A Fighting Chance

And it wasn’t just AIG. TARP sent truckloads of cash to the banks, but the banks gave virtually nothing in return—no haircuts for the creditors, no CEO firings, no promises to abandon risky trading. And that’s when Too Big to Fail went on steroids—not just a bailout, but a pain-free bailout.

TBTF allows the megabanks to operate like drunks on a wild weekend in Vegas. They can take on any kind of crazy risk—put $1 billion on black 22!—and if the bet pays off, the CEOs and the shareholders will be richer than kings. If it doesn’t pay off and the bank is wiped out, the taxpayers will foot the bill.

A nostrings-attached bailout created a Too Big to Fail monster, and I was pretty sure we’d be paying for that mistake for a long time.

Where Did the Money Go?



Six days after my appearance on The Daily Show, we got our first public hearing with Secretary Geithner. The exchange wasn’t especially revealing, but we thought it was an important step in our effort to shine more light on what was really going on.

The bailout had never been sold as just a Save the Banks plan. Instead, the American people were told that the bailout would make it possible for banks to start lending to small businesses again and to help relieve the foreclosure crisis. But once those nostrings-attached checks were distributed to the big banks, that promise evaporated like a tiny ice cube in the desert. Sure, Treasury would try out a few mortgage foreclosure programs here and there. And they would talk about small-business lending. But the actual policies were anemic. Despite the way that it was sold, TARP was about saving the banks, plain and simple.

So what did the big banks do with the money they got? Reports vary. Some put the money in their vaults and hunkered down. Others used the money to buy other banks or make other acquisitions—and grew their TBTF banks even bigger. They also did exactly the opposite of what TARP was supposed to encourage: they cut back on small-business lending and got even more aggressive in their efforts to foreclose on home mortgages.

Of course, even after Treasury started handing out TARP money, not all the banks got a big check. Many small banks were left out in the cold, trying desperately to get approval for relatively small infusions. Some died while waiting. By April 2009, nearly fifty small banks had gone completely under—and many more were drowning. Without access to credit, many of their small business customers went down, too.

The lost opportunity still makes me want to scream with frustration. Small business owners, home owners, men and women whose jobs had disappeared: these weren’t numbers on the page; these were millions of people who lost everything.





Late Nights at the GPO

In the middle of the maelstrom, COP was racing to turn itself into a proper organization. The old adage about building the plane and flying it at the same time was out-of-date. We were drawing up blueprints for a jet fighter while executing a catapult launch from an aircraft carrier.

By May, we had about twenty employees. Naomi Baum’s right hand was Tewana Wilkerson, another tough woman who also had extensive Capitol Hill experience. Steve Kroll, a brilliant and quirky lawyer who always wore a bow tie, and Sara Hanks, a tough-as-nails lawyer with years of experience in securities law, led our key investigations.

By the time we were done, we’d put together an eclectic crew. We hired investment bankers and government regulators, courtroom lawyers and economists, accountants and a Hollywood screenwriter (okay, he was a credit rating agency specialist before he went out to California). And we enlisted Wilson Abney, a well-respected ethics expert, to come out of retirement to help us.

The hodgepodge of backgrounds was deliberate. I figured we were facing an unprecedented crisis, and we needed as many good ideas as we could muster. Besides, some of us thought that “groupthink” had contributed at least in part to the crisis. A bunch of big-time financial titans running enormous financial companies had all approached their business in roughly the same way—and so had many of the banking regulators. In fact, there was a long tradition of executives and regulators moving back and forth between government and private sector jobs, which meant that the key players in the financial industry almost never received serious input from anyone with a different worldview. We figured COP could do better.

As we added staff, we needed an office for them to work in. Finding really good space in Washington to house a brand-new government organization on a moment’s notice was like looking for an affordable one-bedroom apartment with a nice view in Manhattan. Not an easy job, but possible. We turned up an unlikely landlord: the Government Printing Office.