There’s going to be scandal involved in this bailout. It is unquestionable. There is going to be fraud — that is going to be committed in this bailout. There are going to be individuals who are unjustly rewarded, and others who should have been saved and rescued, who will be left on the side to rot. —Neil Barofsky
Announcer: How do you prevent two trillion dollars from being contaminated by corruption? You ask a man who can’t be corrupted — a straight arrow who has already stood up to some of the most powerful people on Wall Street and in Washington.
His name is Neil Barofsky, and he’s Bill Moyers guest on this edition of Moyers on Democracy. Welcome.
As a young federal attorney and prosecutor Neil Barofsky had sent crooked financiers to jail and brought Columbia drug dealers to justice. When overreaching and greedy bankers almost brought the American economy down a dozen years ago, Congress raced to the rescue with a bailout of over $750 billion dollars, known as the Troubled Asset Relief Program. As its watchdog, President George W. Bush tapped Neil Barofsky to be TARP’s chief inspector general, its top cop, with a mandate to flush out waste, fraud and abuse.
He would soon be recognized “as one of the most impressive political officials in Washington.” This week Bill Moyers asked him to recollect his experience with TARP and how he would safeguard the two trillion dollar government program passed last week by Congress to rescue an economy crippled from the coronavirus.
They talked by telephone from their respective home offices, hopefully shuttered against the virus itself. Here is Bill Moyers.
Bill Moyers: How are you, Neil? This is Bill.
Neil Barofsky: I’m good, Bill. Thank you. I hope you’re doing well, and safe as well.
I am, under the circumstances. And you’re at home, working, there, right?
Yes, I’m in the same position as a lot of people today who are trying to balance work and family, and home-schooling two elementary school students, which is a lot more challenging than my day job, so far at least.
It’s hard to believe that a decade ago, the government spent more than $1 trillion to bail out companies and stimulate the economy. And that you had a front-line role and a front-row seat at the time after George W. Bush, President Bush appointed you. You were the special investigator tracking that money as it was being spent. Remind our readers and listeners why we needed a special investigator 10 years ago, and exactly what you did.
Well, I think it was [that] Congress sort of understood that when they were going to be pushing out so much money over such a short period of time — and back then it was to the banks, right? The money was going to the very institutions that had caused the massive financial crisis that we were all living and breathing and experiencing back in 2008 — that it would be a good idea to have someone there to keep an eye on the money [and] to be an advocate for the taxpayers, whose money was being expended. And so they created this office, the Office of the Special Inspector General, for the Troubled Asset Relief Program. And that mouthful—
—produced one of the great acronyms of government, SIGTARP, which was my office, to keep an eye on the money. And we did that. Congress created this office to do it in two ways. One was a transparency or reporting function. We did audits of the government programs. Kept track of what was going on in the policies, and reported that out to the American people and to Congress.
And the other side was law enforcement. We were like a mini FBI for the TARP, policing the program, deterring would-be criminals from trying to apply and steal government money — and investigating and referring for prosecution, those who did. And they certainly did. At least, they tried. And our job was to catch them, and make sure that they went to jail.
I have this image of you in my mind, the sheriff making sure the stagecoach carrying the money from the treasury to the bank didn’t get hijacked.
That is a much more romantic vision—
Is that fair?
—of my job. A much more romantic vision of my job. Think more of… “The Office,” I would say, on the reruns on Netflix, is probably a more apt description of sitting behind a desk and pushing a lot of papers and relying on just a truly wonderfully talented team of investigators who actually wore the guns and the badges, and went out there and did these investigations. I was more of the bureaucrat than the sheriff—
From a pretty mediocre office in the basement of the Treasury, if I remember correctly. And you had a very small staff, given the challenge you were facing.
Yeah. Well, one of the things about the statute is they created the office from scratch, which means I was the first employee. So we had no office space. We had no employees. I was employee number one. And so when we first started, they put me in a basement corner of the Treasury Department in that beautiful sort of amazing building right on Pennsylvania Avenue, right next to the White House.
Although one couldn’t see the White House from my subterranean spot. And it also had a terrible smell to it that I will never forget, and later [I] found out it was because it was actually over an open sewage pipe that was right under the office.
But more concerning was just trying to get up to speed as hundreds of billions of dollars were flying out the door with no staff, and trying to staff up and do all that at once was a dramatic experience, to put it mildly. And certainly one I will never forget.
Your job was to see that this massive corporate bailout would be managed in such a way that it would accomplish its mission. And remind us of what that mission was.
