A Fighting Chance (17 page)

Once again, it was about keeping it simple. The report was like a grocery list—here’s what we asked for, here’s what we got. People could see for themselves exactly how Treasury had blown us off.

Congressman Hensarling dissented from this report as well. But by now we had another Republican on the panel, former New Hampshire senator John Sununu, and he joined the three Democrats to make it a bipartisan report.

After all those years of fighting for families in bankruptcy—and all those years of hardly anyone paying attention—I guess deep down I expected that our second report would be ignored. It wasn’t. People knew what was at stake, and the financial crisis had put the bailout at center stage.

Media coverage for the new report started early in the morning of January 9, 2009, when I appeared on
Good Morning America
. I talked with more reporters as the day rolled on, and I did interviews on ABC, CNBC, and CNN. Several news outlets came down hard on the Treasury Department. The
Boston Globe
put it this way: “If taxpayers are spending billions to bail out banks, they deserve to know how that money is used.” (Go,
Globe
!)

The watchdog barked, and the public paid attention. But still we heard nothing from Secretary Paulson. He left his job as secretary of the Treasury less than two weeks later. No meetings, no phone calls, no meaningful response to either of our reports.

Don’t Tell What’s Really Going On

The second report was out, and COP was already hard at work on the third. By now we’d hired Naomi Baum to serve as executive director for COP. Although I knew very little about getting things done in Washington, Naomi knew Capitol Hill inside and out. She was tiny, barely five feet tall, but no one got away with underestimating her strength. Naomi had spent nearly twenty years working in Washington, and she brought calm confidence to our chaos. She got us out of the business of all-nighters, organized our operation, and hired staff. Now COP could begin multiple investigations at once; we could walk and chew gum at the same time.

Damon had an idea, and it was a big one: Let’s dig into whether the public got a fair deal on the TARP investments. The idea was to take a closer look at the price when the Treasury Department handed billions of dollars to the megabanks in return for bank stock. Secretary Paulson had told the public that all the transactions were at or near par, which meant that when taxpayers put in $100, the value of the shares they got back was also $100.

What Secretary Paulson described sure sounded like a fair deal, and we could have stopped there. But we were the COP on this beat, and Damon figured we should check out the numbers for ourselves. So COP hired a first-rate investment research firm to analyze the transactions. And then we got two separate panels of experts to check and recheck their work.

When we met to review the numbers, our experts passed out thick reports laden with pages and pages of numbers and technical explanations of their analysis and their findings. Their conclusions sent a chill through me.

Treasury had overpaid—and not by just a little. In the bailout deals with the ten biggest banks, every time Treasury spent $100, it received assets worth just $66. By January 2009, that already added up to a $78 billion shortfall.

Treasury was subsidizing these banks, pure and simple. Treasury had said one thing in public and then had done something very different in private. The BS whistle was screaming.

As it turned out, the government eventually recovered the money it put into Citibank and the other banking giants. But at the time those deals were struck, no one knew what the future held, and the risks were all on the taxpayers. All the American people had to go on was what Secretary Paulson had told them. And what he said simply wasn’t true.

Democracy had just taken another brutal punch in the gut.

Insiders Don’t Criticize Insiders

By the time our February report came out, America had a new president. This might have been a moment for a new direction in economic policy and a chance to rethink the bailout strategy. But the crisis was still accelerating, and the economy remained on the edge of collapse. After his election, President-elect Barack Obama had quickly signaled that the new administration would continue Paulson’s strategy, especially with his choice for a new Treasury secretary: Tim Geithner. As head of the Federal Reserve Bank of New York, Geithner had worked as a regulator of the Wall Street banks for years, and in 2007 he had been approached about becoming CEO of Citibank. He was experienced with bailouts, too: in the spring of 2008, he had managed the rescue of Bear Stearns, and as the markets collapsed in the fall of 2008, he had worked alongside Secretary Paulson to engineer the bailout for insurance giant AIG.

