Tags: TARP

Geithner Book Rekindles Barofsky Hatefest


Tim Geithner has a new book coming out, and one character in it is already fired up about the former Treasury Secretary’s nasty comments.

Geithner, who was president of the New York Federal Reserve Bank when the partial correction of the real estate market began in 2006 and became President Obama’s first Secretary of the Treasury in 2009, will hit bookstores Monday with Stress Test: Reflections on Financial Crises. The Dartmouth alum, whose skills schmoozing powerful people on the tennis court have always exceeded his abilities as an economic central planner, is getting the same puff-piece treatment from the media he has enjoyed throughout his career.

But at least one of his former associates — former Special Inspector General for the Troubled Asset Relief Program Neil Barofsky — is giving Geithner a raspberry. In a LinkedIn post, Barofsky starts off with two points that are not on the top of anybody’s priority list: whether SIGTARP employees should have been allowed to be armed and armored, and an estimate of how many trillions the bailout of the big banks might eventually cost taxpayers. (For what it’s worth, his worst-case estimate of $23.7 trillion seems unrealistically high, but the night is young.)

But the meat of Barofsky’s complaint is a conceptual attack on the $700 billion TARP itself:

Mr. Geithner also apparently calls me a number of names and claims that I lacked the necessary financial knowledge or experience for the job. I take great pride in the professional and skilled team that we assembled and the detailed and widely respected reports detailing the bailout that we issued. Indeed, they have widely been heralded as the most complete record of the government’s efforts. Mr. Geithner also ignores the facts when he suggests that we failed to report on the returns on TARP’s investments and that we criticized him without suggesting alternatives. In fact, we issued reports every single quarter that detailed how much money came back to Treasury and that included dozens of recommendations to improve the programs.

Mr. Geithner apparently concludes that our relatively unknown agency was “damaging” to his efforts to persuade the American people to support his program. While I take it as a compliment that he thinks that our team had such a disproportionate impact, I suspect that the truth is slightly different. The American people considered TARP an unfair giveaway to the largest banks and a failure for Main Street because, in fact, that is exactly what it was.

I would trust Barofsky over Geithner any day — though he is theoretically on the “left” of the economic dream team. His belief that the government should have bailed out “troubled homeowners” as generously as it embiggened the banks (a fixation he shares with Massachusetts Senator Elizabeth Warren) amounts to a philosophy that once you’ve been robbed by your rich neighbor you have a duty to be robbed by your poor one. (The actual populist position — that taxpayers should not have been forced to bail out either of these numbskulls — never gets voiced by anybody in power.)

But Barofsky (who became SIGTARP shortly before Obama’s inauguration and left in 2011) was notably if not uniquely honest in the Obama brain trust. He correctly pointed out in 2010 that the design of federal housing efforts was to re-inflate the housing bubble — not exactly a Newtonian discovery, but something few people in government were willing to say outright. He consistently threw water on bogus claims that the TARP was on the verge of turning a profit. Despite or because of his soft spot for bad mortgage borrowers, he was unusually willing to admit [pdf] that the whole federal apparatus of trial loan modifications was a form of cruelty, dragging out the pain and false hope for people who would have been better off just getting foreclosed and moving on with their lives. He made an earnest effort to perform an essentially impossible task: safeguarding the taxpayers’ interest in a program that was designed to rip off the taxpayers. (Like most of the big players in the recession, Barofsky has his own book, 2012’s Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.)

Barofsky’s commitment to getting at the truth is in fact the source of the hatred between the two men. During a markedly unfriendly 2009 investigation of Geithner’s role in the New York Fed’s “Maiden Lane III” bailout of American Insurance Group (which mysteriously got paid out at 100 cents on the dollar at a time when everybody in the country was taking some kind of haircut), Barofsky made short work of Geithner’s claim that he was trying to prevent “systemic risk” rather than just protect AIG’s powerful counterparties:

Geithner and the [Federal Reserve Bank of New York] General Counsel told SIGTARP that the financial condition of the counterparties was not a relevant factor in the decision to create Maiden Lane III and pay counterparties effectively at par…

