A Fighting Chance (19 page)

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.

The meeting was held in the Treasury Building in an incredibly fancy room that was loaded with historic furniture, rich draperies, and heavily framed paintings. It looked like a room for kings to negotiate over who was going to get what colony.

People talk about Secretary Geithner’s boyish looks. I guess that’s right, but what struck me about this meeting was that we were in
his
house. He had invited us here, and it felt as if he owned this big, powerful space and we were his guests, welcome as long as we behaved ourselves. The secretary and his aides sat on one side of a huge, heavy table. The rest of us lined up on the other side: the COP panelists, Naomi Baum, Neil Barofsky, and Gene Dodaro, who represented the GAO.

Secretary Geithner spoke quickly, often dropping his voice into a barely audible monotone, rushing ahead so fast that there was no room for interruptions. He was clearly smart and in command of the facts, but he didn’t offer much opportunity for questions. Maybe he was a little anxious. It probably wasn’t much fun to face more than half a dozen people whose job was to look over your shoulder and second-guess your decisions.

This meeting seemed headed in the same direction as COP’s earlier meetings with the secretary—he would talk and we would listen, and suddenly the session would be over, with little time for questions and answers.

I tried not to fidget. But after we had listened to the secretary go on and on about his department’s cheery projections for the recovery, I finally interrupted with a question about a new topic. Why, I asked, had Treasury’s response to the flood of foreclosures been so small? COP had been sharply critical of Treasury’s foreclosure plan. We thought that the program was poorly designed and poorly managed and provided little permanent help, and we worried that it would reach too few people to make any real difference. After the rush-rush-rush to bail out the big banks with giant buckets of money, this plan seemed designed to deliver foreclosure relief with all the urgency of putting out a forest fire with an eyedropper. As I saw it, millions of people were running out of time—and so was the country.

The secretary seemed annoyed by the interruption, but he quickly launched into a general discussion of his approach to dealing with foreclosures, rehashing the plan that COP had already reviewed. Next he explained why Treasury’s efforts were perfectly adequate—no need to worry. Then he hit his key point. The banks could manage only so many foreclosures at a time, and Treasury wanted to slow down the pace so the banks wouldn’t be overwhelmed. And this was where the new foreclosure program came in: it was just big enough to “foam the runway” for them.

There it was: the Treasury foreclosure program was intended to foam the runway to protect against a crash landing
by the banks
. Millions of people were getting tossed out on the street, but the secretary of the Treasury believed that government’s most important job was to provide a soft landing for the tender fannies of the banks.

Oh Lord.

What do you say to such a thing? I wish I’d responded with some brilliant comeback, but I didn’t. I felt as if one of us was standing on a snow-covered mountaintop and the other was crawling through Death Valley. Our views of the world—and the problems we saw—were that different.

In the following months, COP wrote more reports about the Treasury’s inadequate response to the foreclosure epidemic, about what the flood of foreclosures meant for mass unemployment and long-term economic growth. And COP wasn’t the only one to sound the alarm; FDIC chair Sheila Bair raised the issue repeatedly and tried to suggest alternative approaches to keep more people in their homes. Leading economists and housing counselors wrote op-eds and gave speeches. Protests sprang up. We did everything we could, but the foreclosures just kept piling up.

Choosing Sides

As the fall rolled into winter, the partisan battles that marked COP’s early days faded into the background. We stayed true to our vision of running a nonpartisan commission, and I think people forgot about who came from what side of the aisle, at least for a while. Even Congressman Hensarling ultimately relented and voted in favor of a few of the COP reports. I was glad to have his vote from time to time.

One day in December 2009, the congressman called to say that he had resigned. As his replacement, the Republicans appointed Mark McWatters, a seasoned tax lawyer and CPA. Earlier that year, Senator Sununu had left as well; several months later, his replacement, Paul Atkins, did the same. This time, the Republicans named Dr. Ken Troske, a highly respected conservative labor economist. Mark and Ken had strong points of view about many of the issues our panel was grappling with, and though I didn’t always see eye to eye with them, they consistently worked hard to dig at the truth. Both men were sharp-witted and deeply engaged, and they helped drive the COP investigations to greater depths.

COP taught me something important about nonpartisanship: It didn’t have to be timid. Despite our different backgrounds and perspectives, the panelists didn’t search for the lowest common denominator and issue statements saying, “The sky is blue” because that’s all anyone could agree on. We pushed and prodded and sometimes argued. We sweated over our analysis, but the result was that our reports were strong, and our language was bold—and when we couldn’t work things out, the dissents were just as strong. In the end, I think our eclectic, nonpartisan team produced better work than any one individual (or any one political party) could have produced alone. During my time at COP, 10 of our 23 reports were unanimous, and 16 out of 23 were bipartisan. Not bad.

