You Don't Want Neil Barofsky Thinking You are a Pompous, Careerist, Lackey to the Banks

Elevator pitch for Neil Barofsky's  Bailout: "Mr. Smith Goes to Washington starring a guy with as highly actuated sense of right and wrong, and  the brass balls of an assistant U.S.Attorney from Manhattan."    Which latter is, of course, exactly what Barofsky was before somebody plucked him out of obscurity to make him the first inspector general of TARP, the benighted "troubled asset relief fund, so much the center of our narrative of the 2008 meltdown.

You really have to wonder who had the bright idea of giving him this job in the first place.  It's unlikely that any government official would have handed such a this guy this mandate had they entertained any notion of just how big a loose cannon (I use the phrase in the nicest possible sense) he might be.  In retrospect, you'd have to say they might have known.  Manhattan USDAs are not famed for winsome self-constraint, and in Barofsky, they picked a guy who had (if you believe him) faced down FARC guerrillas in Columbia--including one who (if you believe him) had been sent to kill him and relented only when she learned that there might be a spot for her in a witness protection program.

Whatever; but it couldn't been many days before they realized they had given the secret handshake to a guy disposed to assert the broadest possible definition of his mandate, and great enthusiasm to explore any opportunity that presented itself.   And in addition to his work with narco-warriors, he brought to the table an impressive background in the intricacies of financial fraud.  What he did not bring was equally impressive: he had zero ambitions for a Washington career.  By his own account (and the evidence richly supports him) he was a political naif. And if he had any humility, he must have left it in the commuter waiting room at Penn Station.

All of which makes for, if not else, a riveting read--one of the best first-person memoirs that I've read coming out of the crisis.* It's a ripping yarn in which you wouldn't want to be one of the legions whom Barofsky came to hold in contempt. His high-mindedness is somewhat defanged by the consideration that he is also severe with himself: it can be fun (by reason of rarity?) to read anyone who is so candid and forceful in owning up to blunders on his own.

Barofsky almost certainly defined the job more broadly than his handlers would have expected him to. He took on "audits"--the boring shuffle of paper that makes up so much of the life of inspectors general. Much more he seems to have preferred fullscale "investigations," and it was only a blink of an eye before he had clothed his staff with full law-enforcement powers--guns and badges--and making referrals for prosecutions.

Early in the book he takes note of so-called "media whores"--IGs who define their job their name in the paper. The phrase was not Barofsky's, but by the end of the book he more or less acknowledges that he pretty much became one himself: he concluded, almost certainly correctly, if he was going to have any impact at all, he had to make enough of an uproar that Congress and the press would pay attention.

So it is hard to go through it without accepting his conviction that he is one of the good guys. But dig down under the hood a bit and there are some interesting issues that bear further exploring. This is so in at least two respects.

First, as to the nature of the mandate. There can't be much doubt that an IG has a brief to work for prudent management: to try to make sure that government dollars are not stolen, neither by recipients, nor by government employees themselves.

But (second) "stolen" quickly morphs into "squandered," and "squandered" very quickly leads to the question of what the government is supposed to be doing with the money--in a word, to questions of policy. Subtleties like this don't seem to have bothered Barofsky a lot. By his view,this is a battle of--what shall we say?  Main Street versus Wall Street?  The Banks versus the little guy? Choose as you wish, but Barofsky clearly sees himself on the side of the Main Street, the little guy.   However sympathetic one may find him in this role (I find him very sympathetic indeed), still there is the question: who died and made you king?  How far is it your role to establish the agenda for the program?

One answer to that question might be: well from the start, the program had a dual mandate.  It had the job of assuring that the banking system did not fall off the cliff.  And it had the job of providing some succor for all the assorted innocents who fell victim to financial dysfunction.
 
If you grant that ambivalence, then you will be impressed by the next insight. Specifically--it's clear beyond any cavil Secretary of Treasury Tim Geithner has never seen it that way.  By all the evidence--not just Barofsky's--we can see that Geithner saw and sees his mandate under a banner that says "no banker left behind."  If some consumers get helped in the process, why that might be okay (or does Geithner even care that much?).  But it can't be anything more than an incidental and unintended side effect of the world according to Tim.

Insofar as Barofsky blew the whistle on this kind of blinkering, I think we can thank our lucky stars that he was on the job.  But the issue doesn't end there.  Even--especially--if you accept this kind of dual mandate, then  you have to face some questions of how or whether the two stakes can ever be reconciled.

Take HAMP, the Home Affordable Modification Program that got so many straitened debtors deluded with false promises of loan workouts.  I think everybody except the program's administrator's mother would now concede that HAMP is a classroom example of bad governance, poorly conceived and appallingly excecuted.  And Barofsky provides compelling evidence that Geithner saw it only as a device to help banks, not consumers.

But what if you decided that you do want to help debtors on underwater mortgages? Just exactly why do you want to help them?  And what exactly do you do?  The first question--why?--itself invites an ambivalent response. Are you doing it out of compassion?  But why compassion?  Aren't these just risk-takers who took a risk and lost?  And is compassion to these debtors compatible with compassion for other homeowners who did pay their bills and did not get whipsawed by the economy?  But maybe you are not doing it out of compassion; maybe you are only doing it because you think the economy needs it, in which case a different set of questions may arise.  And in general, if we give this relief, where does the money come from, and why?

Or take a somewhat less earthshaking issue that appears, nonetheless to be dear to Barofsky's heart: auto dealerships.  One facet of the Rattner auto bailout was that it generated a rash of dealer closings.  Barofsky is not at all happy with that decision which he thinks ill-founded or at least ill-thought-out.  And he is surely right that closing a dealership hurts, very likely the dealer and probably also the community he serves. But it's less clear how you allocate the costs/benefits of this sort of thing.  Barofsky floats (though he does not really embrace) the idea that the dealers took the fall for the employees--that there wasn't enough money to save both, and the (largely Democratic?) employee cohort at the expense of the (mostly Republican?) dealers.  That's certainly a possibility and I'm not sure how I'd come down on it myself.  My point is I'm not sure the issue was quite so much within Barofsky's brief as he seems to believe.

Concerns like this may seem nitpicky, mere lawyer stuff.  The hell with the fussiness, his friends will say.  Those are just excuses and evasions. Barofsky was a man of action.  Even or perhaps especially (they say) you read what his enemies say about him, you can see that he's a man of integrity who was doing what he felt was best for the system.  The hell of it is, I think his friends are right.

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*Others: Steve Rattner's Overhaul on his work in the auto bailout (sounds like Rattner and Barofsky are not the best of friends); Harry Markopois' No One Would Listen by a guy who seems to have gone half nuts trying to tell the world about Bernie Madoff before Bernie told on himself.