July 26 (Bloomberg) -- If you harbor any doubts about how dysfunctional Washington has become, add two books to your reading list: “Bailout” by Neil Barofsky and “Red Ink” by David Wessel.
Each describes a federal government incapable of taking steps vital to America’s future. And each leaves you wondering if the system is too broken to mend.
Start with “Bailout,” Barofsky’s angry memoir of his stint as the special inspector general policing the $700 billion bank bailout Congress passed after the collapse of Lehman Brothers Holdings Inc.
Barofsky, who had hunted down Colombian drug lords and predatory lenders as a federal prosecutor, took his independence seriously. Though he worked inside the Treasury Building -- he was allotted a barren “suite” of rooms reeking of a “musky, socklike odor” -- his mandate was to root out waste, fraud and abuse in the Troubled Asset Relief Program.
His assignment put him on a collision course with Treasury secretaries Henry M. Paulson Jr. and Timothy F. Geithner, who were feverishly shoveling billions of TARP dollars at banks well before Barofsky reported for duty on Dec. 15, 2008.
The last thing Treasury wanted, judging from this account, was a nosy cop scaring bankers away from TARP funds. In one memorable scene, Geithner explodes in expletives when Barofsky presses his case for requiring banks to report how they were using the money. He was “dropping f-bombs on me,” we read.
Paulson had sold TARP to Congress partly as a way to increase lending and help struggling homeowners avoid foreclosure. Instead, the program became a “blank check” for propping up a financial industry whose interests conflicted with those of ordinary Americans, says Barofsky, a Democrat.
The first major TARP outflow was a direct equity injection of $125 billion into nine banks, including Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. The Treasury imposed few restrictions on how the money could be used, Barofsky says. Before long, TARP funding bailed out General Motors Corp. and Chrysler Corp. as well as American International Group Inc.
“Not exactly what Congress had envisioned,” Barofsky says.
Picking up where Paulson’s “On the Brink” left off, this memoir suggests that President Barack Obama made a grave error in choosing Geithner, who comes across here as a shell-shocked crisis veteran bent on helping banks, not homeowners.
“Paulson and Geithner hadn’t just saved the banks,” Barofsky writes. “They’d also preserved a status quo that was dangerously broken,” rendering too-big-to-fail banks even bigger and “setting the stage for the next crisis.”
In fiscal 2011, the federal government spent $3.6 trillion, or about $400 million an hour.
Where did the money come from? Where did it all go? And how long can this continue?
These are the questions Wessel addresses in the five easy chapters of “Red Ink,” a slim primer on the people and politics driving the America’s budget war.
Wessel, the Wall Street Journal economics editor and columnist who brought us “In Fed We Trust,” has an insider’s grasp of the players, issues and argot surrounding the budget.
Yet he writes with an outsider’s eye, distilling his tale of the fiscal monster into about 150 pages of simple prose and a smattering of charts. Along the way, he introduces the political operators who shape the budget, from Jack Lew -- the White House chief of staff and former Office of Management and Budget director -- to Paul Ryan, the Republican chairman of the House Budget Committee.
The unpalatable truth, of course, is that much of the money the government spends goes to highly popular programs: About $1 out of every $4 pays for federal health-care under Medicare and Medicaid, he says. Defense spending consumes $1 out of every $5. An additional one-fifth goes to the national pension system, Social Security.
Almost two-thirds of all federal spending runs on “autopilot,” as Wessel puts it. Social Security checks are cut; Medicare bills get paid; interest payments on government bonds are made -- all without a congressional vote.
Easy fixes are hard to find, as I discovered myself by playing one of the online games Wessel cites, “Budget Hero,” which invites you to slay the deficit dragon by raising taxes and cutting spending.
Wessel closes with an analysis of why the country can’t live beyond its means forever. The U.S. government now owes $11.1 trillion to others -- or $11,065,934,893,561.99, to quote the precise figure on the Treasury’s “Debt to the Penny” website yesterday morning.
Given our polarized political system, we may end up kicking the debt can down the road. Unfortunately, bad things happen to countries whose debt loads get too high.
“Think Argentina, circa 2001,” Wessel writes. “Think Greece, circa 2012.”
“Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street” is published by Free Press (270 pages, $26). “Red Ink: Inside the High-Stakes Politics of the Federal Budget” is from Crown Business (204 pages, $22). To buy these books in North America, click here for “Bailout” and here for “Red Ink.”
(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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