You know a musician, athlete, or movie star has reached the pinnacle of their fields when they are showered with fame, fortune, and fans.
There are some fields, though, where you toil largely in obscurity, and if you're really good, your fame can actually attract detractors. In a time where massive amounts of taxpayer money are sloshing around largely in secret, I want to give a very public thank you to one particular public servant, Neil Barofsky.
When the Emergency Economic Stabilization Act of 2008 was passed (EESA), it contained a number of provisions. One of the best was the creation of oversight bodies, in particular, the Congressional Oversight Panel (COP) and the Special Inspector General (Sigtarp). Elizabeth Warren, head of the COP, has been wonderful going around giving interviews and testifying before Congress, voicing a perspective rarely given air-time without her forceful, stubborn insistence on telling things like they actually are. I am a big fan of what she brings to COP, and it certainly makes one wonder fancifully what life might be like if she were offered meaningful policy positions as, say, the Secretary of the Treasury. Perhaps, just maybe, she'll be the inaugural head of a comprehensive Financial Products Consumer Protection Agency. Wishful thinking, I know.
Neil Barofsky, head of Sigtarp, meanwhile, has stuck his neck out a bit in the most recent quarterly report to Congress, and it is for this act that I wish to offer a specific note of gratitude. Amongst a 262 page document (warning, large PDF!), Barofsky dares do something that is at once quite sensible and yet also, quite radical.
He dared go beyond the technical statutory limitations of the existence of Sigtarp to put TARP in context, to view it from the perspective of the system as a whole, to take into account the wide variety of programs and agencies involved. In other words, Barofsky had the nerve to direct his team to think for a moment as a systemic regulator, to wonder what the big picture looks like.
Before I go any farther, I also want to recognize our Congressional Democratic leadership. I am not always their biggest fan, to put it mildly. However, when giving credit were credit is due, making sure that people like Elizabeth Warren and Neil Barofsky were brought into oversight roles resonates with me as one of the wisest and most effective moves since Democrats took back control of Congress. Barofsky, the man of the hour, was confirmed by the Senate in December of 2008. Yes, that Senate, the one led by our esteemed Senator from Nevada. The one referenced by Senator Durbin in his TS-like outburst about the banks owning the place.
Here's what Barofsky's team did. They put these two paragraphs in the Executive Summary of the quarterly report to Congress, under the very first subheading, which they called
TARP IN FOCUS, AND IN CONTEXT
TARP, as originally envisioned in the fall of 2008, would have involved the purchase, management, and sale of up to $700 billion of "toxic" assets, primarily troubled mortgages and mortgage-backed securities ("MBS"). That framework was soon shelved, however, and TARP funds are being used, or have been announced to be used, in connection with 12 separate programs that, as set forth in Table 1 on the next page, involve a total (including TARP funds, loans and guarantees from other agencies, and private money) that could reach nearly $3 trillion. Through June 30, 2009, Treasury has announced the parameters of how $643.1 billion of the $700 billion would be spent through the 12 programs. Of the $643.1 billion that Treasury has committed, $441 billion has actually been spent.
As massive and as important as TARP is on its own, it is just one part of a much broader Federal Government effort to stabilize and support the financial system. Since the onset of the financial crisis in 2007, the Federal Government, through many agencies, has implemented dozens of programs that are broadly designed to support the economy and financial system. As detailed in Section 3 of this report, the total potential Federal Government support could reach up to $23.7 trillion. Any assessment of the effectiveness or the cost of TARP should be made in the context of these broader efforts. Section 3 also provides a tutorial on the Federal Reserve System, which administers many of the non-TARP credit and liquidity facilities that are providing support to the financial system.
The New York Times realized exactly what Barofski just did, so Floyd Norris went into full damage control mode.
But in the report accompanying his testimony, Mr. Barofsky conceded the number was vastly overblown. It includes estimates of the maximum cost of programs that have already been canceled or that never got under way.
It also assumes that every home mortgage backed by Fannie Mae or Freddie Mac goes into default, and all the homes turn out to be worthless. It assumes that every bank in America fails, with not a single asset worth even a penny. And it assumes that all of the assets held by money market mutual funds, including Treasury bills, turn out to be worthless.