When it was described to the American people, and when it ultimately passed Congress — and if you may recall, the first time the legislation that enabled the TARP to exist, it failed in Congress. And eventually, it was passed. And I think one of the reasons why it failed was as originally envisioned, it was really all about helping Wall Street.
And a number of members of Congress didn’t like that, and weren’t supportive of that. And so it came back to the administration, and [they] said that this would help Main Street as well as Wall Street. And the two big promises that were made were 1) that yes, banks would receive this money. But they would do so in order to increase lending.
Because if you may remember, credit had just come to a standstill at that time. And so the idea of injecting this money would increase lending to make sure that the wheels of capitalism could keep turning. And the second promise was to help struggling homeowners.
Because as, you may recall, a foreclosure tsunami was sweeping across the country. And because of the predatory practices of the banks, and other financial institutions in the lead-up to the crisis, millions of Americans were in homes with mortgages that they couldn’t afford and didn’t understand. And one of the real demands was that this incredible outpouring of taxpayer assistance helped them too, the victims of the financial crisis, who were losing their homes, their hopes and their dreams, by the millions.
Were those two goals accomplished — to jumpstart bank lending, and to protect homeowners from foreclosure?
Sadly, no. The crisis was averted. And that’s a good thing. And lending restarted, which was a good thing. But the goal of increasing lending, of giving an opportunity for Main Street businesses to get the capital that they needed, and the credit they needed, that never really happened.
I think in part because but it wasn’t really that strong of an effort within the Treasury Department to keep an eye towards increasing lending, towards helping Main Street. When we suggested that conditions be imposed on the funds to make sure that the money was used by the banks in order to increase lending, we were shot down.
When we suggested that it at least be incentivized, that there be favorable interest payments on the loans and the type of preferred stock that was being acquired by the Treasury Department to give the banks an incentive to increase lending, that too was shot down.
And you never saw that increase in lending that was promised. And as far as the homeowners, that was even more devastating. Because there was so much money that was made available to help struggling homeowners. Hundreds of billions of dollars that could have been used to help those who were losing their homes and saw their lives devastated.
And the Treasury Department simply refused to deploy that money.
And the decision was made quite frankly to let them rot. And what was rolled out was an ineffective program that in many cases made it worse for some of those struggling homeowners than if they had never entered the program at all. Because it encouraged predatory practices by the banks.
And the thing that underlined the failure of both of these policies was the same. The concern was never really about helping homeowners or helping small businesses. It was only about saving the banks for the sake of saving the banks. And so when the Treasury Secretary was confronted by now-Senator Elizabeth Warren, then the head of one of my sister oversight agencies, about the failed housing programs, he [Treasury Secretary Tim Geithner] explained in very plain words that the point of this program was, and I quote, “To foam the runway for the banks.”
In other words, too many foreclosures too quickly could be devastating to the banks’ balance sheets — [and] could send them back for additional bailouts — and that was what they were concerned about, not the taxpayer, not the people who were supposed to be helped.
And when you divorce policy goals with the actual policies as they’re carried out, you’re not going to achieve the important policy goals that serve as the justification for trillion dollar bailouts. And that’s what we saw then. And that’s what I hope we don’t see now.
So you were within Treasury. Yet, the Treasury Department made deals, as I understand it, with major financial institutions, and simply did not tell you about them. That was wrong, wasn’t it?
Yeah, there was an obligation of transparency, really for anything that touched on any of the TARP funds. And so there was a need to be able to disclose to us all of the necessary information that we would need to fulfill our goal of providing transparency to Congress and [to] the American people.
And at times, Treasury failed to live up to that standard. And we had to do what we needed to do to make sure we got that information. And usually, that was relying on assistance from Congress. The pressure and oversight of Congress would often move Treasury in those instances when we wouldn’t be able to get the information that we needed.
You felt a lot of pressure — I still think your book Bailout is one of the most important to read. Tell my audience where that pressure came from, and what were you to do in response to it?
Well, first of all, thank you for the kind comments about the book. The pressures came from a lot of different directions. I mean, I was, looking back on it now, relatively young. I was in my late 30s.
I’d just gotten married. I was just starting a family. And, you know, I was told in no uncertain terms that because of my approach, and because of my willingness to be as critical as I believed was necessary when fulfilling my job of people in the Treasury Department or at the White House, that I was putting my future in jeopardy.
That my ability to get a job, or make a living on the other side of this assignment, which was by its very nature, was a temporary one — that it would be really hard for me. That there would be repercussions. And on the other hand, I was told that if I played ball, if I changed my tone, was a little bit nicer and kinder, all sorts of really good things could happen to me.
