Neil Barofsky Gave Us The Best Explanation For Washington's Dysfunction We've Ever Heard

[Octafish]

For the non-paupers in spirit, a pot of gold awaits...

Neil Barofsky Gave Us The Best Explanation For Washington's Dysfunction We've Ever Heard

Linette Lopez
Business Insider, Aug. 1, 2012, 2:57 PM

Neil Barofsky was the Inspector General for TARP, and just wrote a book about his time in D.C. called Bailout: An Insider Account of How Washington Abandoned Main Street While Rescuing Wall Street.

SNIP...

Bottom line: Barofsky said the incentive structure in our nation's capitol is all wrong. There's a revolving door between bureaucrats in Washington and Wall Street banks, and politicians just want to keep their jobs.

For regulators it's something like this:

"You can play ball and good things can happen to you get a big pot of gold at the end of the Wall Street rainbow or you can do your job be aggressive and face personal ruin...We really need to rethink how we govern and how regulate," Barofsky said.

CONTINUED... http://www.businessinsider.com/neil-barofsky-2012-8

"Integrity is for paupers." -- traditional saying, ABCNNBCBSFixedNoiseNutworks

[xchrom]

1. Du rec. Nt

[Octafish]

5. Ex-TARP overseer denounces US government cover-up of Wall Street crimes

The socialists are covering this story.

Ex-TARP overseer denounces US government cover-up of Wall Street crimes

Andre Damon and Barry Grey
wsws.org 31 July 2012

In interviews prompted by the publication of his new book (Bailout) on the $700 billion US bank bailout scheme—the Troubled Asset Relief Program (TARP)—the former special inspector general for the program, Neil Barofsky, has denounced bank regulators and top officials in the Bush and Obama administrations for covering up Wall Street criminality both before and after the financial crash of September 2008.

In an interview last Thursday with the Daily Ticker blog, Barofsky accused Treasury Secretary Timothy Geithner of facilitating the banks’ manipulation of Libor, the global benchmark interest rate, when he was president of the Federal Reserve Bank of New York in 2007-2008, prior to his joining the Obama administration. Recently published documents show that as early as 2007, Geithner knew that London-based Barclays Bank was submitting false information to the Libor board to conceal its financial weakness.

SNIP...

Deprived of any enforcement powers under the TARP law drafted by Wall Street lawyers and ratified by Congress, Barofsky was simply ignored by Geithner and the Obama administration and his reports were largely buried by the media.

Barofsky’s book has received a similar response from the media, as did reports issued last year by the Financial Crisis Inquiry Commission and the Senate Permanent Subcommittee on Investigations documenting in detail fraudulent and illegal activities by the banks in the lead-up to the financial crash of 2008.

Four years after the crisis precipitated by the banks, not a single top banker has been prosecuted, let alone convicted. Meanwhile, the same bankers, and the government officials who shielded them and ensured that they grew even richer, are demanding that American workers accept the “new normal” of wages at $13 or less, along with the destruction of pensions, health care and working conditions.

CONTINUED...

http://www.wsws.org/articles/2012/jul2012/pers-j31.shtml

Gee. Whatever happened to the corporate media?

[xchrom]

7. ...

[TreasonousBastard]

2. This is not news. Years ago...

WSJ, NY Times, Barron's... all told how bright-eyed kids get jobs in regulatory agencies and jump into jobs on Wall Street. Note that these are media that actually know something about the workings of the Street, not just complaining about it from the outside. I'm not going to read this article, but can I assume Business Insider is well aware of the history here and is just supplying and inexpensive update on things.

Calls for time limits, like maybe 5 years, before you can get a job with a company you regulate have regularly been made, but then come the wails of how the kids aren't prepared to work anywhere else.

[sabrina 1]

3. Well, if someone doesn't keep reminding people of these facts, then they are completely

forgotten or never learned by each new generation. I don't get your reason for not wanting them to be repeated. Do you think people go searching for information on their own or remember things like this from 20 years ago, or were even around 20 years ago?

I'm willing to bet that this is NOT old news to a huge segment of the current population and none of it can be repeated often enough. The fact that nothing has been done about, says to me it has not been repeated nearly enough and until issues like this get as much coverage and repetition as who Lindsey Lohan was out on the town with, nothing will get done.

[TreasonousBastard]

15. Did I say to not repeat it? I said it's old news, not bad news...

and, more to the point, if I knew about it years ago, why didn't everyone else?

