The Troubled Asset Relief Program (TARP) was the massive $700 billion dollar bailout that was rushed through government with almost no public discussion in the fall of 2008, when everyone was being panicked by alarms that there was the danger of a massive meltdown of the financial system.

Neil Barofsky was the Special Inspector General of the program, tasked with overseeing it and so had an insider’s view on what transpired. In an interview on the radio program Marketplace report on July 23, 2012, he talks about his book Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street which describes what happened with the $700 billion.

He says that in the beginning, the program was designed to help homeowners by buying up troubled mortgages. But along the way he says something happened [italics all mine-MS]:

There was a remarkable transformation as the bill made its way through congress, and it’s important to remember that this was part of the legislative bargaining. TARP doesn’t get passed just to help Wall St., the economists insisted that there be foreclosure prevention and homeowner oriented programs as part of TARP, and those promises were, of course, both subsequently abandoned. And part of it was there was never the same type of ferocious commitment to help homeowners, in addressing the housing crisis, as there was was to saving banks.
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Well when the TARP money was exspended, hundreds of billions of dollars were provided to the banks under the Capital Purchase Program. We were told that it was for certain purposes, it was going to help restore lending, and one would assume since those were the goals of the program — that when providing the money in the contracts and the policies — there would be something to advance those goals. But, none of that was present, so essentially the money was given with a very low market interest rate and with no conditions to accomplish those goals, and the banks were pretty much allowed to do anything they wanted with it.

And when I started pushing back on that, when I suggested that we needed to have some additional conditions, I was told essentially that I was advocating something that would drive the banks out of the program that would end TARP. I was told that I was stupid, I was told that I was being political, and it’s just another example of this deference and defense of the banks over what were some pretty common sense policies to accomplish our goals.

Barofsky says that when he raised alarms at this lack of control over how the money was being spent, he kept getting reassured that the banks would do the right thing because their reputations depended upon it and they valued their good name more than anything else.

Well, over and over again, I heard that arguement, but I didn’t understand. Just that these banks would never, ever take advantage because it would harm their reputations. It was almost as if they didn’t realize there had been years preceeding the crisis in which banks proved their reputation was perhaps the least important thing when it came to the opportunity to make rapacious profits. I mean, it got so bad, Tess, that at one point in another TARP program a New York Fed official said to me, when they were describing the Treasury’s refusal to adopt some really basic concepts to reign in the TARP participants, he said to me, ‘you know, Neil, it seems as if Treasury’s lips are moving, but, the CEO of one of the investment houses, ‘Larry Fink’s words are coming out their mouth.’

This is, of course, a familiar story to anyone who follows the workings of government more than superficially. In their public statements, politicians always say that whatever they are planning is aimed at helping the middle-class, the small business, the family farmer, children, the individual entrepreneur, and maybe puppies. Whenever I hear that, my internal alarm goes off because I know that this is the prelude to a bait-and-switch in which the actual beneficiaries will be the wealthy and those instincts have not failed me yet. My suspicions become accentuated when I am also told that the matter is of great urgency.

Because of such suspicions, back in September 2008 I wrote a multi-part series titled Why the Wall Street bail out plan is bad. In one post, I wrote about my suspicions that this was a manufactured crisis:

I have been getting increasingly suspicious that this so-called financial crisis may be a bogus one to enrich this administration’s base of Wall Street cronies before Bush leaves office. While I am not an economist and do not have the inside knowledge that Henry Paulson (Treasury Secretary) and Ben Bernanke (head of the Federal Reserve) have, there is something about this mad rush to pass major legislation that strikes me as very suspicious. It reminds me too much of the way the administration flat-out lied about the danger that Iraq posed in order to get Congressional authorization for the invasion.

It gives me no pleasure when my cynicism about the rotten core of government is proved to be correct because it means we are being swindled left and right.