I could be a federal judge, or maybe a U.S. attorney or something like that. You know, dream jobs for any young lawyer. And so that was definitely a form of pressure. And, you know, you’re independent. But as an inspector general, you serve at the pleasure of the president. And you know, the specter of being fired from your job, particularly when, like me, you spend your entire career in government service. And didn’t necessarily have the largest amount of savings when starting a new family. Those were definitely real pressures that you feel, as any human being would in a job like that.
So President Bush appointed you in the last year of his administration, as the economy fell apart, the banks were crashing. And you then served under President Obama when he came in. Was the pressure greater from the Bush people than it was from the Obama people?
I think the overall feel of everything really didn’t change that much. I think when I was there, I would sort of remember circling January 20, 2009 on the calendar because I thought, “Okay, once we get past the Bush administration and the Obama administration people come in, this is gonna be completely different. Everything’s going to change. There’s gonna be more of a focus on worrying about the Main Street, and people who are supposed to benefit.”
And, of course, when that day came and went, very little had changed. Some of the personnel stayed the same. But even the new people who came in running the program really had that same philosophy as those in the Bush administration of prioritizing saving the banks over everything else.
And there was a thin-skinned-ness, for sure, among that Treasury Department, that any type of criticism, constructive or otherwise, was not viewed favorably, and was viewed as being political and not necessarily motivated by a desire to serve the job, or to make the programs better.
Well, why were they pressuring you? What were you doing that they wanted you to cease?
I think they didn’t appreciate the fact that although I was appointed by President Bush, a Republican, I was and am and have been a lifelong Democrat. And I think that the notion that someone who is a Democrat would be critical of a Democratic administration, reeked of a type of disloyalty.
And Washington is a very political town, Bill, as you know better than anyone. And what I think was hard for people to understand was that I didn’t have a political job. It wasn’t my job to go softer on one administration or harsher on another administration because they happened to be within the same political party that I was.
And I think that that really weighed on people, and felt like it was an act of disloyalty. And that if I’m criticizing a Democratic president, that must mean I’m carrying water for the Republicans. And, of course, it couldn’t be any farther from the truth.
I was not politically motivated in any way. And I believe that by being critical of the Democrats or the administration, I was trying to get them to be better. And when you think about where we are today, and you think about the election of 2016, can you imagine how different our political landscape might look right now if the Obama administration took hundreds of billions of dollars and supported that wide part of the Rust Belt that ultimately left the Democratic party in 2016?
By saving those people, keeping them in their homes, beating against the perception that the priority was for Wall Street, and not for Main Street. So I felt like what I was doing was just to help and advocate for [the] American people. And I think that if the administration had listened a little bit more closely and a little bit more carefully, we could be in a different situation right now, politically.
You wrote in your book Bailout that you found yourself in a duplicitous world. In what sense was it duplicitous?
I think one of the interesting things of Washington for someone who had not previously been there was the comfort and frequency with which people lie to one another. It is not something that I had experienced. And I had spent eight years as a prosecutor prosecuting fraud cases and narcotics cases.
And the lies were almost like a currency in Washington. People would lie to you, and, I mean, people within the government would lie to you. And you would know they were lying. And they would know that you knew they were lying.
And they would lie nonetheless, as this is just the normal way people communicate with each other. And I guess it was a somewhat — I mean, I would hate to describe myself as being naïve. Because, you know, I’d spent eight years in the trenches with some truly horrific human beings, and fraudsters who committed billions of dollars of fraud.
But I’d not seen anything like it, where just the presumption level of dishonesty, that really permeated the town. And so it took me a little bit to realize it, and to realize that government officials who were presidentially appointed, and you ask them for information, and they give you information, where they tell you something, and they’re not telling you the truth.
And you almost have to, at least include in your calculus the possibility that somebody’s lying to you all the time. And it was early on when I think I suddenly realized it, when I was told that Elizabeth Warren, who as I mentioned before, was running another oversight agency.
It was before she was a senator, of course, the congressional oversight panel. I was told about all the terrible things that she was saying about me. And at first I was taken aback. And then I realized that there’s no way that could possibly be true. It made absolutely no sense. And I called Elizabeth.
And we started collaborating together. But it was a light-bulb moment when I realized that there’s just nothing people won’t say if they think they can gain advantage from it. And it’s a very strange way to operate when you’re not used to it.
