminations.” (pg. 177-178)
Bailout by Neil Barofsky offers a thoughtful exposure of the politics behind the bailout, revealing how our taxes were used primarily for political payoffs, with little benefit to the American public.