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American International Group Inc
When Neil Barofsky left Washington in March 2011, many in the Obama White House were privately relieved. As special inspector general overseeing the government’s $700 billion Troubled Asset Relief Program, Barofsky was a relentless critic of the Wall Street bailout who accused the administration of coddling banks at the expense of taxpayers. In a 2009 report to Congress, he wrote that the administration’s lack of transparency in spending TARP funds had created “anger, cynicism and distrust.” In his final report, the month before he turned in his resignation, he wrote: “The prospect of more bailouts will continue to fuel more bad behavior with potentially disastrous results.”
These days Obama’s campaign advisers may wish Barofsky had stayed in town. Now a New York University law professor and free from whatever restrictions he might have felt as a government official, he’s become an even harsher scold of the president. On TV, in public debates, and on Twitter, he excoriates the administration—especially Treasury Secretary Timothy Geithner—for failing to rein in the banks and revive the housing market. While Mitt Romney and the Republicans attack Obama from the right, saying he should get off the backs of business and the banks, Barofsky, a Democrat, leads the attack on the administration from the left, urging even more bank regulation.
The title of his forthcoming book—Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street—sums up his worldview. “The further we dug into the way TARP was being administered, the more obvious it became that Treasury applied a consistent double standard,” Barofsky writes in the book. “When providing the largest financial institutions with bailout money, Treasury made almost no effort to hold them accountable, and the bounteous terms delivered by the government seemed to border on being corrupt.” (Barofsky declined to comment for this story, saying his publisher asked him to refrain from interviews before the book’s release.)
In dismissing the bailouts as a giveaway to the big banks, Barofsky downplays that TARP did what it was supposed to do: “The government saved the financial system from collapse,” says Jim Millstein, Treasury’s chief restructuring officer from 2009-11. Echoing the sentiments of other Obama allies, Millstein says Barofsky’s penchant for “self-promotion, rather than analysis or reflection, obscures that very real accomplishment.” It also drives the White House nuts that TARP critics often make it seem that Obama is responsible for the bailouts, when it was the Bush administration that wrote the largest checks, in 2008.
Barofsky is especially critical of Obama’s handling of the housing crisis. The president promised relief for millions of borrowers in danger of defaulting but has fallen far short of that goal. Only about 1 million borrowers have gotten permanent loan modifications through the TARP-funded Home Affordable Modification Program. Barofsky calls the program a “colossal failure.”
While in Washington, Barofsky was continually at odds with Geithner. In his job as inspector general, he wanted banks to precisely account for how they spent TARP money. Geithner said that was difficult to do because banks commingle all their funds. Barofsky continues to pick these fights from his perch in New York. In June, when Bloomberg News reported that Geithner had challenged bankers to spell out in detail what they don’t like about the Dodd-Frank financial reform law and offered to help streamline cumbersome regulations, Barofsky tweeted: “Shocker: Geithner once again offers to carry the banks’ water.”
In March he got into a Twitter war with Austan Goolsbee, the former chairman of Obama’s Council of Economic Advisers. “Seems Barofsky has agenda,” Goolsbee wrote in response to a Barofsky tweet asserting TARP was losing money on the sale of American International Group (AIG) stock because Treasury was inappropriately counting shares held outside of TARP.
Barofsky fired back: “It’s about counting a non-TARP gain towards TARP. And really? Agenda?”
“Yes, really,” Goolsbee responded. “If you consistently try to highlight anything negative that’s an agenda. That feels like what you’ve been doing.”
The bottom line: In a new book, the former inspector general who policed the TARP bailout accuses the Obama administration of coddling Wall Street.