Then-FRBNY President Geithner and FRBNY’s general counsel deny that this was a relevant consideration for the AIG transactions. Irrespective of their stated intent, however, there is no question that the effect of FRBNY’s decisions — indeed, the very design of the federal assistance to AIG — was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG’s counterparties…

FRBNY did not develop a contingency plan; when private financing fell through, FRBNY was left with little time to decide whether to rescue AIG and, if so, on what terms… Not preparing an alternative to private financing, however, left FRBNY with little opportunity to fashion appropriate terms for the support, and believing it had no time to do otherwise, it essentially adopted the term sheet that had been the subject of the aborted private financing discussions… In other words, the decision to acquire a controlling interest in one of the world’s most complex and most troubled corporations was done with almost no independent consideration of the terms of the transaction and the impact that those terms might have on the future of AIG.

Again, it didn’t take a genius to figure this out. How could Geithner simultaneously believe there was “systemic” risk from AIG’s failure but not believe there was “relevant” financial risk to firms that were dealing with AIG directly? Would the risk somersault over Goldman-Sachs and land directly in an ATM at First Bank of Podunk? I’m not the first to point out that Geithner bears a physical resemblance to Leave It To Beaver’s Eddie Haskell, but the personality resemblance — precious and overly polite when adults are present; scheming and smart-mouthed as soon as the grownups leave the room — is even stronger. Cutting through Geithner’s mushmouthed obfuscations was a full-time job.

Nobody’s doing that job anymore, and Obama’s entire first-term brain trust has been replaced by a new cast of non-entities. Stress Test is festooned with blurbs about the author’s candor and insight, and about the great debt our nation owes him. For younger readers: They’re talking about the official narrative that the TARP, the Fed’s monetary expansion, bailouts like AIG’s etc., “rescued” the economy from a hyperpocalyptic catastrogeddon that was always very vaguely described but, we were assured, sure to destroy us all unless the government spent trillions on bold, persistent experimentation.

You’d think seven years of economic anemia would cause even the blindest believer to wonder: Was it really a good idea to put off a much steeper credit contraction and rapid arrival at the bottom of the market in exchange for nearly a decade (so far) of stagnation and the apparently permanent hobbling of the American economy? But that argument is long over, for the same reason history will record that Obamacare was a success. By definition, every government action is the right one, irrespective of the outcome.

Tags: Tim Geithner , TARP , Great Recession

President Obama, the Auto Dealer Layoff King


The Obama campaign has decided that this week’s Bright Shiny ObjectTM  will be the folks laid off while Mitt Romney was running Bain Capital.

Because President Obama has never laid anyone off… oh, wait:

President Obama’s auto task force pressed General Motors and Chrysler to close scores of dealerships without adequately considering the jobs that would be lost or having a firm idea of the cost savings that would be achieved, an audit of the process has concluded.

The report by Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program of the Treasury Department, said both car makers needed to shut down some underperforming dealerships. But it questioned whether the cuts should have been made so quickly, particularly during a recession. The report, released on Sunday, estimated that tens of thousands of jobs were lost as a result.

“It is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downturns in our nation’s history was either necessary for the sake of the companies’ economic survival or prudent for the sake of the nation’s economic recovery,” the report said.

About a year ago, G.M. informed more than 2,000 dealers that some or all of their franchise agreements would not be renewed in October 2010. Chrysler eliminated 789 dealers, or about a quarter of its network, with less than a month’s notice.

Both carmakers voluntarily rescinded some terminations — 666 at G.M. and 50 at Chrysler — which, the report said, “suggests, at the very least, that the number and speed of the terminations was not necessarily critical to the manufacturers’ viability.”

I’m sure Obama fans will insist, “but the layoffs under our guy are completely different!” They’ll insist that in order to preserve the entire institution during a time when its continued operation was jeopardized, it was necessary to lay off certain branches and employees… which is, of course, precisely what Bain Capital was doing, or at least what the management of Bain Capital believed it was doing.

The line between heartless, cruel sacrifices of hardworking Americans to corporate greed and necessary sacrifices to ensure continued viability of a company in a competitive market is often in the eye of the beholder.

