TARP Inspector’s Exit Interview: Big Banks Are Bigger, Main Street Got Screwed

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This is how you make Neil feel, TARP.Photo: Mark Wilson/Getty Images

On your last day at a big company, you get ushered into a room with HR for an exit interview to find out what you really think. People are usually too scared about burning bridges to actually recount all those scathing diatribes they told their work-husband over anger-coffee in the break room. But not self-described "pain in the ass" Neil Barofsky. On his last day as special inspector general for TARP, Barofsky, a former assistant U.S. attorney in New York, took to the op-ed pages of the New York Times to go out with a bang. Gretchen Morgenson has called Barofsky "a rare straight shooter," whose criticism over TARP's bank-friendly terms and whose record of prosecuting executives won him plenty of enemies in the Treasury. Well, he probably made a few thousand more on Wall Street today.

Remember back in January when the Treasury testified that TARP had "helped bring the economy and our financial system back from the brink, and it helped pave the way for recovery"? Good, because you're going to need something positive to latch onto while Neil does his thing.

Barofsky concedes that the country is better off for having avoided a financial meltdown and that billions of dollars in taxpayer money allowed big banks on the brink of collapse to survive. But, if you ask him, TARP got, oh, just about everything after that wrong. The big banks are 20 percent bigger and more in control of our economy than ever before — and the promise of help to home owners that convinced Congress to vote all but evaporated. Wrote Barofsky:

It has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that. Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

This is exactly the kind of overseer Washington needs, which means Barofsky's "TARP cop" replacement will probably be nothing like him. If he wants to come back to New York, however, we bet U.S. attorney Preet Bharara could use Barofsky's willingness to be the most hated man in the room to go after the next Raj Rajaratnam.

Where the Bailout Went Wrong [NYT]
Related: 94 Minutes With Neil Barofsky [NYM]