It would also require the Treasury itself to default on securities purchased by the Federal Reserve system.
snip
For those totals to be reached, every dollar invested by the government in banks would have to become worthless, and the banks would have to default on securities guaranteed by the F.D.I.C. All the collateral posted by the banks to get loans from the Fed would also have to become worthless.
See people, the report is irresponsible because it recognizes the potential for loss. If a risk is unlikely, we should just ignore it! It doesn't exist.
Now, I don't want to be too hard on the Times. They do give Barofsky some quotes as well, and nothing they say is strictly untrue.
In an interview Monday evening, Mr. Barofsky said he did not view his testimony as misleading.
"We’re not suggesting that we’re are looking at a potential loss to the government of $23 trillion," he said. "Our goal is to bring transparency, to put things in context."
snip
"TARP does not operate in a vacuum," Mr. Barofsky said in his prepared testimony. To properly evaluate that spending, "the context of these broader efforts" must be considered.
The point is, they set up this frame as if there's a conflict between his testimony and the full report, as if he's too incompetent to understand that the report qualifies the $23.7 trillion figure in a variety of important ways, as if his job shouldn't include any curiosity about the larger system.
Neil Barofsky, I wish you the best of luck as you continue pursuing the mission at hand
to advance economic stability by promoting the efficiency and effectiveness of TARP management, through transparency, through coordinated oversight, and through robust enforcement against those, whether inside or outside of Government, who waste, steal or abuse TARP funds
***
Update: I thought it might also be worth mentioning the individuals selected by the Democratic leadership to the Financial Crisis Inquiry Commission. Pelosi and Reid seem to have listened to some very good voices on these picks. Hopefully much will come out of the Commission's work. From WSJ last week
Speaker Pelosi and Majority Leader Reid appointed Phil Angelides as chairman of the Commission. The statute requires the House Speaker and the Senate Majority Leader to jointly appoint a commission chair. Mr. Angelides, one of Speaker Pelosi’s three appointments to the commission, served with distinction as the elected California State Treasurer from 1999 to 2007. He has earned national recognition as an effective public and private sector leader with broad expertise and accomplishments in the fields of investor protection, housing, finance, and corporate and financial market reform.
snip
In addition to Angelides, the Speaker also appointed:
* Brooksley Born, who was appointed by President Clinton as Chair of the Commodities Futures Trading Commission from 1996-1999. As the top Federal overseer of commodities and futures markets, she presciently warned about the need to reduce unwarranted risk in our financial system by strengthening regulatory oversight of over-the-counter financial derivatives products, such as credit default swaps. Born is a 2009 recipient of the "Profile in Courage Award" from the John F. Kennedy Library Foundation.
* John W. Thompson, who is Chairman of the Board of Directors of Symantec Corporation, a leading security software provider. Prior to his retirement in April 2009, Mr. Thompson led Symantec as Chief Executive Officer for 10 years. As Symantec CEO, he championed corporate responsibility, effective corporate governance, and strong business ethics policies and procedures.
Majority Leader Reid appointed:
* Senator Bob Graham, the former U.S. Senator and former Governor of Florida. Senator Graham brings a wealth of experience and understanding of finance to this appointment from his years of service as a senior member of the Senate Finance Committee. He also served as the Chair of the Senate Intelligence Committee and, in that role, co-sponsored a bill that lead to the creation of the Director of National Intelligence position. Currently, Senator Graham is leading the Bob Graham Center for Public Service at the University of Florida, his alma mater.
* Heather Murren, a retired Managing Director for Global Securities Research and Economics at Merrill Lynch. At Merrill Lynch, Ms. Murren was the group head for Global Consumer Products Equity Research. In 2004, she was recognized by Las Vegas magazine of the Las Vegas Review-Journal as one of the Influential Businesswomen of the year. Ms. Murren is the Co-Founder and Chairman of the Board for Nevada Cancer Institute. Ms. Murren is a graduate of Johns Hopkins University and a chartered financial analyst.
* Byron Georgiou, who is a Las Vegas-based businessman and attorney. Mr. Georgiou serves on the advisory board of the Harvard Law School Program on Corporate Governance which hosts the leading blog on corporate governance and financial regulation. Mr. Georgiou is the President of Georgiou Enterprises, a company with a wide range of business interests from international carbon emission reductions projects to residential and commercial real estate and golf course management and development.