It isn’t surprising that the knives are out. Former Special Inspector General of the TARP Neil Barofsky’s new book “Bailout” depicts the Treasury, where his effort was housed, as completely, hopelessly in thrall to the banks. While Hank Paulson at least seemed genuinely to appreciate the need for procedures and checks to protect taxpayers’ interests, Geithner chafed at any interference in catering to every whim of the financial services industry and used every bureaucratic trick at his disposal to undermine Barofsky.
Reader e-mails criticizing particular articles are infrequent. Ex Adam Davidson at his worst, I can’t recall a previous time when I’ve had more than one reader complain about a specific piece. But the Calmes review led two readers (both pretty reasonable regulars) to object to what both called a “hit piece.” From Robert S:
Reader Mrs. G. in the subject line of her message, also described the article as a hit piece disguised as a book review, and continued:
We’ll soon get to a detailed parsing of the heavy-handed effort to smack down Barofsky, but first let’s turn to Mrs. G’s astute take on Calmes. Calmes penned a cringe-making piece about a photo of Obama, attempted to absolve Our Fearless Leader of blame for high unemployment, praised Simpson-Bowles, and celebrated the death of the public option as a victory for sanity. In other words, straight down the line defenses of the Administration, via pushing the neoliberal party line and fawning over key figures, such as this puff piece on Geithner.
Now to the article itself. It’s clumsily written. Calmes starts out by calling Barofsky a populist, which is the DC analogue to the British pejorative “unsound.” But it’s not surprising that someone who would cross the banks by *gasp* being preoccupied about fraud would be seen in power conscious Washington as having a screw loose.
She then moves to recapping the incident at the top of the book, in which Barofsky has a drink with assistant Treasury Secretary Herb Allison in a ritual effort to mend fences (aside: this is one reason I could never hold one of these jobs, not that anyone would be nuts enough to ask me. The reason he and the Treasury dudes hated each other is their roles, as they defined them, put them in direct opposition. There’s no getting on with people who are firmly dedicated to having you not do your job, and wasting time trying to find common ground seems like a complete waste of time and mental energy). This is a well told, intriguing little episode that frames the book: that everyone in DC, or at least in positions of authority, is keenly aware of career advancement. That means that there are well defined norms as to how far you push contentious agendas and the understanding is that is not very far.
But Barofksy is a good old-fashioned prosecutor who isn’t interested in currying favor in the corridors of power and believes in the law. And this job was enough of a step up that he can afford to take chances. Allison really does suggest that Barofsky is hurting his career (and his family!) in a way that is creepily upscale Mafia. And in keeping, Allison’s “What do you want” questions come off as a very direct ask of what it would take to buy Barofsky off.
But as Calmes recounts it, the meeting is lifeless (I wondered if that was deliberate, to give readers the impression that was a failing of the book, rather than of her writing). And she insinuates that Barofsky depicted the incident in bad faith:
Yet Mr. Barofsky goes on to say that he did not really think that Mr. Allison was threatening him; in fact, Mr. Allison “was, in a very Washington way, sincerely trying to be helpful.”
Throughout his book, Barofsky goes out of his way to try to give his opponents the benefit of the doubt. But there is actually, contra Calmes, no inconsistency in what he said. Barofsky sets forth how pretty awful conduct is perfectly normal, and how deep-seated the corruption and tribalism are. The key is “in a very Washington way”. Grandstanding and bullying are normal, meaning Allison was making a ritual, as opposed to a real, threat. And Allison, having succeeded in the conventional careerist mode and getting it further reinforced within the Beltway, simply can’t fathom why someone would seek to buck that system.
She also assails Barofsky for being concerned about potential losses from the TARP, and fails to convey that he was concerned about both fraud and the use of funds for other than their intended purpose of additional lending, which he recounts at length (for instance, banks using TARP funds for acquisitions). And she repeats the “TARP was paid back with interest” (cleverly including only the banks, when half the TARP funds that went to AIG are still outstanding). As this blog and other writers have discusses ad nauseam, looking at TARP in isolation is meaningless. This is a finance form of three card monte. The banks were healthy-looking-enough to be allowed to pay it back (although critics like Simon Johnson and Anat Admati have called for banks to have much higher capital levels) by virtue of a massive tax on savings via the Fed’s super duper low interest rates. Those goosed asset values and gave the banks rock-bottom borrowing costs, which were flattering to bank balance sheets and allowed them to rack up attractive earnings (including via the pretty much risk-free strategy of funding at near zero rates and buying Treasury bonds). She also falsely claims that “not a penny went to banks during the Obama administration” when they in fact got $10 billion in loans and HAMP incentive fees.
