Tag: neil barofsky

The Geithner Doctrine

Cross posted from The Stars Hollow Gazette

The former special inspector-general of the troubled asset relief program (TARP), Neil Barofsky says that it is time for a “post mortem” analysis former Treasury Secretary Timothy Geithner’s doctrine, the preservation of large banks, the largesse of Wall St. and the perversion of of the US criminal justice system. In this article posted at naked capitalism, Mr. Barofsky looks at the effect of the “Geithner Doctrine” and the weak response to the LIBOR scandal:

The recent parade of banking scandals, such as the manipulation of Libor rates by Barclays, Royal Bank of Scotland and other major banks, can be traced back to the lax system of regulation before the financial crisis – and the weak response once disaster struck.

Take the response of the New York Federal Reserve to Barclays’ admission in 2008 that it was submitting false Libor rates and was not alone in doing so. Mr Geithner’s response was to in effect bury the tip. He sent a memo to the Bank of England suggesting some changes to the rate-setting process and then convened a meeting of regulators where he reportedly described only the risk but not the actual manipulation of the rate. He then put the government imprimatur on the rate via bailout programmes. His inaction helped permit a global crime to continue for another year.

When it was UBS’s turn to settle its Libor charges, even though a significant amount of the illegal activity took place at the parent company level, only a Japanese subsidiary was required to take a plea. Eric Holder, US attorney-general, demonstrated his embrace of the Geithner doctrine (a phrase coined by blogger Yves Smith) in explaining the UBS decision. He said that a more aggressive stance against the parent company could have a negative “impact on the stability of the financial markets around the world”.

This week we saw the latest instalment of the saga. In fining RBS £390m, the DoJ only indicted one of the bank’s Asian subsidiaries, avoiding the more damaging result that would have stemmed from charging the parent company.

Instead of seeking deterrence and justice, the US government increasingly appears to have fully absorbed the Geithner doctrine into its charging decisions by seeking a result that has a minimal impact on the target bank but will generate the best-looking press release. Some banks today are still too big to fail – and they are still too big to jail.

There are no meaningful consequences for this criminality. The fines with a promise not to do this again are just a game to allow the banks to continue the fraudulent conduct and find better ways to cover it up. Mr. Barofsky concludes that we must ditch the “Geithner Doctrine” to end “the game of incentives gone wild, and the lack of accountability in the aftermath of the crisis has only reinforced those bad incentives.”

o reclaim our system of justice, the global threat posed by the failure of any of our largest financial institutions must be neutralised once and for all. They must be reduced in size, their safety nets must be dramatically constricted and their capital requirements enhanced far beyond the current standards. Then, and only then, can the same set of rules apply to all.

In an extended interview with The Daily Show host Jon Stewart, Mr. Barofsky discussed the double standards of the TARP program and the alien culture of Washington DC and explains why the banks will never face true justice..

Barofsky on Wall St’s “Incestuous Orgy”: Part 2

Cross posted from The Stars hollow Gazette

The the second half a web exclusive interview, Neil Barofsky, the former Special Inspector General for the U.S. Troubled Asset Relief Program (TARP), talks with Bill Moyers. They discuss, what Mr. Moyes described as the “incestuous orgy” that is going on between the banks and the federal government, the need to tackle banking reform and the real possibility of another financial collapse.

The first part of the interview is here

The transcript is here.

Barofsky on Pandit and Obama Failures: Part 1

Cross posted from The Stars Hollow Gazette

In a web exclusive interview, Neil Barofsky, the former Special Inspector General for the U.S. Troubled Asset Relief Program (TARP), talks with Bill Moyers about the resignation of Citibank CEO, Vikram Pandit and his disappointment with President Barack Obama’s choice to protect the big banks instead of regulating them.

“I think that you have to view [Pandit’s] career through that prism of being one of the worst-performing of a group of bad banks. To receive all that money and really to accomplish what he accomplished was mostly because of taxpayer generosity and the incredible political connections that Citigroup had in Washington. And basically cashing out those connections,” Barofsky tells Bill. [..]

“I thought that if there was ever going to be a political figure that would take on the interests of Wall Street, it was going to be President Obama. And that just didn’t happen,” Barofsky says. “It was the exact opposite of that… He had the same ideology as Secretary Geithner and, frankly, the same ideology as a lot of those people who came from Wall Street.””

This is the first of two parts and focuses on Mr. Pandit’s sudden departure.

BofA’s Ken Lewis charged with fraud.

File this under change we can believe in.

NEW YORK (CNNMoney.com) — New York Attorney General Andrew Cuomo said Thursday it was bringing civil charges against senior Bank of America executives, including former company CEO Ken Lewis, for their role in the company’s controversial purchase of Merrill Lynch…

…The lawsuit contends that the bank’s management team understated the losses at Merrill in order to get shareholders to approve the deal, then subsequently overstated the firm’s willingness to terminate the merger to regulators weeks later in order to get $20 billion of additional aid from the federal government.

Anyone know why they are not bringing criminal charges?  ‘Cause I’d like to see some people go to jail.  Is it that bringing criminal charges against rich people is gauche?  Or something else?   Oh, wells.  The important thing is that it’s a friggn’ indictment of high-level wrong-doing.

Too Big to Fail: Bigger, Failer.

Neil Barofsky says gub’mint bail-out is not only a big fat fail, but has exacerbated the risks:

from the SIGTARP Executive Summary, pdf

The substantial costs of TARP – in money, moral hazard effects on the market, and Government credibility – will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time.  It is hard to see how any of the fundamental problems in the system have been addressed to date.

• To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.

• To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.

• To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses – and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions – the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.

To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices – as discussed more fully in Section 3 of this report – risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.

Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.

Congrats, Bush, Obama & The Rubinites!  This one is going platinum.  What was once just “Bigger and Deffer!” is now “Biggerer and Defferer!”