Designed to Fail
Global Research
Stephen Lendman
In February 2009, Barofsky submitted an initial report to Congress. In the past two months, he said, Washington handed out hundreds of billions of dollars (like confetti) to troubled financial institutions.
Where did the money go, he asked? What assurances exist that it’s not stolen or wasted?
TARP didn’t require recipients to report or internally track funds used. Accountability wasn’t mandated. Banks took full advantage. Instead of loans to stimulate recovery, they hoarded cash, acquired other financial institutions, paid off debt, speculated, and knew then and now there’s plenty more help for the asking.
Fraud prevention standards weren’t imposed. Barofsky doubts the program’s longterm success.
On March 29, 2011, he headlined a New York Times op-ed “Where the Bailout Went Wrong,” saying:
Two and a half years after legislation passed, Obama officials declared mission accomplished. “On my last day as the special inspector general….I regret to say that I strongly disagree.”
TARP and what followed struck out. It “failed to meet some of its most important goals.” Main Street was sacrificed for Wall Street.
Congress was told TARP funds would buy up to $700 billion of mortgages. Authorizing legislation (the Emergency Economic Stabilization Act – EESA) emphasized preserving homeownership.
Treasury officials promised help. EESA mandated it. Struggling homeowners got none. Legislative provisions were violated. Treasury changed the rules. Money went to banks with no accountability or mandate to extend credit.
“There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds.”
Instead of increased lending, it declined. As inspector general, Barofsky had no enforcement power. He could only recommend. Suggested policies fell on deaf ears. Treasury and Wall Street conspired to commit grand theft. Ordinary people were hung out to dry and scammed.
Helping homeowners was shelved. The Home Affordable Modification Program (HAMP) was introduced. Obama promised four million families help. The program was “a colossal failure.”
It was designed to fail. Its provisions included no accountability. Guidelines only were provided. Banks and other mortgage services ignored them. Foreclosures mounted. Millions of homeowners were defrauded. Nothing changed to this day.
One of HAMP’s most pernicious abuses was letting servicers “direct borrowers who were current on their mortgages to start skipping payments, telling them that that would allow them to qualify for a HAMP modification,” said Barofsky.
“Homeowners who might have been able to ride out the crisis instead ended up in long trial modifications, after which servicers would deny them a permanent modification and send them an enormous ‘deficiency’ bill.”
“Borrowers who might otherwise never have missed a payment found themselves hit with whopping bills that they couldn’t pay and now faced foreclosure. It was a disaster.”
Geithner bears full responsibility. Understating problems, he admitted solutions “won’t come close” to expectations. He refused to address glaring shortfalls. He abandoned Main Street for Wall Street. He’s complicit in grand theft. He and banker cronies belong in prison.
Banks know they can steal with impunity. They’re larger and more powerful now than when crisis conditions erupted. They can speculate recklessly. They’ll be bailed whenever they get in trouble.
Treasury “ignore(d) rather than support(ed) real” reforms. Its “broken promises” turned TARP and other programs into a giant Wall Street “giveaway.”
Its “mismanagement” and criminal complicity “damaged the credibility of the government….” Conditions are so out of control that future policy makers may be unable “to save the system the next time a crisis arises.”
Perhaps that’s TARP’s “most lasting, and unfortunate, legacy.”
Barofsky’s new book “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street” explains.
Writer/Roosevelt Institute fellow Matthew Stoller calls it “a very important” account of the financial crisis aftermath. In April 2010, Barofsky met a key adversary.
Herbert Allison formerly headed Merrill Lynch, TIAA-CREF and Fannie Mae. He came out of retirement to oversee TARP. He became Assistant Treasury Secretary for Financial Stability.
“Have you thought at all about what you’ll be doing next,” he asked. “Out there in the market, there are consequences for some of the things you’re saying and the way you’re saying them.”
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