The Huffington Post described a scene in a forthcoming book by Neil Barofsky, the former Special Inspector General of TARP, where Treasury Secretary Timothy Geithner delivered a string of F-bombs during a discussion about transparency. I’ve read the book, and while that’s an amusing diversion, it’s nowhere near the headline story.
The important moment in the book for me comes conveniently after Barofsky recounts this FDL News item, one of my HAMP horror stories. Barofsky shows how HAMP’s faulty design led to all sorts of problems like this, with trapped borrowers, extended trial payments, no-doc modifications, and eventually unnecessary foreclosures. Barofsky mused that Treasury didn’t care about the suffering of borrowers under HAMP, and the issue came up in a meeting with the Treasury Secretary, which was also attended by Elizabeth Warren, then the head of the Congressional Oversight Panel, another TARP watchdog.
Warren asked Geithner repeatedly about HAMP. After several evasions, Geithner said about the banks, “We estimate that they can handle ten million foreclosures, over time… this program will help foam the runway for them.”
This is a revelatory moment for Barofsky in the book, and should be for everyone reading. Geithner’s concern, first of all, was with how the banks would respond to the program, not how homeowners would respond to it. In fact, homeowners are quite besides the point. Regardless of their situation, they will be one of the 10 million foreclosures, in Geithner’s construction. His goal was merely to space out the foreclosures and give the banks time to earn their way back to health, mostly through the other parts of the bailout, that enabled them to earn profits.
This is a classic “extend and pretend” scheme; banks can extend the time frame for their losses, and pretend they were financially strong in the meantime. We previously had evidence that Geithner and the Treasury Department thought this way. In August 2010, a Treasury official (which Barofsky outs in the book as Geithner) made basically the same defense of HAMP, that it would give time for the banks to absorb foreclosures rather than have them come on the market all at once. But that came as a defense of the program after the fact. This scene with Warren and Barofsky came in mid-2009, when the program was in its infancy. And it’s prospective, not retrospective. It’s not that Treasury came up with a justification after the performance of HAMP faltered. It’s that it was designed this way.
As Barofsky says, HAMP was not separate from the bailouts, it was part of them. It squeezed a few extra payments out of borrowers and then allowed banks to do with them whatever they wanted. It stretched out the foreclosure crisis, by design. In fact, by the end of this, HAMP may not help even the borrowers secure in permanent modifications. Not only are the modifications of inferior quality, and not only have they led to high re-default rates already, but most of the permanent modifications are not permanent at all. Barofsky notes in the book that they have five-year time limits, with interest rates rising and payments returning to their original size at that time. So in 2014 and 2015, we’re going to see hundreds of thousands of recasts, like on an adjustable-rate mortgage. Maybe the borrowers will have righted their financial ships by then, or saved up enough to move on. But the more logical scenario is for more defaults at that time. But by then, the banks will have built their fortress balance sheets (with lots of government help) and won’t mind another half a million foreclosures.
This confirmation of the design of HAMP is just one of the many revelatory moments in a book from a man thrust into the position of a Washington insider, willing to tell the tale. It’s well worth your time when it goes on sale next week.
I have attempted to contact Elizabeth Warren to corroborate this meeting, and will let you know if I hear back.
UPDATE: Yves Smith has a preview of the book as well.





39 Comments


Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
Extend and pretend: HAMP, HARP, systemic review council, stress tests, derivatives rules, LIBOR memo — it’s Geithner’s pattern.
Absolutely superb post, DDay.
“Extend and Pretend” seems the modus operdandi of the entire political class.
With no concern for “the people” but only for the self-selected elite and their undeniable pathology.
I hope this may be front-paged and that every one at this site will read and ponder what you have written.
Thank you for staying focused on the effects and intent of the larger pathology, David.
DW
It comes back to the same question, though maybe it just raises a distinction without a difference: did the people involved honestly believe that they had to save the banks no matter what to prevent the economy from collapsing due to freezing up of lines of credit, etc., or was it just because the people in charge were bankers and wanted to save the system because that is who they are? There is a case for both sides. I remember having a conversation in in September 2008 with a guy who was repeatedly on the phone with Paulsen and who told me that it was going to be a giveaway no questions asked.