[Octafish]

4. That's what the BFEE wants: You not to read and the statute of limitations to kick in.

For example:

The War against the Regulatory Cops on the Bank Beat

Monday, 30 July 2012 07:26
By William K. Black

EXCERPT...

The LIBOR and HSBC scandals simply confirm that the largest banks in the world will repeatedly violate the law and lie if they believe they can get away with it. The only entity that should consistently have the incentive to tell senior regulators the truth about problem and fraudulent banks are the examiners. Similarly, banks with honest senior leaders should love the independence of examines. Blankfein is right about examiners – they “don’t work for us.” That is why they are uniquely valuable. Examiners routinely speak truth to power. The author has no clue how rare and how valuable that is to an honest bank’s senior managers, to senior regulators, and the nation. The author also has idea how threatening a trait it is to the CEO running a control fraud.

SNIP...

The anti-regulators won prior wars on examiners – and produced recurrent disasters

Neither the WSJ author, Tarullo, nor whatever failed economist is telling Tarullo that information provided by the industry constitutes “hard data” is aware that we have heard this refrain before. President Reagan’s task force on financial deregulation, chaired by Vice President Bush, recommended cutting the number of examiners and relying primarily on data provided by the banks and S&Ls. The Reagan administration immediately cut the number of S&L regulators. The results were disastrous. California and Texas cut dramatically the number of their S&L examiners and supervisors. The results were disastrous.

The nonprime industry did something analogous. They reduced their reliance on loan underwriters and substitute reliance on automatic underwriting systems. These were grotesquely unsophisticated systems that typically ignored and facilitated fraud by the lenders and their agents. They were invariably called “sophisticated” systems. Their testing was farcical. To ensure the worst of both worlds, the fraudulent lenders’ managers could always override the automatic underwriting system and use “exception” authority to approve the worst loans. Countrywide was a classic example of a faux automatic underwriting system surrounded by tens of thousands of flaky exceptions. The results were disastrous. Experienced human underwriters invariably found copious bad nonprime mortgage loans. The fraudulent lenders (and purchasers) treated underwriters who displayed competence and integrity as the enemy. The results were disastrous.

The FDIC and the OTS cut the number of their examiners and sought to rely far more on the data provided by the industry. The results were disastrous. The Basel II economists who encouraged the SDIs and their regulators to rely on the SDIs’ proprietary models believed that doing so would allow “sophisticated” banking and regulatory decisions to be made on the basis of “hard data” that were far more reliable than examiners. The results were disastrous.

I doubt that there are five economists in the world who know this consistent history of disastrous failure. The chance that the pseudo-supervisors advising Tarullo knows of the failed history of efforts to substitute reliance on industry-supplied information as “hard data” for the judgment and expertise of examiners is nil.

CONTINUED...

http://therealnews.com/t2/component/content/article/75-more-blog-posts-from-william-black/1130-the-war-against-the-regulatory-cops-on-the-bank-beat

BTW: Barofsky is the guy who was in charge of overseeing TARP. He said it only helped Wall Street's wealthiest and most powerful at the expense of the average American.

[JDPriestly]

18. Thanks for the link to the great Black article.

[Ruby the Liberal]

10. People like those here on DU know who Neil Barofsky is.

Ask 10 on the street (and even give them a hint with TARP) and you will be lucky to find 1 who can answer outside of DC and Lower Manhattan.

[TreasonousBastard]

16. That's a large part of the problem, no? And even...

here on DU hardly anyone reads the financial news where all this has been covered for years. I have been under the impression that TPTB don't mind at all the expose's in the Finance section of the Times the first page of the WSJ, the market analyses in Barron's and good stuff in The Economist...

because they know nobody reads them. We're all reading HuffPo, WSW, and watching The Daily Show.

[Ruby the Liberal]

17. Why this is good news.

I subscribe to The Economist and have for years. The times that information seeps out of places like that and into BI and HuffPo are times to be happy - and even more so when featured on The Daily Show given their viewership numbers. Where I like reading wonkery, most people don't - so this is a good thing. A very good thing. People have more than enough in their lives than to go looking for wonkery - and stuff like this is anything but that.

[TreasonousBastard]

21. I do agree that...

getting out is good, just that there's some important wonkery that could be sexed up for popular consumption on a more regular basis.