Have you seen any evidence that Washington has changed in the last 10 years for the better?
The currency of dishonesty has gotten, if anything, has gotten worse. I think that this whole concept of fake news, and having everyone being entitled to their own set of facts is not something that we experienced.
I mean, ultimately if we were lied to, and could prove that something was a lie, it was generally accepted that okay, this is the truth. And this is a lie. In this environment, people are caught lying, and they just insist they’re telling the truth. And one media outlet or another will confirm that something that’s demonstrably untrue is, in fact, the truth.
And everyone goes into their different tribes and their different areas. And they just battle. And you know, as a lawyer and someone who spent some period of their career in the Department of Justice, which was always about the pursuit of truth, and then at my time at SIGTARP when I tried to do the exact same thing, it’s — that level of abandonment of the concept of the truth is different.
It is different. They lied then. They lied now. That hasn’t changed. But the way those lies are perceived, and how people have their alternate realities, I think that’s very different, and very scary as we go into this next crisis.
So what do you think are the chances that this new and even more expensive stimulus enacted by Congress last week will achieve its goals?
Well there are a bunch of different programs that are within this legislation. And some of the goals are relatively simple to discern. Cutting checks of $1,200 each to each taxpayer — you know, who’s making less than $79,000.
That’s a pretty clear goal. I mean, the goal is to get cash in people’s pockets so they can continue to eat and pay their rent and survive. You know, expanding unemployment, again, that is a discernible goal, and a very admirable one, right?
People are losing their jobs. We’re gonna have historic unemployment very soon if we don’t already have it. And getting people relief is just so vitally important. And so for those goals, I think there’s a straight line between what the policy is, what the implementation is, and what will happen. It’s pretty straightforward.
I think as you get more and more disconnected from direct help to individuals to filtering that money through corporations and tax breaks and other types of mechanisms, it becomes a little bit less clear whether or not the connection between the money that is spent — and the achievement of the goal of helping workers, if that’s in fact what our stated goals are. And so—
My understanding is that it’s supposed to enable corporations to preserve the jobs of the people who work for them until we get this disease under control.
But the general idea of it is we’re gonna take $350 billion. We’re gonna give it to small businesses. And we’re gonna tell them as long as you don’t fire anyone for a period of time, for eight weeks, you get to keep all the money, right?
And so that’s a pretty clear line between getting small businesses the money they need to keep employees on staff, and there’s some holes in the legislation and I hope and pray that the small business administration will plug those holes.
But then you have the $500 billion program being run by the Treasury Department and the Federal Reserve. And there, again, you have more of a disconnect between the money and how it’s going to be deployed, and its impact it’s going to have on payrolls.
For a lot of that money, there isn’t that direct link. There aren’t necessarily those conditions that link the support with keeping payrolls high. And so there, it’s much more of a let’s put the money out there, and hope that everyone keeps their payrolls the same.
And so when you’re doing that, obviously, when you don’t have those connections, and you don’t have that same assurance, that there’s an economic incentive for the company to be receiving the money to achieve the policy goal, well, that kinda brings us back to where we are in 2008.
And it didn’t work then. And I do worry about whether it’s going to work now. But again, we also don’t know all the rules and the regulations and the guidelines that’s going to accompany these bills. But the fact that Congress really didn’t insist on the strings attached to a lot of this money that I think we originally had been told they would, is a cause of concern.
That those policy goals may not be reached. And then there are other provisions which seem even further afield, tax breaks — net operating loss provisions money for the real estate industry, which just looks like traditional corporate tax breaks, which frankly have not historically been shown to necessarily have an impact on payrolls.
Doesn’t this new bailout, include a provision which allows the Fed to meet in secret with no records kept? I mean what the hell is that about?
It’s not encouraging, Bill. It is not encouraging. To put it mildly. And I see that. But the results should still be posted and made available to the American people. Good governance says you keep records, and you keep detailed documents.
And again, maybe this is me going back to 2008 and just being naïve. But having spent a lot of time working with the Federal Reserve, I found that many of the people there, and many of the people I dealt with, not all to be clear, but many of them, and I would say the overwhelming majority, were trying to do the right thing, and wanted to do the right thing. I sort of maintain hope that they will do the right thing with this.
Are the people who won the first time gonna win the second time?
There’ll be different sets of winners and losers. The big financial institutions who were obviously the biggest winners of the last bailout, they’re gonna win again. They always win. That’s kinda the way our system is organized.
