Neil Barofsky’s Bailout shows why banks have become bigger, now too big to jail

Happy festive season to all! I have had the privilege of reading Bailout by Neil Barofsky over the holiday and of course didn’t we all hang on to the news over the New Year period when the fiscal cliff was the big topic?  The next one will be the big one, the debt ceiling. Surely this will be when the IMF intervenes and brings in the Chicago Plan Revisited? These policies would stop banks creating money, avoid public and private debt and solve the debt problem forever. What a major leap forward that would be! The next few months will be huge.

Back to Neil Barofsky. The subtitle of his book tells heaps – An Inside Account of how Washington Abandoned Main Street while rescuing Wall Street. Barofsky was a young lawyer from New York appointed to be Special Inspector General of TARP, the fund that bailed out troubled banks, AIG (“We found the placement of the interests of the too-big-to-fail financial institution and their executives above those of the taxpayers funding their bailouts”) and auto manufacturing companies. It was supposed to help troubled home owners with underwater loans too. His job was to prevent fraud and protect the taxpayer.

This man is a very brave individual. Constantly warned by Washington insiders that he must be always thinking about his next job (with the implication he must go easy on the big banks), Barofsky goes right ahead and does his job without fear. Secretary of Treasury under Bush is headed by Hank Paulson, former CEO of Goldman Sachs was obstructive and difficult, but when Obama appointed Tim Geithner, former President of the Reserve Bank of New York, he found himself ignored and was bundled out the door quickly on many occasions. Treasury was obstructive and he found he had to communicate with legislators and use the mediator before they took any notice of him. He said there was little change between the Paulson and Geithner regimes.

At the end of it all the banks are now bigger and more dangerous. Ultimately only a small fraction ($1.4 billion at the time he stepped down) of the $50 billion allocated to help homeowners was spent, while the fund expended to prop up the financial system – as Barofsky discloses – totalled $4.7 trillion.

After his two year grind in Washington Barofsky was offered a post at a university and is now using twitter to teach others online. I am delighted to say I have now made contact this way.

And of course we have had the HBSC being fined $1.9 billion for money laundering but they were too big to jail. As the New York Times editorialised on Dec 11

“It is a dark day for the rule of law. Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.

Clearly, the government has bought into the notion that too big to fail is too big to jail”