It’s fair to say that former Special Inspector General for TARP, Neil Barofsky, whose book I profiled on Friday, plans to become as much a part of the national conversation over the next couple weeks as humanly possible. He got bumped from Face the Nation yesterday in favor of coverage of the Aurora, Colorado shooting, but his appearance on CBS this morning was pretty bracing. Norah O’Donnell tried to make the standard conventional wisdom argument, infused by storehouses of Treasury Department propaganda, that TARP worked, that the banks paid back their commitment, that the auto industry sprung back to life, that the financial system was saved, and that everything worked out fine. Barofsky was unyielding in saying that you cannot view TARP in a vacuum, both in the sense of that being the only emergency support afforded the banks or in the sense of TARP being solely designed to save the banks, and not to help homeowners or spur lending.
Barofsky also has a commentary in Bloomberg this morning:
Part of the current economic malaise can be traced directly to Treasury’s betrayal of its promise to use TARP to “preserve homeownership.” The Home Affordable Modification Program has brought little meaningful improvement, with fewer than 800,000 ongoing permanent modifications as of March 31, 2012, a number that is growing at the glacial pace of just 12,000 per month.
In June 2011, Treasury appeared to take a tentative step toward holding the mortgage servicers accountable for the widespread misconduct in the program by pledging to withhold the incentive payments to three of the largest banks — Wells Fargo (WFC) & Co., Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) — until they came into compliance with HAMP’s rules.
Treasury couldn’t even keep this modest commitment. Although Wells Fargo had improved its performance and was awarded all of its withheld incentive payments, JPMorgan Chase and Bank of America continued to fail to meet the baseline standard. Nonetheless, in March 2012, as part of a broader settlement of the so-called robo-signing scandal, Treasury released all of the withheld payments, totaling more than $170 million. As a result, the government hasn’t held any servicer responsible for the widespread abuses of HAMP applicants, nor is it ever likely to do so.
This commentary actually comes from the afterword to Barofsky’s book, and he makes the point that the foreclosure fraud settlement asks far less of the banks than even the puny topline number of $25 billion would suggest. As we’ve discussed, a large portion of the money goes toward routine actions on the part of the banks, like bulldozing homes, giving homes to charity and waiving deficiency judgments (if only I could pay a penalty to the government by agreeing not to try to wrest thousands of dollars out of the hands of poor people who don’t have the money, the economic equivalent of getting blood from a stone). Barofsky adds that the companion to the settlement, the task force on securitization abuses, isn’t likely to amount to much. The SIGTARP investigation and prosecution of Lee Farkas of Taylor, Bean & Whitaker remains the biggest prosecution of a top official in the mortgage industry to date.
Barofsky also mentions that the banks have grown bigger since the financial crisis, and Dodd-Frank did nothing to stop them. Indeed, two-thirds of Dodd-Frank rules have still not been promulgated, two years after passage of the law. And what rules have come into place come under a framework that does not make a meaningful change to the current banking structure that caused the financial crisis.
Treasury’s focus on TARP’s financial costs, of course, detracts from its significant nonfinancial costs, including the worsening of “too big to fail” and the lost opportunity to help struggling homeowners. But a separate cost — the loss of many Americans’ faith in their government — may still yield a major benefit.
The missteps by Treasury have produced a valuable byproduct: the widespread anger that may contain the only hope for meaningful reform. Americans should lose faith in their government. They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable. The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.
Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.
Let’s just say that this is not the conversation an Obama re-election campaign wants to have at the moment.