Perhaps not as dramatically as last time. Because remember, last time, they caused the crisis. They would have failed, gone bankrupt, but for the government intervention. And they were restored to record-breaking profitability within a relatively short period of time because of the way the bailouts were structured, getting them bigger and even more powerful than they were going in.
So they won before. They’re gonna win again. They’re gonna be well paid for their services in helping to administer this bailout. There are provisions that are very helpful for them, including bringing back some crisis era bailout programs that will go right to their bottom line, for sure.
So they will win again. But the other winners — it’s gonna be a wider swath of winners.
Last time you had the very institutions that caused the problems receiving the money. And a lot of the companies that are gonna receive bailout money here or stimulus money, if you wanna call it that, it’s through no fault of their own. They didn’t create the virus. They didn’t subject themselves to the virus. This is just a global pandemic.
But there will be companies that are safe because of it. And so to that extent, they’re the winners. And then there’s companies that are just gonna make lots of profits that is just a result of some of the wheeling and dealing of Congress. When you look at some of the extraordinary corporate tax breaks that are being extended by this bill, particularly in the real estate industry, those are just gonna be winners, right. We just have to hope that it’s not the same set of losers as last time, which is the American people who were supposed to be helped.
Listen to these headlines I brought with me. Washington Post: “Coronavirus stimulus package spurs a lobbying gold rush.” The Guardian: “Washington lobbyists in frenzied battle to secure billion dollar Coronavirus bailouts.” The Wall Street Journal: “Lawmakers pack federal stimulus bill with pet provisions.” New York Times: “Fine print of stimulus bill contains special deals for industries.” I mean, that happened after the first bailout, right? And it’s happening all over again.
And we unfortunately, we should not be surprised. Right? I mean one of the realities of our system is that corporate America has a large influence on how these bills play out. And, again, we saw it maybe on miniature last time because it was really one industry that was part of this process.
And now, when you have something as far-reaching as this, it is the entire lobbying industry and pet projects and the things that don’t seem to quite fit with the rest of the bill that are in here, and to me, that’s where it would come back to my old role of oversight and why it’s so important.
Because when you have something as sprawling and ill-defined as some of these programs, there’s very, very little guidance and guidelines as to who that money is going to and how it’s going to be spent, and what the conditions are. Oversight and transparency just becomes so much more important, in order to keep the process as level and fair as possible.
Whereas the first bailout involved one industry, banking. And here, there’s a vast number of potential recipients of the money. How real is the danger that, rather than preserve jobs, the money will flow right through the company and the companies into the pockets of shareholders?
I mean, one of the important things to remember is that for a large, large chunk of this money — particularly that that’s being controlled by Treasury, for the overwhelming majority of that money — there are no provisions that the Treasury Secretary can’t waive if he chooses to do so, that would keep companies from engaging in stock buy-backs or dividends or other distribution of money directly to shareholders.
And so without those types of restrictions, that is very much a possibility, and it is very much reality of the way this is structured.
You must have unrelenting transparency and sunshine being shined on the decision-making process, the terms and performance of these programs. It is of vital importance that there’s at least the risk of disclosure as a deterrent, in framing these programs, to keeping them from straying from the stated policy goal into a form of giant corporate welfare.
Given the huge amount of money, and the short time until the election in November, isn’t political fraud a real possibility? Couldn’t a lot of this money be a kind of slush fund for the president and the Secretary of the Treasury and their minions to send it where it could do their party the most good?
And in this bill that real possibility is one that again, coming back to the oversight, is so important. Because this is where, you know, to quote Justice Brandeis, “Sunlight is the best disinfectant.” This is why the application criteria for lending needs to be objective and transparent. The processes have to be politically blind.
And there has to be someone overseeing this process to make sure that, however the selection processes are run, that they’re being done in a consistent and fair and balanced way. Because in the darkness, that is where the ability to misdirect funds away from where they’re going to have the biggest impact, which is what you want, to a way that has the biggest impact for a particular individual or political party, or particular favored industry, which we don’t want. Right? That defeats the whole purpose of the expenditure of this money that’s not being used to achieve a policy goal of keeping people in their jobs.
And it is only with transparency, and only with oversight. Because look, Washington is a transactional town. It always has been. It is an incredible corrupting influence that exists, that has always existed, and probably always will exist. And it is naïve to think that it won’t happen if there’s not some other counter-weighing balance. And that’s where you need to have transparency and oversight as this constant reminder that, “Hey, if you do this, if you follow that inclination and do something that’s not in the best interest of the program, we’re gonna put it on the website. We’re gonna publicize it. Everyone’s gonna know. And that political opportunity you have is going to turn it into a liability.”