Tags: Barack Obama , Mitt Romney , TARP

TARP: Our National Bioweapon of Cynicism


As I mentioned in the Morning Jolt, a big factor in the latest bit of fury over the economy is TARP, and the perception that while millions of Americans endure hard times, the federal government was willing to hand over billions upon billions in taxpayer money to save wealthy bankers from the consequences of their own bad decisions.

In a way, TARP may be one of the most consequential political decisions of modern times, spreading cynicism and distrust like a bioweapon, an obliteration of the benefit of the doubt to anyone who could be considered “elite.” You saw further fallout in the debate earlier this week. Mitt Romney tried to walk the tightrope, suggesting that he hates bailouts, but the TARP may have been necessary, and that he’s almost certain to never do something like that again, unless it was needed to “to make sure that we don’t lose the country and we don’t lose our financial system and we don’t lose American jobs, and that all the banks don’t go under.” Cain echoed that opposition of TARP as enacted but not in theory, and Ron Paul, Rick Santorum, and Newt Gingrich pummeled them for it.

So, a quick quiz: How much did the TARP give to banks? And how much did the taxpayers lose on all that?

The numbers are better than the popular perception might suggest:

Most banks have repaid their TARP money. As of Aug. 31, the Treasury had received $183 billion of the $205 billion distributed to financial institutions. The Treasury also got $26 billion from dividends, interest and stock, resulting in a slight profit for the program.

Now, mind you, this is the portion dealing with banks. As Kevin Williamson noted last year,

Citigroup paid back less than half of its bailout and the government took equity for the rest. We own a fifth of the company (and I wonder if that fact has anything to do with this.) . . . We still have billions of dollars’ worth of warrants on equity in 280 companies, almost all of them banks and insurance firms.

The parts of TARP dealing with insurance agent AIG and carmaker GM are worse ($14.9 billion for GM, based on the latest stock price).

Yet you don’t see much talk of Occupy GM or Occupy AIG. Instead, the protesters target David Koch and Rupert Murdoch — CEOs of companies that didn’t take taxpayer bailouts. What’s more, Barack Obama voted for TARP, offered no objections when it was proposed, and administered it — and yet he’s largely been immune from the fury over bailouts, at least from the Left.

Defenders of TARP have always argued, and will continue to argue, it was necessary to prevent a national credit freeze and a catastrophic domino effect of businesses collapsing because they couldn’t get loans for operating capital. But that financial market-saving move came at enormous political and social cost, accelerating a corrosive distrust of almost everyone even remotely associated with banks, big business, wealth, or the political system.

Tags: Barack Obama , Koch , Mitt Romney , Occupy Wall Street , TARP

Want to See the Faces Behind the Bad Economic Numbers?


Today’s Morning Jolt looks at a New Hampshire primary and a late addition to the list of little-known Rick Perry Facts, but focuses mostly on what’s driving the “We Are the 99 Percent” folks — who may not completely overlap with the Occupy Wall Street protesters.

So I went through the photos of the “We Are the 99 Percent” crowd, in which they take pictures of themselves looking forlorn and hold up notebooks describing the life circumstances that make them so angry. Sometimes you get some laughable cases, like the guy who wants a bailout for his art school student loans. But as you go through them, there are some genuinely heartbreaking tales of woe. A point that hasn’t come through in much of the protests in the park in New York City is how often people say, “I consider myself lucky, I still have a place to live and my loved ones” or some other expression of gratitude.

In a lot of cases, they describe working part time, often more than one part time job, and struggling to get by. These are actually the faces to the monthly figure we get from the Bureau of Labor Statistics. Last month, BLS calculated that 9.3 million Americans were working part time because they couldn’t find the full-time work they desired; in September, an additional 444,000 Americans entered this category. Part-time work is better than no work, but it often doesn’t include benefits and one inevitably gets the stress and challenge of two separate work schedules, added with whatever other responsibilities one has (family, etc.).

The world has always had young people who majored in studies that don’t easily lend themselves to entry-level jobs. What it also often had was enough entry-level jobs for them to make a living doing something else that pays the bills while they figure out how to turn that sociology or classical studies or drama or whatever degree into an actual career. Since 2008, the American economy has had fewer and fewer options, and more and more folks looking for those jobs. And while we’ve certainly had recessions before, we haven’t had multiple years of unemployment at 9 percent or so, at least not since the Great Depression.

