Treasury

Neil Barofsky: The Bailout Cop the White House Loathes


(Corrected to add a more complete comment from Barofsky in the fifth paragraph.)

The Troubled Asset Relief Program is shutting down, and the Treasury Dept. projects the $700 billion rescue effort will cost taxpayers less than $50 billion. So why is Neil M. Barofsky, the program's Special Inspector General, so unhappy?

The blunt-talking bailout cop is still hiring investigators and intends to keep his office open 8 to 10 years more. He employs 140 and has opened four more U.S. offices to probe fraud cases. "TARP being over is spin," he says.

None of this amuses the White House, which lambasted Barofsky, a former federal prosecutor from New York, on its blog last month. The missive, from Deputy Communications Director Jen Psaki, accused him of trying to "grab a few cheap headlines" by disputing Treasury's October estimate that the rescue of insurer American International Group (AIG) would cost $5 billion, a huge drop from the $45 billion projected in March.

Barofsky says Treasury was playing with numbers when it changed how it valued its AIG holdings. Treasury says the numbers are based on the government's new plan to exit its AIG investment by converting its stake, now in preferred stock, to common. Psaki said Treasury used AIG's common price because preferred stock doesn't trade. The new estimate is realistic, she blogged, and "some people just don't like movies with happy endings."

The revised estimate "leaves them vulnerable to criticism that they're just manipulating numbers for a big PR push," Barofsky told Bloomberg TV. He later called Psaki's posting "staggeringly inappropriate."

Inspectors general are rarely popular, but the animus toward Barofsky is intense. It started when he arrived in December 2008 and said his office in Treasury's basement reeked of sewage. (He moved to another building, keeping a coveted parking space at Treasury's main office next to the White House.) Then snippets of budget requests from Barofsky, who had sought law enforcement authority from Congress, turned up in the media. They showed he had spent thousands of dollars on ammunition and personal armor for some of his agents, feeding talk that he considered himself a modern-day Eliot Ness. The office's total 2011 budget request was $54.6 million.

He notes that his agents have raided two banks with the FBI and helped arrest the former chairman of a mortgage company. "We arrest people," he says. "That's really grasping at straws if they are trying to criticize us for being a law enforcement agency."

That's not how Treasury sees it. Barofsky feeds critics like Representative Darrell Issa (R-Calif.), who is set to head the House Oversight and Government Reform Committee, one former Treasury official says. Suddenly, hearings are scheduled, charges fly, and the media "eats it up, regardless of truth," says Andrew Williams, a former Treasury spokesman. Barofsky, he says, is part of the "cottage industry that has grown up around taking cheap shots at Treasury's efforts to avoid a total economic meltdown." Barofsky, a lifelong Democrat, says: "My job is not to go along with some script that others have written that has a beautiful, perfect ending."

The bottom line: The war of words between Treasury and the Special Inspector General for TARP has turned nasty.

Schmidt is a reporter for Bloomberg News in Washington.

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