And that’s how you keep people honest. And that’s why transparency is so important. And in some ways, for the, sort of the next-rung-level-down officials, the assistant secretaries who, you know, who are political appointees that are taking these jobs because they wanna make a difference and do it right, it is a giant blessing to them. Because it helps shield them from the political process.
I remember when we were doing audits related to Congressional influence on decision-making process. And, you know, we found, perhaps not surprisingly, that many members of Congress called many decision-makers at Treasury and said, “Hey, we want the bank in our district to get money,” irrespective of whether that bank should have gotten money or should not have gotten money.
And one of the things that we were able to help and protect those officials was [by] saying, “Look. If you give money to these people, to these banks that don’t deserve it, it’s gonna be exposed. And that’s not gonna do you any favors. It’s also not gonna do that congressman any favors.”
And so transparency is something that just really benefits the entire system and process, and is really a necessary component of oversight. And so we’re gonna have to really keep a close eye on this as we go forward.
Mitch McConnell and Senate Republicans did not want oversight of the stimulus. They didn’t even want to require companies to spend the money on keeping their workers working.
They wanted the Secretary of the Treasury, Steven Mnuchin, to be free to choose who gets the money and who doesn’t. And to keep his choices from the public for six months. McConnell then tried to weaken a strong oversight proposal. Finally, as we saw, both sides compromised, and the bill was passed with, you know, amazing bipartisan support.
Yet, when the president signed the bill last week, the only people he had in the Oval Office with him were Republican members of Congress and the Secretary of the Treasury, all, by the way, white Republican men. Now, what do you take from that? As a moment of bipartisan triumph, the first time in years this happened in Washington, the only people who get invited to celebrate with the president in the Oval Office are Republicans?
I think it is a reflection of where we are today as a country. We’re at a moment of such crisis. It is a time to come together. And I know that sounds hackneyed and it sounds like something in a fortune cookie. But it is true.
It is a moment to come together, where we come together as a country and fight this pernicious evil, the virus.
And that’s not the time you want to sow seeds of division and rewarding your friends and punishing your enemies. This is a time for reaching out. And I think it’s gonna potentially really hamstring our ability to recover. But I guess that is what Washington is today. And that’s what—
—it’s been for the last couple of years. And you know, I maintain hope in a lot of different ways, that policymakers and decisionmakers, you know, can look past their biases and do what’s right for the American people. And I maintain that hope.
I’m sure you noticed that Congress actually borrowed ideas and even language concerning the inspector general’s office from the first bailout bill, to include it in the bailout bill we’re talking about.
The language about the new inspector general is supposed to monitor how the Treasury Department extends loans and loan guarantees to businesses. And the new legislation requires the new inspector general to notify Congress immediately if the White House doesn’t cooperate fully with an audit or investigation. That is familiar to you, right?
Very familiar. That is, word for word, one of the provisions that I relied upon so much at SIGTARP.
And that’s, I mean, the important thing there is that is not an option. Right? That is an obligation. It’s a statutory direction. And frankly, it is an incredibly important tool. For me it was an incredibly important tool. Because, as an inspector general, you don’t have any real way to compel other parts of the government to cooperate with you.
If it’s a third party, you can send a subpoena, you could bring them to court, you can get a court order, and you can force them to provide you with information. But within government, all you have is good faith. You ask for the information and you hope that they provide it.
And the one remedy that Congress provided me, and provided this new inspector general, is the duty, the obligation, the requirement, to let Congress know that, “Hey, I can’t do my job, I can’t fulfill these things that you told me I have to do to report on to you and to the American people, because this area of Treasury, or this area of the Federal Reserve, or this area of the White House, is refusing to provide information.”
And it’s a powerful tool. Because I will say that the mere, I wouldn’t say threat, but when I would advise another agency that was refusing to provide us information, that I would have no choice but to disclose this to Congress, was pretty powerful in moving people and getting people to cooperate. Because Congress cared. Congress was invested. And they could make a pretty big deal if they felt like the inspector general was being obstructed. And so it’s a key provision to insure compliance within the government.
So listen to this headline from The Washington Post, quote: “Trump takes immediate step to try to curb the new inspector general’s autonomy.”
In fact, earlier in the week, when reporters asked Trump about oversight of the lending programs, the president replied, “I’ll be the oversight.” Then later the White House issued a statement saying the inspector general will be subject to the president’s supervision. What went through your mind when you heard that?
