Barofsky vs Treasury

Former Special Inspector General of TARP Neil Barofsky’s media tour around his new book release is producing lots of insightful and important revelations about the ways in which choices were made, many by the Treasury Department, that helped the banks as opposed to homeowners and the general public.

Barofsky did a powerful interview on CBS This Morning which David Dayen highlights today. Barofsky also has a strong op-ed in Bloomberg on how the policy choices that benefit banks have continued to hurt homeowners.

Treasury’s focus on TARP’s financial costs, of course, detracts from its significant nonfinancial costs, including the worsening of “too big to fail” and the lost opportunity to help struggling homeowners. But a separate cost — the loss of many Americans’ faith in their government — may still yield a major benefit.

The missteps by Treasury have produced a valuable byproduct: the widespread anger that may contain the only hope for meaningful reform. Americans should lose faith in their government. They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable. The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.

I hope that Barofsky is right – that there will continue to be more and more anger at how the government has handled its response to the 2008 financial collapse and that anger could eventually compel the government to do more in response. Sadly I think it’s more likely that the anger will only reach a breaking point after another collapse happens, a collapse that only is possible because the government chose not to regulate the banks following the collapse of Lehman, AIG and Bear Stearns in 2008.

Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.

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