That, I believe, is the biggest failure of movements like OWS-- when they have a chance to get a polished message out, they blow it with misplaced idealism, ego, or just plain ignorance about how propaganda works.

[doohnibor]

6. Now if the regulators got bounties....

Say the deed to the house in the Hamptons for every resident who had to vacate said property for Club Fed, now that would be an incentive.

[Octafish]

8. Outstanding suggestion that could bring Justice.

Unfortunately, for some reason, my Democratic president has taken the opposite approach toward whistleblowers.

Obama Takes a Hard Line Against Leaks to Press

By SCOTT SHANE
The New York Times
Published: June 11, 2010

EXCERPT...

In 17 months in office, President Obama has already outdone every previous president in pursuing leak prosecutions. His administration has taken actions that might have provoked sharp political criticism for his predecessor, George W. Bush, who was often in public fights with the press.

Mr. Drake was charged in April; in May, an F.B.I. translator was sentenced to 20 months in prison for providing classified documents to a blogger; this week, the Pentagon confirmed the arrest of a 22-year-old Army intelligence analyst suspected of passing a classified video of an American military helicopter shooting Baghdad civilians to the Web site Wikileaks.org.

Meanwhile, the Justice Department has renewed a subpoena in a case involving an alleged leak of classified information on a bungled attempt to disrupt Iran’s nuclear program that was described in “State of War,” a 2006 book by James Risen. The author is a reporter for The New York Times. And several press disclosures since Mr. Obama took office have been referred to the Justice Department for investigation, officials said, though it is uncertain whether they will result in criminal cases.

As secret programs proliferated after the 2001 terrorist attacks, Bush administration officials, led by Vice President Dick Cheney, were outspoken in denouncing press disclosures about the C.I.A.’s secret prisons and brutal interrogation techniques, and the security agency’s eavesdropping inside the United States without warrants.

SNIP...

Describing for the first time the scale of the Bush administration’s hunt for the sources of The Times article, former officials say 5 prosecutors and 25 F.B.I. agents were assigned to the case. The homes of three other security agency employees and a Congressional aide were searched before investigators raided Mr. Drake’s suburban house in November 2007. By then, a series of articles by Siobhan Gorman in The Baltimore Sun had quoted N.S.A. insiders about the agency’s billion-dollar struggles to remake its lagging technology, and panicky intelligence bosses spoke of a “culture of leaking.”

CONTINUED...

http://www.nytimes.com/2010/06/12/us/politics/12leak.html?_r=1&pagewanted=1&hp

No wonder the USA PATRIOT Act is so secret. It makes everyone who says anything at all -- especially those who tell and seek the truth -- into enemies of the national security state.

PS: A hearty welcome to DU, doohnibor. Dig verily the reverse thing, my Friend!

[Ruby the Liberal]

9. Hank Paulson's hand picked man speaks out.

Good on you, Neil. I'll check out the book.

[Octafish]

12. Geithner sacrificed homeowners to “foam the runway” for the banks

Is great phrase:

Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, has published a new book, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.” It presents a damning indictment of the Obama administration’s execution of the TARP program generally, and of HAMP in particular.
…
By delaying millions of foreclosures, HAMP gave bailed-out banks more time to absorb housing-related losses while other parts of Obama’s bailout plan repaired holes in the banks’ balance sheets. According to Barofsky, Treasury Secretary Tim Geithner even had a term for it. HAMP borrowers would “foam the runway” for the distressed banks looking for a safe landing. It is nice to know what Geithner really thinks of those Americans who were busy losing their homes in hard times.

CONTINUED w VIDEO and links and more letters...

http://washingtonexaminer.com/video-geithner-sacrificed-homeowners-to-foam-the-runway-for-the-banks/article/2502982

[Ruby the Liberal]

14. Thanks for the link.

I will never forget the roller coaster of the high of the election followed by the announcement of the Econ team. Somewhere right now, Christina Romer is smiling.

[Amak8]

11. Paul Orszag approves this message.

.

[girl gone mad]

13. Who is Paul Orszag?

[Octafish]

19. Revolver

Revolvers?

Revolver

Why do some of the most capable public servants in America, people like economist Peter Orszag, keep circling back from Washington to Wall Street? One guess.

By Gabriel Sherman
New York magazine Published Apr 10, 2011

EXCERPT...

