A Fighting Chance

COP swung into action with a very direct question: Exactly how stressful are the stress tests? We lined up some first-rate experts to evaluate the test, and we were all ready to go when the Fed and Treasury informed us that they wouldn’t let us in the clubhouse door. Our access to the data they used to assess the banks would be severely limited; in fact, we couldn’t even get full access to the test they were using to score the banks. We pushed and pulled. We sent our lawyers. We asked nicely and not so nicely. But nothing worked. The stress test remained top secret.

When Treasury announced the results of the test, lo and behold, every bank was in good shape. Half were great, and half were a little bruised and needed to raise some more money, but they were all on the road to recovery. Secretary Geithner declared, “None of these 19 banks are at risk for insolvency.” Really? Once the results were announced and Treasury had reported that everyone was on the right path, we asked again: Now can we have more information about the test? Answer: Nope, not a chance.

Over and over during the spring and summer of 2009, we complained loudly and publicly about the Fed and Treasury refusing to give us information, but they wouldn’t yield. We still don’t know what was in those stress tests.

We pounded on the door to the house of TARP, but they hunkered down and never came out.





$8.6 Billion for the Taxpayers


In June 2009, Treasury started negotiating another round of deals with the big banks. As part of the original TARP arrangement, when the banks had borrowed money, they had promised to sell a certain number of shares of the banks’ stock to the government at a reduced rate. The idea was that if the bailout worked and the bank became profitable again, the taxpayers were guaranteed a bonus at some point in the future. Now the future was here, and some of the banks were ready to cut a deal with the government and give the taxpayers their bonus.

So how big would the bonus be? It depended on the deal struck between Treasury and the banks. If the government settled too cheap, the banks would be getting one more very sweet subsidy at the expense of the taxpayers.

So COP did another investigation. Once again, the first few deals were done behind closed doors. (Surprise, huh?) Once again, we had our experts dig in. And once again, COP found that Treasury had gotten a raw deal for the American people. The closed-door negotiations had yielded only sixty-six cents for every dollar of value that Treasury was entitled to.

But this time, COP was on high alert—and we got there before all the money was gone. In fact, we got there so fast that most of the deals were still in the middle of negotiations. Working with the special inspector general of TARP, Neil Barofsky, who was doing great work to help oversee other parts of the bailout, we nailed down our analysis and cranked out our report. Once we went public, the pending negotiations came out from behind closed doors and were conducted in public view. Within days, for example, the private negotiations with Goldman Sachs became public, and this significantly increased the amount Goldman was willing to pay the Treasury. By the time we were finished, COP calculated that we helped put $8.6 billion back in taxpayers’ pockets.

Not bad for a COP whose only power was to write reports!

Who Is to Blame?



The one-year anniversary of the financial collapse was fast approaching, but the foreclosures just kept piling up, week after week. We wrote more reports, we met with Treasury, and we prodded the various regulators, but we kept running smack into a rock-hard reality: The Treasury Department’s foreclosure relief plan was a bust. I felt as if I were watching a YouTube video of car crashes, played over and over in a continuous loop, while the guys who could have directed the traffic showed up too late and did too little.

The mortgage crisis had prompted plenty of finger-pointing—and a lot of it was directed at the families who were losing their homes. Earlier in the year, when talk of writing down mortgages surfaced, a televised rant about “losers” went viral and was generally credited with sparking the Tea Party. Now everybody seemed to have a favorite story about a bus driver who bought an $800,000 home or somebody’s brother-in-law who flipped houses, made a fortune, and then lost it all when the music stopped. The pundits were ready to blame the housing crash on your neighbor down the street—and they had plenty of politicians on their side.

It all seemed backward. It was as if people were saying: “Oh gosh, we can’t blame poor Mr. CEO Banker. He gets paid millions and millions of dollars because he’s really good at his job, so how was he supposed to know that his bank was about to collapse?” And then they turned around and said: “Hey, stupid homeowner! Why did you sign those confusing mortgage papers? Didn’t you know that your balloon payment would come due just at the moment your job disappeared?”

The hypocrisy drove me nuts.

In fall 2009, Secretary Geithner invited people working on TARP oversight to a meeting. By now COP had met with Geithner a few times, and he had answered questions twice before the panel in public hearings.