“I will be the oversight,” I thought, that was President Trump’s id taking over. But that’s not how you want it. And that’s not how it works.
It could strip one of the most important tools that an inspector general has in obtaining information. And information is the currency of success for oversight. You can’t have transparency if you have an inspector general who can’t get information.
And so if, in fact, that statement is breathed into life and results in the inspector general being shut down from informing Congress about necessary information, including obstruction of its efforts to gather information, that could be potentially devastating to oversight.
It reminded me that, look, I did work under the oversight of the president, first Bush, and Obama.
Technically I reported to them, although I never had a conversation with either one. But they had the ultimate supervisory authority over me. And that is that they could fire me at will.
If you were going to be an inspector general, and you were going to operate within highly publicized, highly controversial, high profile programs, every day you have to go to work prepared to be fired, if you’re gonna do your job the right way. You just have to take that fear and that reality and you gotta put it on a shelf in the morning, and leave it there. And then you could pick it up on your way back home. And you look at your baby, and you look at your apartment, and think — then you can worry about it. But during those hours when you’re in that office, you can’t think about it.
And so this is very chilling. And it has a potential of really frustrating independence. But at the end of the day, a lot of it is gonna depend on this inspector general and how they see their obligations going forward.
But at the same time, Neil, the new law gives the Treasury Department broad discretion over how to disperse these billions upon billions of dollars. And the fellow running Treasury, Steven Mnuchin, has been implicated in so many scandals. I wouldn’t want him in the same room with my kid’s piggy bank.
During his confirmation he failed to disclose to the Senate Finance Committee nearly $100 million in assets. He didn’t tell them about his role as a director of an investment fund in the Cayman Islands, where very rich people send their money to be laundered. He lied to Congress about foreclosure misconduct activity by a bank he managed. He reportedly misled Congress about a deal the Treasury Department struck with a Russian oligarch close to Vladimir Putin.
This is the man President Trump wants to hand out billions of dollars to corporations and to Wall Street, a guy up to his neck in various conflicts of interest, self-dealing, and ethics lapses. All you have — to do is read David Dayen’s book Chain of Title— to see how he chronicles the way — Mnuchin got fabulously — rich while hundreds of thousands lost their homes. What does that do to your optimism about the potential success of this bailout?
Well, I would say David’s book is a fantastic book. So I agree with you on that. Look I mean, for any chance of this to succeed, right, there just has to be this relentless transparency and oversight. We need to have oversight bodies — the inspector general, the Congressional Oversight Commission, Congress itself, has to be on top of these issues, and has to bring transparency.
And, you know, at the end of the day, it is Congress that gave this Treasury Secretary the wide discretion that he now has. And that was a political decision, a compromise that was made. And the ramifications of that are going to be felt any time. And it’s not even a criticism of specifically of Mnuchin.
Any time you give any individual that much authority and that much discretion, it’s fraught with danger. And here, it is particularly fraught with danger, given all the things we’ve discussed up until now — even putting aside the Treasury Secretary’s background, chances are, notwithstanding my optimism, that there’s going to be scandal involved in this bailout. It is unquestionable. There is going to be fraud that is going to be committed in this bailout. There are going to be individuals who are unjustly rewarded, and others who should have been saved and rescued, who will be left on the side to rot.
Those are all realities. And so what we’re really talking about is limiting how much of that occurs. And that’s where transparency and oversight can play such an important role. And yes, there are real problems with this bill. And yes, there are problems with the signing statement.
But at least there is going to be an inspector general and there is gonna be an oversight commission. And we just have to keep our fingers crossed and our prayers alight that the right people get these jobs, that they have the steel in their spine that is gonna be required for them to fulfill their duties to the American taxpayer and we can limit some of the inevitable downsides of any type of intervention of the size and scale of this one.
So what does Congress do if the president refuses to cooperate on the oversight of these billions of dollars. How would you advise Congress to undertake stringent oversight?
Well, what Congress would need to do is just to escalate the issue, and make it a very public issue. I mean, we are in a campaign year. And although I know that the tribalization of American politics is something that’s very real and we see it every day, but this upcoming election is going to come down to most likely a handful of independent voters and a handful states.
And for those voters, the idea that any president or administration is standing in the way of providing information for the public to understand what is going on with hundreds of billions of taxpayer dollars is not a political winner for any president.
I think that’s sort of what we’re left with, right, is that congressional oversight is ultimately a form of political compulsion.
There’s no winning formula of publicly blocking information from an inspector general. The reality is that information is probably going to come to the surface.