Who Goes to Jail?

COP kept churning out reports, month after month. Secretary Geithner came back to testify three more times, and a clip from one of those hearings went viral on YouTube. Vikram Pandit, the CEO of Citibank, testified, as did the CEO of Ally Bank. We asked the CEOs of several other big banks to testify, but they turned us down, and since we didn’t have subpoena power, there wasn’t much we could do about it.

In June 2010, we wrote a special report focused entirely on the AIG bailout. Clearly we struck a nerve. The report got an unusual amount of media coverage and revived interest in what was happening at AIG. A few weeks later, Hank Greenberg, the former CEO of AIG, demanded to see me in my office at Harvard. He was pretty angry about our report, although he didn’t dispute what we’d said about the wildly dangerous risk taking at AIG and the threat it posed to the whole economy. Instead, he wanted to talk about why he was underappreciated as a great CEO. When he realized that I wasn’t going to back away from our conclusion that AIG had become a risky tangle under his leadership, he turned his wrath on an investigation years earlier by New York’s then attorney general Eliot Spitzer. When that rant also yielded no sympathy, he abruptly left, unsatisfied. The encounter reminded me that CEOs of giant financial companies seem to have very different worldviews from those of most people.

Greenberg had lost his job, but that was before the crash. Once TARP arrived, the CEOs of the bailed-out banks fared a lot better. By now I was more or less resigned to the fact that the federal government wasn’t going to force any of these guys to step down. But I still hoped that the government would launch investigations into whether any of the top management had violated the law.

COP had no authority to file civil or criminal cases, but the Department of Justice and plenty of other agencies had the power to do so if that seemed warranted. For months, I assumed that sooner or later some regulator would think to himself, The banking system just collapsed—I wonder if any banking executives did anything illegal? I figured it was just a matter of time until there would be a string of announcements that major players in the financial markets had been indicted.

But the silence stretched out. No perp walks. No mass indictments.

Were the banks really above the law? That certainly hadn’t always been the case. Back in the 1980s, the country had suffered through another banking crisis, this one involving savings and loan institutions that took advantage of a recent round of deregulation to become giant Ponzi schemes. (Did I mention how stupid it was to deregulate the banks without putting safeguards in place?) In those days, federal officials did not take such a generous line toward errant bankers. When an institution failed, the government launched a detailed investigation, and if the executives had cooked the books, they had to answer for it. People went to jail—lots of people. More than a thousand executives were indicted. As my uncle Billy said at a family reunion during the S&L crisis, “My banker friends used to work nine to four. Now they are in prison, serving five to seven.” Then he gave his big belly laugh.

I don’t know for sure if anyone at the giant banks engaged in criminal activity in the months and years leading up to the financial meltdown. But that’s the point: I don’t think anyone knows for sure. Where were the full-scale public investigations? Where were the armies of auditors, seizing hard drives and poring over the financial statements? Where were the teams of regulators who were supposed to be checking the books all along? Where were the signs—any signs at all—that real resources were being devoted to a series of thorough investigations and that somebody with real power was taking this responsibility seriously?

Think of it this way. Big banks give their regulators certified financial statements every three months, year after year, showing that the bank is in good shape. Meanwhile, they sell billions of dollars’ worth of mortgages that stink to high heaven, dress those mortgages up in phony-baloney AAA-rated wrapping paper, and peddle them to retirement funds and local governments across the country. Then the banks suddenly need
tens of billions of dollars
in government money just to stay afloat. The government gives the banks the money but never puts major resources and manpower into finding out whether the sudden, gaping hole in the banks’ balance sheet was caused—at least in part—by illegal activity.

So the high-powered CEOs collect millions in bonuses, and Flora moves into her car. And the US government “foams the runway” for the giant banks, never seriously investigating whether the guys flying the planes were up to no good.

Sheriffs of Wall Street

In the spring of 2010,
Time
magazine called. They were writing a story on what they called “the new sheriffs of Wall Street,” and they wanted to interview me. The “hook,” as they called it, was that the three people they planned to feature were all women: Sheila Bair, chair of the FDIC; Mary Schapiro, chair of the Securities and Exchange Commission; and me. COP didn’t have nearly the power of the FDIC or the SEC, but that didn’t seem to matter to the editors at
Time
.

I hadn’t met Mary, but I already knew Sheila. She was a highly accomplished lawyer and academic who had been named by President Bush to be the chair of the FDIC back in 2006, when most people figured running the FDIC would be a pretty boring job. She had shaken up the place, pushing through reforms that strengthened oversight of the smaller banks and beefed up the FDIC insurance fund. Sheila and I had met a few years earlier, and recently I had been working in a group she led that was trying to help lower-income people get better access to banking services.