The Corner

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.


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