I think two big factors are driving this — the first is the realization that electing Obama, the Munificent Sun-God, didn’t actually do much to fix many of the problems young people were upset about in 2008. The job market still stinks, wage growth is a distant memory, the drop in housing prices hurts current homeowners and not enough young earners have the resources to take advantage of lower home prices and oh, by the way, gas is $4 per gallon instead of $3 per gallon.

The second big factor is TARP; the common cry from a lot of these folks is a whiny, “where’s my bailout?” The other night, HBO replayed Too Big to Fail, their star-studded depiction of Treasury Secretary Hank Paulson’s actions during the 2008 financial meltdown. It was good for what it was, watching Hollywood stars reenact semi-public figures in annotated versions of their meetings during events of not too long ago. (Paul Giamatti made a strangely plausible Ben Bernanke; Billy Crudup plays as a suspiciously noble and well-reasoning, if fidgety, Tim Geithner. I kept yelling, “He’s the mole! He’s the mole! Somebody stop him!” but then I remembered I was thinking of Mission Impossible 3. Or was I?) Whether you think TARP was necessary or not — the movie clearly makes TARP opponents in the House GOP out to be reckless villains, but the closing text portrays the program as failing most of its fundamental goals — I think TARP and the Three Four Years’ Recession have taken a one-two punch to the average Americans’ sense of how the world works. To see the Feds giving hundreds of billions of dollars to immensely powerful banks with few strings attached is baffling and incongruous; to see such a fortune spent to save banks from the consequences of their bad decisions, while so many ordinary Americans suffer worse — i.e., mass layoffs that have little to do with the work quality of those laid off — persuades a lot of folks that the whole system is rigged and that the American Dream is a con. I don’t think that’s true, but as we inch into our fourth year of hard times, I can’t begrudge someone who’s burned through their savings from feeling that hard work and making the right decisions doesn’t really pay off in modern America anymore. Few economists expect much of an improvement in the year to come; I wonder how many Americans will feel even angrier, and even more eager to lash out at a scapegoat, a year from now.

Tags: Barack Obama , Economy , Occupy Wall Street , TARP

(Even) More Trouble at Citi: Is Obama Paying Attention? Is Gillibrand?


You know that bank we own? No, not that one, this one. There seems to be some trouble:

An all-out war has broken out between Citigroup CEO Vikram Pandit and a prominent securities analyst who is saying that the big bank may be cooking the books by inflating its earnings through an accounting gimmick, FOX Business Network has learned.

The analyst, Mike Mayo, of the securities firm CLSA, has been telling investors that Citigroup (C: 3.70 ,+0.04 ,+0.96%) should take a writedown, or a loss on some $50 billion of “deferred-tax assets,” or DTAs. That is a tax credit the firm has on its financial statement that Mayo says is inflating profits at the big bank by as much as $10 billion.

For that critique, Mayo has been denied one-on-one meetings with top players of the firm, including CEO Vikram Pandit, Chief Financial Officer John Gerspach, and any other member of management, while other analysts enjoy full access to the bank’s top executives, FBN has learned.

In fact, Mayo hasn’t had a meeting with Pandit or anyone in Citigroup management since around the time of the financial crisis, in the fall of 2008, when Citigroup was on the verge of extinction and needed an unprecedented series of government bailouts to survive.

You know who ought to be able to get a meeting with Vikram Pandit? Tim Geithner. And if not Tiny Tim, then his boss, Barack Obama, who was the top recipient of Citigroup campaign contributions in the last election cycle, having taken in more than $730,000. You know who else might be able to get a meeting? New York Sen. Kirsten Gillibrand, who is the biggest recipient of Citigroup money in this election cycle so far.

Obama and Gillibrand should know: If you’re going to bail out the bank and take the bank’s money, then when it’s time for due diligence, you need to make sure that somebody steps up.

Tags: Banks , Financial Crisis , Fiscal Armageddon , General Shenanigans , Obama , TARP

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