A New Hellhound of Wall Street
Neil Barofsky’s book Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street says it all in the title. A lot of us have already come to the opinion expressed in Barofsky’s title, just based on our observation of our landscape, littered as it is with bankrupt businesses and lost homes; but few, not being inside the D.C. beltway, would believe that the atmosphere in Washington could be as arrogant and dismissive of the interests of the rest of the country as Barofsky details it. His perspective on the scene is from a perfect vantage point: that of the Special Inspector General of TARP, the fund created to save us from financial meltdown in 2008. He, a true outsider, was appointed by President Bush through an unusual agreement between Democrats and Republicans who were both fearful of the potential vulnerability to fraud that TARP represented, perhaps sensitized to this by the Iraq experience. Barofsky was a relatively young (38) very hard-hitting Federal prosecutor from the New York Southern District office. His appointment was a surprise to many due to his age and experience.
His experience was in prosecuting fraud cases and drug kingpins from Columbia. Apparently what they wanted was an extremely bright, industrious, fearless, prosecutor, and it appears, from this story as it unfolds, that is what they got. I will not try to relate the complex financial details or the highly charged personal interchanges. I will just say that if the reader wants to learn how the world of power politics really works, instead of reading a Baldacci thriller, this is the book. The war stories he tells as he confronts the Washington top bureaucracy of Justice, Treasury and White House, both Democrat and Republican, are tales of regulatory capture. Here is just a normal person, wanting some of the vast sum of taxpayers’ money going out the door to efficiently fulfill the purpose, stated in the TARP statute and proclaimed by the White House. It was supposed, in part, to relieve the millions of homeowners in danger of losing their homes. Very early, he is invited out to lunch and told that if he wants to survive and have a career in his chosen profession, he needs to moderate his positions. This is the polite approach. Later, it gets really vicious.
Refreshingly, he names names. In 2011 after accomplishing as much as he believed he could, primarily by appealing to bipartisan supporters in Congress, getting some attention in the press and some educational criminal prosecutions, he resigns. A measure of the respect Barofsky has garnered is reflected in the prominent mention of him recently as a potential nominee for the Chairmanship of the Securities and Exchange Commission. (Oh, memories of Ferdinand Pecora. If that name and the “Hellhound” moniker puzzles the reader, my book review of “Hellhound” can be found on the leschinews’ website.) One of those recommending him was M.I.T.’s Simon Johnson, late of the IMF. The book, in 2012, got the usual cool treatment for such works. The thrust of the reviews was that TARP prevented total meltdown and we should be thankful for that, and that the sums that went to the banks had to stay there to preserve the financial system.
There was little acknowledgement of Barofsky’s claim that the failure to reform big banks sets us up for an even worse meltdown in the future. A notable exception at the time was a detailed review by the esteemed financial editor of the New York Times, Gretchen Morgenson. But this year, as the paperback edition is being brought out, there seems to be a much more serious consideration of the book’s position in the great wave of bailout books. Perhaps a widespread awareness of the disastrous performance of the mortgage adjustment program which Barofsky criticized has set in. Peter Osnos said in the Atlantic Monthly, the book “deserves a place in the judgment of history”. Jon Stewart said he had read ten books on the subject, and if he had read this one first he could have skipped the rest. My sentiments exactly. This book tells one all that needs to be told of the mindset of Washington versus the interests of the rest of us. If only Barofsky had had the bipartisan Senate and Presidential support that was given Pecora in 1933.
After reading and listening to these accounts, one is left with the distinct feeling that priorities are out of whack, not only on Wall Street, but in the political parties, universities, the Federal Reserve, the Congress, and the White House. America’s great pride was that its system worked reasonably well for everyone.
What has happened? I say a first necessary step is to change the way we finance elections. Petitions have been started around the country. Our Senator Adam Kline has introduced SJM 8002 requesting an amendment to the U.S. Constitution to allow the Congress and the States to regulate election finance. Many professionals say “no chance.” But history shows amendments can pass quickly when there is enough demand for them from below. The Nineteenth Amendment, giving women the right to vote, was ratified in a little more than a year, despite great resistance.