The COP panelists met with the new secretary a few times during his early months on the job. In mid-March, the story broke that AIG had paid $168 million in bonuses—bonuses that would go to employees in the very same division that had brought the company to its knees. People were furious; one Republican senator called for the AIG executives to either “resign or go commit suicide.”

COP was expanding its investigations, and we were starting to make a stir about what we saw as the shortcomings of Treasury’s approach on the bailout. I started hearing that many Washington insiders were surprised (and some were aggravated) that we were going just as hard on the Democratic administration as we had on the Republicans, but I wasn’t going to stop and worry about that.

In early April, I got a call from the office of Larry Summers. I didn’t know Larry well, but I’d met him a few times while he was president of Harvard in the early 2000s. According to reports, Larry had been Tim Geithner’s mentor when they were both in the Treasury Department in the 1990s. Now Larry was the director of the National Economic Council, which meant that, along with Secretary Geithner, he advised President Obama on economic issues. Would I be interested in meeting him for dinner?

Sure, I replied. Larry’s office suggested the Bombay Club, an Indian restaurant near the White House. Quiet and softly lit, it served Washington’s power elite.

When Larry arrived for our dinner, he ordered a Diet Coke as soon as he sat down. He glanced at the menu, ordered quickly, and soon the food started coming.

It was a long dinner, with plenty of intense back-and-forth about everything from the bailout, to deregulation, to the foreclosure crisis. I also talked to Larry about an idea I’d been working on for a new consumer financial agency, and he seemed interested. We didn’t agree on everything, but I give Larry full credit: I’ll take honest conversation and debate any day of the week over the duck-and-cover stuff I so often saw in Washington that spring.

Late in the evening, Larry leaned back in his chair and offered me some advice. By now, I’d lost count of Larry’s Diet Cokes, and our table was strewn with bits of food and spilled sauces. Larry’s tone was in the friendly-advice category. He teed it up this way: I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People—powerful people—listen to what they have to say. But insiders also understand one unbreakable rule:
They don’t criticize other insiders.

I had been warned.

Jon Stewart

I had been doing short interviews about the bailout and COP’s work for several months, but I was still nervous about appearing on national television. On April 15, a week after my dinner with Larry Summers, I had more than a bad case of nerves.

It was early evening. I was standing in the tiny guest bathroom near the set of
The Daily Show with Jon Stewart
. I glanced nervously at the front of my jacket to see if it was clean. I examined my face closely in the mirror, specifically my mouth, nose, and chin. I had just vomited.

I blotted my face with wet paper towels, and then I was hit by another wave of nausea. As I leaned over the toilet again, I wondered if I had messed up my lipstick and powder. The show’s makeup person had already fluffed and buffed me for the show, and I didn’t want to have to explain why I needed repairs.

I was miserable. I had stage fright—gut-wrenching, stomach-turning, bile-filled stage fright. And I was stuck in a gloomy little bathroom, about to go on
The Daily Show
.

At home, Bruce and I always recorded the show on TiVo and delighted in watching Jon Stewart skewer people who needed skewering. But now I was having serious doubts about going through with this. I had talked to reporters and been interviewed plenty of times, but this was different. At any second, the whole interview could turn into a giant joke—and what if the joke turned on the work I was trying to do?

For the zillionth time, I asked myself why on God’s green earth I had agreed to sit down with Jon Stewart. For the zillionth time, I gave myself the same answer: Because oversight will mean something only if a lot of people—millions of people—get engaged.
The Daily Show
gave me one more way to draw people in, to talk about what had gone wrong and what we should do about it.

So I washed out my mouth with cold water and went back to the little waiting room. Pretty soon a director was pulling me at breakneck speed through narrow hallways, past tiny rooms, and behind heavy dark curtains. We came to an opening onto the stage, and then I stepped out into the lights, feeling like an astronaut who had just left the space capsule—except I hadn’t practiced this maneuver back on my home planet.