Or refusal to provide that information will supply its own narrative. I think that’s what Congress needs to do though is to be relentless about it and be very, very supportive of the inspector general and the need to obtain that information.
And if Congress doesn’t do that and doesn’t escalate the issues, then nothing will happen. And that will be on Congress. But if the president makes that move, then Congress needs to respond in kind and ultimately we’re gonna have a judgment on this and a bunch of other issues come November.
Of course the president will nominate the new inspector general. And the Republican Senate will confirm or not. It’s an even bigger job than it was 10 years ago. So I wonder, would you take the job if you were offered it now?
It’s obviously something that you would think about very strongly. You know, my initial reaction would be hell no.
But then I kinda remember what my reaction was the first time I was asked back in 2008. And my first reaction was, hell no.
This is an extraordinarily difficult job. And it is not right now in its current format set up to succeed. The budget is too small.
There is a lack of hiring flexibility which is gonna make it almost impossible to staff up in a very short period of time with the type of qualified people that you need to endeavor on something so significant and so large.
There’s questions about whether this inspector general is gonna have the type of bipartisan congressional support that I did and that I enjoyed, which made my job possible. And I don’t know in this political environment if that’s something that still can exist. Although I deeply hope so.
So that we can see what needs to be done, let me ask you, if you did take it, what would be the first things you do to keep this rescue and stimulus bill fair and honest?
Well, first thing is you have to have immediate meetings with the policymakers who are pushing this thing through. And be prepared to make a series of rapid recommendations to bring transparency and fairness to the process. And in something like this, process really matters.
And I think what this inspector general needs to be prepared to do is to immediately get an understanding of the process and make recommendations to make it more transparent and give it the best chance of being a truly fair and objective process, not one that’s distorted by politics, lobbyists or any other outside influence.
So how would you achieve transparency?
It goes back to something that we discussed a little bit earlier. For policymakers who are going to be making those types of decisions in the future: You may think that those decisions are gonna be shielded from public discourse for now, but sooner or later these things are going to come to the surface. And you’re going to be judged and you’re going to be held accountable for your decisions. And if you’re making decisions in the darkness you should really think twice about whether or not these are the exact same type of decisions that you would be making when the sunlight is shining on you.
And that’s what’s so important about these oversight functions is that deterrent, that reminder that my decisions are going to be reviewed.
I remember one time, Bill, like it was yesterday, I was talking to one of the officials who was running TARP. We were talking about a report I did and he was complaining to me that my tone was too harsh and why did I have to do it in a certain way. And I said to him — it was, Herb Allison was his name — and I said, “Herb, you gotta remember, I’m not in the room with you when you’re making these decisions. I’m not there. The only way I get to give you my voice is through these reports. And so that next time you have these conversations I’m there.” And I remember Herb turned to me and he said, “You don’t think you’re there? You don’t think your voice is heard? Your voice is the loudest voice in those meetings whether you’re physically there or not.”
You wrote some scathing reports, did you not?
I would say that we wrote some very accurate reports that have been characterized as scathing. But we did not pull punches. We did not sugarcoat it. We said what we believed and found to be true, because we thought it was important.
And it’s important for members of Congress to have seen those reports, and exert their influence and pressure to bring more transparency. And it was important for the American people to know exactly what was going on with their money.
Where did you get the steel in your spine?
I think, Bill, it’s because I never really wanted this job. I never — it was not my dream to get some high-profile job in Washington. I was a prosecutor. I loved that job. It was the only job I ever really wanted was to be a federal prosecutor.
It is something I did for eight years. I wasn’t looking to change jobs. I wasn’t looking to move.
I wasn’t looking for a career in Washington. I always knew that we’d move back to New York as soon as that job was over. And so the worst they ever could do to me is fire me. That was the worst that could happen. If you’re gonna take a job like this, you have to be willing to get fired. It just has to be something that’s in your bones because you truly serve at the pleasure of the president.
And part of your job may be to cause that president great displeasure. That’s part of the MO. And now I’m not saying it makes it easy. But you have to be prepared to do that. If you’re going to do what Congress has asked you to do and what you take that oath of office, which Hank Paulson administered to me with my hand on his family Bible.
You know, if you’re gonna fulfill that, you gotta be willing to suffer the consequences. And so it weighed on me. It was significant to me. But ultimately it would’ve weighed on me more if I had violated my oath by putting my own personal job security over that oath.
Neil, thank you very much. I’ve enjoyed this conversation. Best wishes to you and your family.
Thank you, Bill. Take care.
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