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The War Being Waged on the TARP Watchdog's Independence
Neil Barofsky, the chief watchdog over the $700 billion TARP bank bailout program, is one of those rare creatures in Washington: he takes very seriously his responsibilities of independent oversight and accountability. A career prosecutor, Barofsky is a life-long Democrat who donated money to Obama's presidential campaign. But ever since he was appointed to head the oversight office created by Congress when it enacted TARP -- an office designed to ensure transparency and accountability at the Treasury Department and in the banking industry -- he has repeatedly clashed with Obama's Treasury officials over their lack of transparency in how the trillions of dollars in TARP-related funds are being sent to and used by the banking industry. So seriously does Barofsky take his oversight duties that, as a Washington Post profile noted in March, "he refuses to eat with senior administration officials in the [Treasury] building's executive dining room to maintain his independence."
Barofksy's clashes with administration officials have intensified of late. Last week, he issued a report documenting that the actual amount of taxpayer money theoretically put at risk in the bank bailout -- once Federal Reserve, FDIC and other programs are counted -- is $23.7 trillion, not the widely cited figure of $700 billion, a report that prompted attacks from the White House and Treasury on his credibility. Separately, Barofsky has continuously disputed White House claims that it's impossible to account for what has been done by banks with the TARP funds. Barofsky wants to compel banks to account for those funds and then publicize that information, while the administration opposes such efforts, claiming that accounting for TARP monies is impossible due to the "fungibility" of those funds. To disprove that claim, Barofsky sent out voluntary surveys to the bank which proved that those funds could be tracked (and he found TARP funds were being used by receiving banks largely to acquire other institutions and/or create "capital cushions" rather than increase lending activity, the principal justification for TARP).
Most significant of all, and obviously due to Barofsky's truly independent oversight efforts, the Obama administration is now attempting to induce the Justice Department to issue a ruling that Barofsky's office is not independent at all -- but rather, is subject to, and under the supervision of, the authority of Treasury Secretary Tim Geithner. By design, such a ruling would completely gut Barofsky's ability to compel transparency and exercise real oversight over how Treasury is administering TARP, since it would make him subordinate to one of the very officials whose actions Congress wanted him to oversee: the Treasury Secretary's. Barofsky has, quite rightly, protested the administration's efforts to destroy his independence, and has done so with increasing assertiveness as the administration's war on his oversight activities has increased. Why would an administration vowing a New Era of Transparency wage war on a watchdog whose only mission is to ensure transparency and accountability in these massive financial programs?
It should take little effort to explain the significance of these clashes. The amount of taxpayer money transferred to the banking industry or otherwise put at risk for its benefit is astronomical. Professor Nouriel Roubini argues in a New York Times Op-Ed today that actions by the Federal Reserve over the last nine months helped avert a Depression, while former Governor Eliot Spitzer said this week that the Fed has turned into a "Ponzi scheme" that relies on insider dealing and requires vastly increased scrutiny. Those claims aren't mutually exclusive. It's not surprising that transferring extraordinary sums of taxpayer money to a particular industry will help that industry avoid collapse, but it is still the case that the potential for extreme corruption and even theft in such transactions is enormous (indeed, even Roubini argues that Fed Chairman Ben Bernake played an important role in enabling the crisis in the first place). No matter one's views of the wisdom of the bailout and related programs, transparency, accountability and independent oversight are absolutely vital, and that is what Barosksy's office was created to ensure (though it's unlikely -- given how Washington works -- that Congress actually expected that the person in charge of that office would take those duties seriously and be willing to fight with senior administration officials to protect his independence).
Earlier this week, ABC News' Jake Tapper conducted a 20-minute podcast interview with Barofsky, and I really recommend that everyone listen to it (it can be heard by clicking PLAY on the recorder below or can be downloaded here). Barofsky details the war being waged by the Obama administration -- especially the Treasury Department -- on his independence, as well as their constant and multi-faceted campaign to impede his efforts to bring transparency to what is being done with these vast amounts of money (those obstructionist actions are consistent with the efforts of Senate leaders to block a vote on Ron Paul's bill to audit the Fed, a bill which now has truly bi-partisan and trans-ideological support among a majority of House members). As a hard-core Obama supporter, Barofsky is quite obviously dismayed at what he describes as the failure to adhere to transparency pledges in these areas. Barofsky is particularly worth listening to because his integrity, apolitical independence, and prosecutorial tenacity in imposing accountability are exactly what our political culture so woefully lacks.