When I sat down opposite Jon Stewart, what struck me first was how close we were. Stewart seemed to be mere inches from my face—and he immediately began hurling baseballs straight at my forehead. The beginning was a disaster. We rambled through questions about TARP and the Congressional Oversight Panel. I fumbled while Stewart made jokes. The way I heard it, his message was clear: The whole idea that our tiny little panel would be able to watch over the Treasury’s $700 billion bailout was idiotic.

The first couple of minutes were terrible, and then it got worse. Jon Stewart got an acronym for a Treasury program wrong and I automatically corrected him. “P-PIP,” I interrupted. (For the record, it’s pronounced “pee-pip.” Three-year-old Lavinia thought this was hilarious bathroom humor.) The instant “P-PIP” popped out of my mouth, I was horrified. What was I doing correcting Jon Stewart on his own show? We locked eyes for an instant, and I must have made a face, because Stewart asked me, “Madam, are you about to curse?”

I endured the wave of laughter from the audience, and then he dropped the obvious question: “What does P-PIP stand for?”

Uh-oh. Pause. “I forget.”

In the instant after I said “I forget,” my heart slowed down. No need to stress now: my work in Washington was over. I thought, Well, this is it. I’ll call Senator Reid tomorrow and resign. If I can’t even remember the names of the TARP programs, then I should quit now. Maybe they can get someone to run this panel who
isn’t
an idiot.

Stewart asked a few more questions, and then, mercifully, it was time for a commercial. As I started to bolt out of my chair, Stewart grabbed my forearm and said something like “You wanted to deliver an important message here, and you didn’t get to it. If I gave you one sentence, what would you tell people?”

We looked hard at each other again, our heads inches apart, and then I told him what I really thought. He said, “Okay, hold on.”

By now we were well into the commercial break, and the stage director came over to hustle me off the set. Stewart said, “No, she stays.” The manager said, “No, we’re out of time.” Each repeated their statements with a little more intensity; then Stewart insisted with the air of The Boss: “
She stays.
I know how we can make room.”

The stage director backed away, and Stewart looked around at the camera and fiddled with some papers. Then he warned me: “You don’t have much time.”

A couple of seconds later, the cameras were rolling again. I thought he would pitch me a question that would give me a chance to say on camera what I had just said to him. But no: he asked me some other question. I thought, What the heck, I’m going to say what I have to say. And that’s what I did. It was a little longer than this (and a lot more rambling), but basically it boiled down to the following:

This crisis didn’t have to happen. America had a boom-and-bust cycle from the 1790s to the 1930s, with a financial panic every ten to fifteen years. But we figured out how to fix it. Coming out of the Great Depression, the country put tough rules in place that gave us fifty years without a financial crisis. But in the 1980s, we started pulling the threads out of the regulatory fabric, and we found ourselves back in the boom-and-bust cycle. When this crisis is over, there will be a once-in-a-generation chance to rewrite the rules. What we set in place will determine whether our country continues down this path toward a boom-and-bust economy or whether we reestablish an economy with more stability that gives ordinary folks a chance at real prosperity.

Done. I took a deep breath.

And then Jon Stewart pointed at me and said, “That is the first time in six months to a year that I felt better.… For a second, that was like financial chicken soup for me. Thank you. That actually put things in perspective and made sense for me.”

Too Big to Fail

I may have frozen up over what P-PIP stood for, but there was another acronym that was burned into my brain: TBTF.

The idea behind TBTF—Too Big to Fail—had been around for a long time. But when the government stepped in during the spring of 2008 as financial giant Bear Stearns was failing, the idea had taken on new urgency. In the fall of 2008, a few weeks before Harry Reid called, I had taught the concept to my class at Harvard.

I began the session by making a few quick notes on the blackboard—I still like good old-fashioned chalk—while we talked about the bundles of bad mortgages that were scattered throughout the economy. And then I put a question to the class: The economy is obviously headed for rough sledding, and some companies may not survive. So if you ran a very large financial company right now, what would you do to make sure that you’d still be around in ten years?