Before taking the job, Orszag sought the counsel of Rubin and others among his numerous mentors on Wall Street, in government, and in academe. "I did my due diligence. The view was Citi is not fully recovered, but it’s like this," Orszag told me over lunch, tilting his hand in an upward trajectory. Certainly, the prospect of making serious money was hard to ignore. Wall Street insiders estimate that Orszag is pulling down $2 million to $3 million a year.

For an ambitious economist like Peter Orszag, going to work for Citigroup represented a choice. As a young staffer working in the Clinton White House, he saw laid before him two different paths: Stiglitzism and Rubinism. There were both intellectual and career-arc components to these. While both are liberal Democrats, Rubin was the consummate insider, whose philosophy was that the free markets, balanced budgets, and limited regulation would create a rising tide that would lift all boats (or at least make Wall Street not complain too much about Clinton’s social programs). Stiglitz, the public intellectual, is as concerned with the boats as with the tide.

Orszag certainly had a lot in common with Stiglitz’s academic mien, having grown up in an intensely intellectual family in Lexington, Massachusetts, outside Boston. His father is a celebrated Yale math professor. But Orszag possessed an ambition that would take him beyond the ivory tower. He ultimately chose Rubinism. It makes perfect sense that Orszag would have been drawn toward Rubin. It must have been incredibly seductive seeing this world, watching the Rubin wing of the Democratic Party move so easily from government to Wall Street boardrooms to the table with Charlie Rose.

When Citi announced that Orszag was joining the bank as a vice-chairman in December 2010, an angry chorus of progressive columnists immediately howled that he was a sellout, cashing in on his Washington connections. Orszag’s critics were animated by their belief that Obama had failed to get tough on Wall Street -- and now one of his central economic players was reaping the rewards. Even Orszag’s mentors raised their eyebrows. "I was surprised. I thought he would stay involved in the public sector," the Princeton economist Alan Blinder, a former professor of Orszag’s, told me. Stiglitz sees the issue as structural, part of the system. &quot In the nineties) we tried to get regulation to stop the revolving door, and it’s very, very difficult," he said. "The appearance is troublesome even if you think these individuals are not affected. Economists find it difficult to believe that incentives don’t matter. What is interesting is these people claim to be economically informed, and yet they believe incentives matter for everyone else, but not themselves."

When I asked Orszag about the gulf between his two mentors, he told me he doesn’t see a binary choice between the "Stiglitz and Rubin worldviews" he still hopes to change the system from within. "I am getting exposed to lots of different issues and problems, and that will then better inform my thinking and public writing," he told me. "Direct experience need not undermine one’s intellectual integrity; sometimes it can even bolster it."

CONTINUED...

http://nymag.com/print/?/news/business/wallstreet/peter-orszag-2011-4/

Revolvers.

PS: A hearty welcome to DU, Amak8. That "Ecstasy of Gold" is one fine tune.

[jerseyjack]

20. The only ones who can fix it are the beneficiaries.

They are in Congress. Where do you think Chris Dodd is going to end up? Ryan? Cantor? If they should somehow lose?

They all know they have a job waiting for them if they don't blow the opportunity by acting against the interests of the 1%.

As for the rest of the schlubs, they keep voting for people who support the 1% because they know deep down that they belong with the 1%. They will get there as soon as the next Mega is drawn or as soon as someone recognizes their genius.

[Octafish]

22. Cantor worked legislation so his wife can benefit from INSIDER TRADING, legally.

I wouldn't know about from reading and "experiencing" Corporate McPravda. Learned about it on DU.

STOCK Act Has Loophole That Could Allow Insider Trading By Congressional Spouses

By: David Dayen Friday July 20, 2012 12:55 pm
Firedoglake.com

CNN managed to do some news reporting outside of reading viewer Twitter feeds today, and they came up with a loophole in the STOCK Act that would render it fairly meaningless. If you remember, the STOCK Act was the bill that rocketed to passage after allegations of insider trading among members of Congress, using at times non-public information to profit off of companies over which they held oversight responsibilities. The bill, which languished for years, was quickly taken up and passed with overwhelming majorities. But it turns out that there’s a potentially gaping hole in the legislation:

The STOCK Act requires that any trades of $1,000 or more made on or after July 3 have to be reported to the House and Senate within 45 days. But the House and Senate have two completely different interpretations of that rule.

In the Senate, the Ethics Committee released one page of guidelines last month ruling that members and their spouses and dependent children all have to file reports after they make stock or securities trades. But the House Ethics Committee disagreed.

