Barofsky Walks Into a TARP

By: Zarak Khan  

Neil Barofsky, the former Special Inspector General for TARP and perpetual thorn in Tim Geithner's side, recently sat down for an interview with the NY Times to promote his book "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.”  The critical tone he takes here should be no huge surprise to anyone who watched or read about the Congressional hearings at which he skewered the efforts of the Treasury to administer TARP.

With events like the Federal Housing Finance Agency's recent decision not to allow mortgage modification and the LIBOR rate-setting scandal still in the headlines, it is difficult to dispute Barofsky's sentiment that more could be done to create smart regulations. More pointedly, Barofsky contends that the incentive structure for regulators needs to be overhauled to promote accurate and aggressive policing of the financial industry.

While much of that may be true, the narrative of his book still contains inconsistencies that undermine his arguments. In a review of his book, Jackie Calmes points out:

He refers throughout to the $700 billion bailout, never clarifying that less than $300 billion of that amount went out the door by the time TARP expired; that not a penny went to big banks during the Obama administration; and that those banks repaid taxpayers with interest.

As ugly and flawed as the rescue process was, and as galling as Wall Street’s revived bravado and bonuses can be to most Americans, the fact remains that an economic collapse was averted, and that Main Street is recovering: slowly, but typically so for recessions brought on by credit crises.

Perhaps Barofsky represents the flip side of the "things could be worse" argument, and for once, that argument is equally difficult to make. Or, at least, equally difficult to hear.

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