Neil Barofsky, special inspector general of the Troubled Assets Relief Program, has quit his job. Now he takes to the front page of the NYT to tell you everything that went wrong with the program. In short:
- The Treasury Department took the TARP money under express orders from Congress to use the money to buy up troubled mortgages. This it did not do, choosing instead to give money to failing banks.
- The banks were theoretically supposed to use the money to restore lending to homeowners. This they did not do, because, well… why would they? Treasury handed them the money with “no strings attached: no requirement or even incentive to increase lending to home buyers.”
- The portion of the TARP Act designed to help homeowners restructure their mortgages was ignored until a year later, when Congress passed new legislation unfortunately riddled with “design flaws like the failure to remedy mortgage servicers’ favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines.” Unsurprisingly, “That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000).”
- “Too big to fail” is actually more of a problem than it was before the crisis. “The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever…. [C]redit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.”
The whole article is short and a great grumpy read — Barofsky, whose recommendations were ignored, is furious.
And now a glib cultural reference.
(h/t Ghost in the Machine)