And get a load of this (note she’s run these talking points in other articles):
As ugly and flawed as the rescue process was, and as galling as Wall Street’s revived bravado and bonuses can be to most Americans, the fact remains that an economic collapse was averted, and that Main Street is recovering: slowly, but typically so for recessions brought on by credit crises. As Europe’s crisis persists for a fourth year, commentators around the globe have suggested that the Continent should have followed America’s example.
“The fact remains?” I’d like to know where she gets her facts. A financial market failure was averted, but Calmes seems clueless about the real and continuing damage to the real economy. As we occasionally point out, what we have had is at best a technical recovery, and it looks like it is turning south again. And her smug tone about Europe is all wet. Europe in fact followed the US playbook, and as Josh Rosner recounts in considerable and persuasive detail, that’s one of the reasons it is now going over the cliff. The Paulson-Bernanke-Geithner team adopted a “bank bondholders will take no losses” policy, when the clear record of past financial crises is that coddling the banks by not forcing write-offs of equity and to the degree needed, cramdowns of bondholders, resulting in weaker recoveries (cue Japan) and much greater losses in the end. Rosner estimates that Germany already has suffered €500 billion in costs by following the American path rather than the approach the Swedish used in their early 1990s banking crisis. (And that’s before we get to the fact that Europe’s current woes are in large measure due to unresolved problems with the design of the eurozone, which is unrelated to its crisis responses).
The next paragraph is out and out smarmy:
To the extent that Mr. Barofsky acknowledges that neither big losses nor big fraud cases occurred, he credits the anti-fraud measures he pressed Treasury to include in programs and contracts. Yet his book is a chronicle of complaints that Treasury undercut, blindsided and ignored him. Perhaps the biggest criticism of Treasury Secretary Timothy F. Geithner suggested by Mr. Barofsky’s account is that Mr. Geithner should have been a lot more conciliatory toward this zealous inspector general, if only to avoid becoming the biggest villain in Mr. Barofsky’s morality tale.
Nothing like choosing to be obtuse. In the wake of the Libor scandal, Calmes is apparently still a buyer of the Treasury party line that the banks would behave themselves out of concern for reputational damage (I am not making that up). She also ignores the fact that Barofsky quickly made himself visible and feared and that that also probably had had a deterrent effect (not that he wanted to, mind you; he was advised the way to make sure he could do his job was to cultivate good relations with Congress and the media. And of course, Calmes tries to spin this the other way later in the piece: the fact that Barofsky needed to establish good communications with folks like Barney Frank and Richard Shelby meant the Treasury intransigence was fully justified!). She also tries to paint Barofsky as overstating the degree of Treasury interference (after all, Treasury did include some of the stuff he wanted, right?). In fact, the book makes clear that the Geithner Treasury fought him tooth and nail, and he’d routinely have to call in the cavalry (Congresscritters or the media) to get anywhere. The level of bureaucratic obstruction and the sheer pettiness of some of the tricks is noteworthy.
She also falsely claims the book adds nothing to the story of the crisis. Huh? Aside from showing how fully both the Paulson and Geithner Treasuries identified with the banks, and the stylistic differences between them, Barofsky recounts a number of episodes that reflect poorly on Geithner: his failure to even attempt to negotiate down the payout on AIG CDS, the refusal to cut back bonuses to AIG staff (including, contrary to Administration claims, clearly non-essential staff) and a long form account of the disastrous HAMP program, which as Barofsky reveals, was never intended to help homeowners and was implemented in a half-assed manner. And what is her crisis reading list? All are flattering to the powers that be: David Wessel’s In Fed We Trust; Hank Paulson’s On the Brink; and of course, Andrew Ross Sorkin’s Too Big to Fail.
Calmes closes the piece by contending that the fact that Wall Street is giving more money to Romney is proof that the Administration’s policies weren’t all that bank friendly. Funny, Obama was clocking more in donations than all Republican candidates combined in 2011, which is the relevant time frame for Barofsky’s story (he left SIGTARP in March 2011). Since Romney became the Republican candidate, the Administration has taken to attacking Romney’s record with Bain, which is being taken up in the media as a (well deserved) broader criticism of private equity. PE is a huge fee machine for Wall Street. Even though Team Obama has focused on Bain only, it’s not hard to see how members of that part of the financial-industrial complex would pour money into Romney to support their franchise.
If journalism were a profession, Calmes’ piece would make a strong case for disbarment. But since reporters increasingly act as scriveners to the powerful, Calmes is likely to continue to enjoy a career of well paid stenography.