Former New York US Attorney Neil Barofsky was appointed by George Bush in 2008 as Inspector General to oversee the Troubled Asset Relief Program (TARP) bailout program. The book he wrote about his experiences, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, was published this month.
This Fox News interview is the best interview I’ve watched, although I admit I passed on watching him on Rachel Maddow’s show. The $700 billion Congress authorized for TARP was, of course dwarfed by the massive amounts of secret money given to banks and corporations by the Fed, both here and abroad. But these funds were allocated by Congress, and a portion (HAMP) was earmarked to help homeowners whose property values crashed when the subprime mortgage bubble burst. At the time, at least enough of them understood that it was a smart move in response to the meltdown Main Street experienced almost immediately.
Given that he’s a former New York US Attorney who had ‘prosecuted Colombian drug lords’, it’s natural that, as Gretchen Morgenson writes:
“…he had assumed that his assignment to oversee TARP meant that he should be fiercely independent from the Treasury Department, and vigilant against waste, fraud and abuse. But after canvassing other inspector generals for guidance, he writes, he learned of different priorities: maintaining and possibly increasing budgets, appearing to be active — and not making enemies. [snip]
Another skirmish involved the department’s ill-conceived loan modification plan, known as the Home Affordable Modification Program [HAMP]. When the Treasury began discussing the program’s outlines, Mr. Barofsky said he became concerned that it would open the door to fraudulent foreclosure rescue schemes, in which large upfront fees could be extracted from desperate borrowers eager to participate in what was supposed to be a free government program. When his office recommended fraud-prevention measures, several were ignored, he writes.
A few months after the modification plan was announced, his office began a preliminary audit of its rollout. “We soon verified what we had suspected,” Mr. Barofsky writes. “Treasury had failed to ensure that the servicers had the necessary infrastructure to support a massive mortgage modification program.” It barely got off the ground, and few homeowners have received the help they hoped for.”
It’s estimated than only 10-13% of the approximately fifty billion dollars allotted to the program has been spent. It’s been fraught with abuse, misdirection from loan servicers, ‘trial’ modifications that seemed designed to fail underwater homeowners that too often led to even more foreclosures. Michael Hudson writing at the Center for Public Integrity (seriously ironic name) in August of 2010 told of another whistleblower, Caroline Herron, whose experiences working for Fannie Mae were evident in the wording of a lawsuit she eventually brought against Fannie after she was fired for what she believed was her criticism of the program.
“Herron charges that Fannie Mae continued in headlong pursuit of “trial mods” even though it knew many had little chance of becoming permanent. As late as September 2009, barely 1 percent of trial modifications had converted to permanent modifications by the end of their three-month trial, a Congressional oversight panel found. Nevertheless, Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department for trial modifications it booked before the end of 2009.
As of February 2010, 83 percent of the 1 million active modifications being handled by HAMP were trials rather than permanent arrangements. Barofsky, the special inspector general, criticized HAMP’s focus on trial modifications in a recent report.”
Now that it’s election season, the Obama administration and Tim Geithner are pushing hard to ensure more underwater homeowners some principal modifications.
In a new related kerfuffle, Tim Geithner had recently ordered acting Director of the FHFA Ed DeMarco to cram down some goddam mortgage principals for underwater homeowners, which would both save taxpayers money in the end, and save more (voters) Americans from foreclosure. And that might help Obama’s re-election chances; the failed HAMP program has been a thorn in his side; Republicans have tried to defund it several times.
But that pesky DeMarco recently wrote a long letter to Congress saying he refused to make modifications to homeowners who are delinquent, even given that, as Yves Smith says, it makes little sense:
“…particularly in light of a [new] Treasury program that provides subsidies to investors of 18% to 63% of the amount forgiven, depending on the loan to value ratio of the loan. With those kinds of bribes subsidies, how could DeMarco say no?”
Yves spends time here explaining what his logic might be, and considers his contention that it would amount to transferring money from one federal department to another (Treasury to Fannie and Freddie). But lost in his model must have been the value of saving X-million homeowners from foreclosure, and the usefulness of that to the economy at large. She also takes a stab at assessing the politics of Obama firing DeMarco, given that many administration and op-ed writers are calling for his head.
Then she writes that even though she believes it’s a stupid decision:
“I have to hand it to DeMarco as a bureaucratic infighter. He is effectively throwing the abortion of HAMP results in Treasury’s face. Recall that HAMP did not require borrowers to default in order to qualify for mods, yet many did out of misdirection by servicers. Now in fact, servicers are unlikely to play that game this time, since a principal mod reduces their servicing income. But the fact, as detailed by Neil Barofsky in his book Bailout, that Treasury was indifferent to how homeowners fared under HAMP, and merely saw this as a vehicle for “foaming the runway,” meaning spreading out the number of foreclosures over time, rather than saving borrowers, led to irresponsible actions (like ordering servicers to sign up people for trial mods initially without even qualifying them), numerous changes in program design (disastrous for highly routinized servicers) and lack of concern with the fact that many people lost their homes by virtue of HAMP who might have kept them, has produced some data (in particular, informed estimates of the number of people who defaulted to qualify for HAMP) against the Administration.”
Glenn Greenwald recently linked to another great review of Barofsky’s book, especially if you skip by the beginning in which Hank Paulson is a more sympathetic figure than Geithner, lol… ‘Impeach Geithner’ by by Moe Tkacik/Jezebel is at Das Krapital, filed under ‘crisis porn’, clips sections of Barofsky’s book; one such (my bold):
“Bizarrely, I began receiving calls from various government agencies pitching services to us, at a steep cost. I had never heard that there were whole subdivisions of government agencies that served as intragovernmental profit centers. Money in Washington is always sure to attract those who are seeking to get some, and although I had expected to be inundated by those in the private sector seeking to part us from our funds, I had no idea of the flurry of pitches I’d get from other governmental agencies. Before I knew it, we were signing contracts with Treasury’s Bureau of Public Debt, which, in addition to overseeing how the government raises funds to meet its obligations, operates a massive one-stop outsourcing business from which we purchased, at exorbitant rates, back-office operations, accounting, human resources, and other services. Even more rapacious were the costs we were to be charged by Treasury’s IT department for computers, printers and BlackBerrys ($2,194 per Blackberry with prepaid service.)”
What a bloody mess. It’s not just as though this were some sloppily run federal program; it’s further evidence that this is what our government is about now: cheating, greed, lack of accountability, tacitly approving and encouraging fraud, waging wars on whistle-blowers and healthy critics, and screwing us while pretending to help.
How many Americans understand that this crap takes bipartisan efforts? People need to know this stuff, and resist wherever and whenever possible. And vote third party; the neoliberal duopoly will serve Wall Street until we stop them.
“Rise like Lions after slumber
In unvanquishable number ~
Shake your chains to earth like dew
Which in sleep had fallen on you ~
Ye are many ~ they are few.”
~ Percy Bysshe Shelley
See jest’s good news about Stein and Honkala protesting Fannie Mae in Phillie. ;o)