My guess is that it is both.
I’m disappointed to think that Elizabeth Warren was a witness to that sort of comment and didn’t scream to high heaven about it.
Timothy Geithner belongs behind bars.
Who is Elizabeth Warren. /s
I thought she was rotten all along, while some on FDL swooned over her.
GAH.
Uggh, Geithner foaming his runway with proles. Monsters.
“Timothy Geithner belongs behind bars.”
Yup! Why isn’t Issa investigating Treasury?
And we wonder why Obama is in trouble politically?!! This guy had a mandate, a real problem to solve, and the opportunity. But sadly, he picks people like Geithner, Sumners, and Emmanuel to “solve” our nation’s problems. Even with the Libor matter, where the gun is not only smoking but we have video of the massacre, the backers of the democratic and republican parties will still go free and live very well.
No Nuremburg for these war criminals.
I admit to mixed feelings about EW, and this information does seem to strongly support your opinion.
Hope often has a sort of narcotic effect.
Privatize the profits, socialize the losses.
So, am I to understand HAMP was intended for this end game by being set-up for taking on the risk from the large volume of losses? Wow, imagine THAT information in the hands of those who knew HAMP would do this…CDS’s here we come. The banks were the largest market for CDS’s. Banks knew they would profit from CDS’s only if foreclosures were filed. So the banks get a check for their “losses due to foreclosure” from HAMP and then turn around and profit from their CDS’s. Sounds like a type of insider trading and fraud.
-Scott Podvin
So in 2014 and 2015, we’re going to see hundreds of thousands of recasts, like on an adjustable-rate mortgage. Maybe the borrowers will have righted their financial ships by then, or saved up enough to move on. But the more logical scenario is for more defaults at that time. But by then, the banks will have built their fortress balance sheets (with lots of government help) and won’t mind another half a million foreclosures.
So Timmy predicts then that the banks and economy will be all better by 2014 or 2015 its 2012 now. Given the economy and the banks health is dependent on enough people buying stuff and being able to payback loans they took out and I don’t see that happening on this time line.
Just what did Timmy base his year of recovery prediction on Business Cycles? Was Obama aware of this when he sold us this plan is my next question.
It is curious that the GOP has so many real issues like this to attack Obama on but they don’t they could win the election on Obama’s failure’s but instead they prefer to go to the Right of O and place their trust in vote fraud, denying Dark People the vote and Hate to win the election.
I would love to see the Math in the “Math ” model Timmy uses I suspect he and Karl Rove had the same teacher.
Her “tell” was hanging around O long enough to look like she sold out to get the permanent appointment.
Of course, as there is no honor among thieves, he ditched her just like he did to Dawn Johnson.
Thanks for the link, David. We have also written about the book’s HAMP allegations and the “foam the runway” meeting:
http://www.huffingtonpost.com/2012/07/20/timothy-geithner-neil-barofsky_n_1686693.html?utm_hp_ref=business
And it makes one feel so foolish to fight with T-GOPpers who hate Obama because they don’t hate him for the ‘right’ reasons.
Wow. An Obama sponsored initiative by Treasury that didn’t help the folks they claimed it was going to help and who needed help instead turned out to be another bailout for the Big Money Boys. Color me shocked.
Curious? Have some chutzpah.
Exactly. After presiding over endless bankster bailouts, a real unemployment rate averaging about 15%, millions of American families thrown from their homes, endless fraud and “settlements” that benefit banks at the expense of citizens, continuation of the Bush wars, the end of the rule of law, encroachments on civil rights that only a Republican could love, my question is:
Why is Obama tied with Romney?
Shouldn’t Mitt, shouldn’t SEAMUS for God’s sake, be cleaning the floor with the bought bastard?
Why fight with anyone about O?
A wink and a nod.
OMG. Compradors are clueless.
Agreed. Not mutually exclusive options.
Worst Treasury Secretary ever.
Speaking, of course, from the perspective of the 99%.
OTOH, I hold his boss responsible as well.
Thanks for the article David. Sounds like a worthwhile read.
Not surprised to hear that another program that was passed off as being “pro-borrower” was really just corporate welfare in disguise.