Its 14-page memo notifies House members and aides covered by the law that their spouses and children aren’t covered. The Office of Government Ethics, which oversees all federal executive branch employees, sided with the House, informing its employees that their spouses and children don’t need to file these periodic reports.

Both of the lead sponsors of the Senate bill didn’t realize the discrepancy until CNN brought it to their attention.

So in the House, currently led by Republicans, you could just advise your husband or wife of the non-public information gleaned from your position as a Congresscritter, have them trade on it with family resources, and nobody would be the wiser. The Senate didn’t add a loophole this craven in the interpretation of the law. So now you have two versions of one bill that was signed into law, which could get chaotic when applied in practice.

CONTINUED...

http://news.firedoglake.com/2012/07/20/stock-act-has-loophole-that-could-allow-insider-trading-by-congressional-spouses/

Remember what John Steinbeck said: “Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”

No wonder the public schools are defunded to the breaking point. If the poor and what used to be the middle class in the United States were to wake up, it would be a different story. Washington might even work for We the People, again.

[woo me with science]

23. The corruption is thick, deep and bipartisan.

Had enough yet, America?

[Octafish]

24. FRONTLINE: Neil Barofsky on the “Broken Promises” of the Bank Bailouts

Most TV is pure brainwashing. PBS at least tries to do its job, as described in the First Amendment...

Neil Barofsky on the “Broken Promises” of the Bank Bailouts

August 1, 2012, 10:46 am ET by Jason M. Breslow

EXCERPT...

You wrote “Dodd-Frank may have inadvertently sowed the seeds for the next financial crisis.” How so?

If you look at some of the different causes of the last financial crisis, to me a lot of it comes back to the incentives and perversions of the market and normal capitalism that comes with the presumption of “too big to fail.”

Too big to fail, and by that I mean the presumption of bailouts, the market’s general presumption that if one of these large banks gets into trouble again — or got into trouble beforehand, it was certainly alive and well before the crisis — the government would bail them out. That results in a complete perversion of capitalism, and what it does is it creates incentives for these large institutions and their executives to pile on risk. It’s a very simple “Heads I win, tails the taxpayer bails me out,” and it creates incentives for short-term profits, short-term bonuses, and the collection of risk in different areas. And ultimately the bigger the bank, the bigger the incentives are for that risk, and the bigger the danger is and the need for bailout if they get into trouble lest they bring down the entire financial system.

[font color="green"]“(Megabanks) don’t operate by the regular rules because they know, and the regulators know, that any type of severe punishment against them will never happen.”[/font color]

All you have to do is look at the recent headlines and see that those problems are very, very much still alive, and appear to be getting worse. Because on the one hand you see it through the recent $6 billion loss for JPMorgan Chase, where again, capitalizing and profiting off the government guarantee. They took hundreds of billions of dollars of deposits backed by the United States government and made incredibly risky bets that blew up. That’s a direct function of too big to fail.

Similarly, you look at the different scandals, whether it’s LIBOR, whether it’s HSBC ignoring money-laundering laws, whether it’s Citi’s recent settlement … these are all symptoms of the banks that are also too big to jail. They don’t operate by the regular rules because they know and the regulators know that any type of severe punishment against them will never happen because if you indict one of these banks, again you risk bringing down the entire financial system with them and that puts them above the law. They play by a different set of rules, so you have this combination of incentives to take risks and this complete lack of accountability because of their size and it’s a toxic cocktail. We saw it with Fannie and Freddie. We saw it with the too-big-to-fail banks in 2008, and I’m sorry it’s just the height of foolishness to think you leave those fundamental incentives in place and think we’re not going to have a repeat and another financial crisis.

CONTINUED...

http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/money-power-wall-street/neil-barofsky-on-the-broken-promises-of-the-bank-bailouts/

I'm so old, woo me with science, that I remember when every American I knew would be angry upon getting their future ripped off.

PS: The guy who helped bust the corrupt Savings and Loans in the early 90s, William K. Black, tried to bring all this up when the statute of limitations angle wasn't in the discussion:

Know your BFEE: Goldmine Sacked or The Best Way to Rob a Bank Is to Own One

[Tierra_y_Libertad]

25. I'm partial to Mark Twain's analysis.

"Right here in this heart and home and fountain-head of law, this great factory where are forged those rules that create good order and compel virtue and honesty in the other communities of the land, rascality achieves its highest perfection." Mark Twain