Book Review: Bailout, By Neil Barofsky

Aug. 18, 2012 10:15 AM ET3 Comments
Hazel Henderson profile picture
Hazel Henderson
237 Followers

Like millions of Americans worried over their shrinking retirement funds, I relied on www.sigtarp.gov to find the truth about where our tax dollars were going and to whom.

Author Neil Barofsky headed SIGTARP as Special Inspector General over TARP which Congress authorized and funded to keep track and oversee the original TARP (Troubled Assets Relief Program). This $700 billion to prop up the Wall Street banks' meltdown had been pushed through a fearful US Congress in late 2008 by former Treasury Secretary Henry Paulson, Fed Chair Ben Bernanke and then NY Fed President Timothy Geithner.

As a young lawyer and prosecutor, Neil Barofsky, a Democrat, was chosen by the Bush administration for his crusading reputation, to assuage Congress members who hated TARP. They felt the widespread bi-partisan taxpayers' revolt about the unfairness of the bailouts. Bumper stickers with the phrase "where's MY bailout?" proliferated as TARP funds were diverted from their stated purpose of buying up toxic mortgage-backed securities to directly infuse the funds into the big banks -- with almost no conditions. Congress had stipulated that TARP was to relieve homeowners and prevent waves of foreclosures. Barofsky was confirmed by the Senate and by the incoming Obama administration in early 2009.

In Bailout (Free Press, 2012), Barofsky recounts the road blocks, ambushes and trench warfare he encountered in trying to do his job. With fascinating detail, he describes his experiences: from threats from Wall Street friendly executives, including the "gold or lead" (hush money or a bullet) threats often used by the Mafia, to multiple strategies to bypass or ignore him and SIGTARP officials. He describes his arrival at the U.S. Department of Treasury's splendiferous building in Washington, with the enormous ornate offices of its top team, and there being led down to the basement to a den-like, malodorous office with a small barred window below street level where he and SIGTARP spent most of the next 3 years.

Interspersed with such illuminating details, Barofsky offers a blow-by-blow account of exactly what went on as the original $700 billion ballooned into $23.7 trillion of commitments by various Federal agencies -- almost none of which reached homeowners. The tsunami of evictions, foreclosures, fraud, the "robo-signing" of mortgage documents, blighted neighborhoods and homelessness roll on to this day. Taxpayers were on the hook for bailing out banks and Wall Street players and their lobbyists who "owned Washington," as described by Senator Dick Durban (D-Illinois).

This book is essential reading -- even for policy wonks like me -- as it goes deeper than any of the hundred or so books covering the 2007-2012 period, when financial debacles plunged the real economy into recession. Barofsky fearlessly lays most of the blame on Treasury Secretary Timothy Geithner, as well as the timidity of the Obama White House, abetted by the tide of money and lobbying that perverted legislators and regulators to favor Wall Street over Main Street. He also details the regulatory capture of the SEC and all those agencies supposed to oversee finance and write the still-unfinished rules put in place by the Dodd-Frank law.

In my view, only Sheila Bair, the Republican head of the FDIC, held her ground and did much to champion homeowners and their only hope: reducing the principal owed on their under-water mortgages. This is still fiercely opposed by the big banks -- amazingly on "fairness" grounds, as they bask in the favors of the Treasury and the Fed. Yet this is the easiest way to restore the real economy -- even though financial reforms are still urgently needed.

I agree with Barofsky's parting analysis: another financial blow-up is inevitable until the fundamental reform and downsizing of global finance is achieved.

Meanwhile, the high frequency trading caused another debacle in August with the errant computer at Knight Capital Group. The front-running, excessive leverage, insider trades continue in this mother of all bubbles: the global casino described most recently in Barofsky's Bailout, as well as in Broken Markets and Dark Pools. Better fasten our seatbelts -- the ride is getting even bumpier.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

This article was written by

Hazel Henderson profile picture
237 Followers
Hazel Henderson D.Sc.Hon., FRSA, is the founder of Ethical Markets Media, Certified B Corporation and producer of its TV series. She is a world-renowned futurist, evolutionary economist, a worldwide syndicated columnist, consultant on sustainable development, and author of The Axiom and Nautilus award-winning book Ethical Markets: Growing the Green Economy (2006) and eight other books. Her editorials appear in Wall Street International Magazine and many other media partners, including Other News, and her book reviews appear on SeekingAlpha.com. Her articles have appeared in over 250 journals, including (in the USA) Harvard Business Review, New York Times, Christian Science Monitor; and Challenge, Mainichi (Japan), El Diario (Venezuela), World Economic Herald (China), LeMonde Diplomatique (France) and Australian Financial Review. Since becoming a full-time media executive in 2004, Hazel has stepped down from many of her board memberships, including Calvert Social Investment Fund (1982-2005), the Social Investment Forum and the Social Venture Network. She has been Regent's Lecturer at the University of California-Santa Barbara, Horace Albright Chair in Conservation at the University of California-Berkeley, and advised the U.S. Office of Technology Assessment, the National Academy of Engineering, and the National Science Foundation from 1974 to 1980. She remains on the International Council of the Instituto Ethos de Empresas e Responsabilidade Social, Sao Paulo, Brasil; serves on the Program Council of FORUM 2000, Prague, Czechoslovakia, founded by the late President Vaclav Havel; is a World Business Academy Fellow; an active member of the National Press Club (Washington DC), and a member of the Association for Evolutionary Economics. She is an Honorary Member of the Club of Rome. She shared the 1996 Global Citizen Award with Nobelist A. Perez Esquivel of Argentina. In 2007, she was elected a Fellow to Britain’s Royal Society of Arts, founded in 1754. She leads the Transforming Finance initiative, created the Green Transition Scoreboard®, co-developed with Calvert the GDP alternative renamed the Ethical Markets Quality of Life Indicators, co-organized the Beyond GDP conference for the European Commission, and funded three Beyond GDP surveys, finding strong support worldwide for ESG metrics in national accounting. In 2010, 2012, 2013, and 2014, she was honored as a "Top 100 Thought Leader in Trustworthy Business Behavior" by Trust Across America. In 2012, she was honored with the Reuters Award for Outstanding Contribution to Development of ESG & Investing at TBLI Europe. In 2013, she was inducted into the International Society of Sustainability Professionals Hall of Fame.  Her 2014 monograph, Mapping the Global Transition to the Solar Age, published by ICAEW and Tomorrow’s Company, UK, is available for free download from www.ethicalmarkets.com.
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