Red…..Ooooo, Oooooo, don’t forget extrajudicial executions and his intl trade agreements outssourcing thousands of jobs overseas.
You’re welcome.
Agreed. I made myself stand in the corner for 15 minutes last night for that exact reason.
Steve, are you like me? I’m starting to detect a pattern here. /s
That’s the $64 million question.
(Had to adjust for inflation)
Ha Ha Ha Ha!!! Ha Ha Ha Ha Ha Ha!!! ROFL, ROFL, ROFL, ROFL, HA HA AHA AHAAHAHAHAAAHAAHA!!!
Otherwise a very interesting article….
Neil Barofsky Is My Boyfriend !
I can not wait to read this book – although I remind everyone much of it will be confirmation of the sterling real time FDL reportage and commentary we were so fortunate to get from David Dayen, Emptywheel, Scarecrow, and others
like many, I am all but innured to the straight up evil and insanity to be found in this horror – but was actually sickened yesterday while reading the HuffPo Timmy-says-the-F word story. He actually touted the stress tests (in a room full of insiders) as evidence of his mad enforcement and transparency skilz
really, is anybody surprised by this? The pattern continues – the only thing missing is the “bonus” amounts for setting this up.
thanks Mark.
d
DDay, I wish you knew what the fuck you were talking about.
Three clear falsehoods in one statement. Two of these claims with relative truths. The mods may be inferior to preferred policy, but they are superior to the modifications offered prior to HAMP’s creation. Same thing with redefaults. Redefaults on HAMP mods are actually a lot lower than redefaults on traditional mods. The claim that the mods are not permanent, however, is an out-and-out falsehood.
I’m going to assume that you’re an idiot and lack the ability to understand what Neil Barofsky wrote rather than assuming that Neil himself didn’t understand it. A permanent HAMP mod does not have a “five year time limit.” Rather, the mods are structured as “step rate” modifications. The interest rate can be lowered to 2% for up to five years. After that, the rate “steps up” at a maximum of 1% per year until it reaches the capped rate. The capped rate is the Freddie PMMS rate rounded to the nearest 0.125%. Right now, that makes it 3.5%. So, when year six rolls around on a permanent mod prepared today, the interest rate is going to jump from 2% all the way up to the sky-fucking-high rate of 3%. In year seven, it’ll jump all the way up to 3.5%. The horror. THE HORROR!
The loans do not “reset” after year five, and they never go back to the original rate on the loan. Once again, I reiterate, you’re an idiot.
This is false. There are not going to be recasts in 2015-2017. DDay doesn’t know what he is talking about.
geithner? you have to be kidding- geithner was a bought and paid for enforcement stifling captured regulator hired only to protect those who have stolen our country & enslaved us and our children with years of debt to pay percentages to banking thieves…
when will people lay the blame on the correct party?
geithner is a hireling- peddling classist bromides and neo-classical econ bullshit
- anyone can and could see that – for christ’s sake the step-and-fetcher for the rich and blameless was head of the NY fed, worked for kissinger & associates, was a fellow at the council of foreign relations and is a proud “protege’ of robert rubin, who he referrs to as his ‘mentor’ – doesnt take a harvard grad to suss out his fealty
maybe we should blame the individual who hired this obvious plant and protector of the wealth of unpatriotic and selfish destroyers of the middle and lower classes?
hey superking- have any comments on the so-called “trial mods” under Hamp&Harp?
so clever to speak only about permanent mods – and also fudge the main point of this blog post, that hamp&harp and QE1>infinity (which includes buying ‘toxic debt’ that banks can’t sell at no-loss to banker rates with your tax dollars) and the rest of the rich protecting alphabet soup are part of the scheme to not let on that, quite simple and quite demonstrably -THE BANKS ARE INSOLVENT AND WHOLLY PROPPED UP WITH TAX DOLLARS – also known as “extend and pretend”
oh The Horror! of dumbassed obama and banking cheerleaders who intentionally misrepresent as they buttress the immoral actions of the titans of industry from their low-salaried petite bourgeoise platforms…I think I hear blankfein shouting for another latte, come on superking, step it up
Yeah, I was thinking more along the lines of Place de La Concorde myself as well.