Neil Barofsky, Jenner & Block Partner, Author of ‘Bailout’ and Former Inspector General for TARP, joins On The Move to discuss how leadership is responding to the coronavirus outbreak.

Video Transcript

JULIE HYMAN: I want to get to the oversight portion of what Jess was just discussing, that that has been one of the sticking points here. On-- for more on that, I'm joined by Neil Barofsky. He's a partner at Jenner & Block, the author of "Bailout," and of course, the former inspector general for TARP, so he knows a thing or two about government oversight and getting through these kinds of tough periods.

Neil, it's great to see you. Thank you for joining us. You have written an op-ed for Bloomberg talking about the need for oversight here. What does that oversight need to look like?

NEIL BAROFSKY: Well, first of all, thank you for having me. And look, I think that what we just heard is a real sea change since I wrote that op-ed yesterday. Going into this there was really no effective dedicated independent oversight. And now we're talking about some of the things that I encouraged, which is bringing back a special inspector general.

That's an entity within the executive branch that has full law enforcement authority, as well as an ability to bring transparency, penetrate those executive privileges, and make sure information comes to the surface, along with the Congressional Oversight Panel, which also existed during the TARP, which is-- which also provides a distinct but important element, again, transparency, the ability to bring accountability through congressional hearings and reporting.

These are important first steps to get effective oversight, but I think that's a really important thing to remember. Putting the entities in place is a first step. But then there has to actually be real oversight, real transparency and-- in order to achieve the goals of this bill, which is nothing short than to keep America running. So these are really large stakes, and we can't just let these achievements become just window dressing.

JULIA LA ROCHE: Neil, it's Julia La Roche. Thank you so much, again, for joining us. It's really timely to have you on as well. I read your book "Bailout," and I think it's a great account into what went on when you were the special inspector general overseeing TARP. Give our viewers a sense of just the inner workings there, and maybe even some advice for whoever might fill that role.

How do we avoid picking winners and losers or making it so it's just those with the political connections who win here? I think there is a lot of concern out there that look, it's another bailout, and you will inevitably have winners and losers. And how do we make sure that we take care of those for even the most vulnerable?

NEIL BAROFSKY: You know, I think that's an important point, because there will be winners and losers, because that's the very nature of bailouts. Bailouts are a perversion of capitalism, where we're taking the normal workings of a free market, and we're throwing them out the window to save and preserve some companies that otherwise would not exist. And last time it was because of a financial crisis. The banks, really because of mistakes of their own doing, right, which brought about the crisis.

Here, of course, a lot of these companies have-- are not to blame for the coronavirus and the devastating impact. But nonetheless, there would be, without a bailout, some companies which would be well-capitalized and smartly managed that survived, nonetheless, and others that would not. And so we are picking winners and losers, because we're taking a limited amount of taxpayer resources and distributing them, not to all companies, but to those who make it through the process.

So the key really important lesson from the last time, an oversight has such an important role in this, is transparency and fairness. So in other words, when the policymakers are making their decision as to who is going to be the, quote unquote, "winner," who's going to get the money so that they can keep their business alive, so they can keep paying their employees and producing their widgets or providing their service, what is the criteria? And what we need to make sure that we have is objective criteria that is brightest sunshine, brightest light shined on that process imaginable.

So originally, it was contemplated it was going to be done in the back offices of the Treasury Department with six-month delay before we even know who got the money and no oversight possible. That is a disaster. That is an invitation for corruption. And as I note in my piece, it is a corruption that will spread as quickly as the coronavirus itself if you don't have transparency over this process.

ADAM SHAPIRO: Hey, Neil, it's Adam Shapiro. You sent several people to jail because of the misuse of TARP funds. You wrote this morning that when you get this amount of money, the potential for fraud and scandal that always accompanies the distribution of so much money in such a short time is to be expected. I mean, we're talking $2 trillion. Do you see-- clearly, people are going to cheat-- do you see the government truly cracking down the way you did several years ago?

NEIL BAROFSKY: I certainly hope so, and I certainly encourage them to doing so. And again, this moving towards an inspector general is a good first step. Because if you have a dedicated inspector general, that means a dedicated law enforcement agency. And you have some really experienced people, some smart people who are going to be able to hopefully do what we did, which is look at these programs, look at these efforts, identify the vulnerabilities for fraud and start building the barriers.

So there's two ways a law enforcement agency can help grapple with the inevitable fraud-- $2 trillion is a lot of honey that's going to draw a lot of criminal flies. There's no question about it. One thing you can do is you put in the trip wires. You put in the guard rails. You put in anti-fraud provisions and disclosures that any company that's trying to tap into this bailout well will have to provide.

Two, you may-- you be very loud. We put together a specialized task force with the FBI, with the United States Postal Inspection Service so that everyone knew that we were there, and we're going to be keeping a close eye on it to deter criminals from coming. And then three, you've got to follow through. And when those criminals come in, whether they get money or try to get money, you need to nail them.

You need to investigate them, catch them, prosecute them so that others understand that if they're going to roll the dice to try to profit off of a national crisis, we were going to be there. And we were going to get them, and we're going to string them up, figuratively, of course. But we're going to put them in jail. And you saw jail terms from some of our investigations in the decades because-- and we-- we had a-- you know, it was important for us to get a conviction right off the bat, which we did.

And so you're going to need to have a combination of that. And it's got to be supported, and it's got to be communicated. We're going to have fraud. The second they announce this thing, your email box is going to be filled with people telling you that you're not going to get your government check unless you provide your social security number, and email address, and home number, and all your other personal identifying information, some scammer located somewhere.

We need an education program so people know don't respond to those emails. We need a law enforcement effort to say, no, we're going to clamp down on that. And ideally, the inspector general should be at the top of this.

RICK NEWMAN: Neil, Rick Newman here on the other end of the internet. You know, one of the criticisms from 2008 and 2009 that they were Wall Street bailouts, but not Main Street bailouts. So how do you structure something like this to make it a Main Street bailout? And do you see that happening in the process unfolding on Capitol Hill right now?

NEIL BAROFSKY: You know, it's all going to be based-- it's going to be really, really important that there are conditions that are attached to disbursement of money that fulfills the policy goals, the stated policy goals of government, of the administration of Congress. So the disconnect we had last time-- and that criticism is a fair one and is one that I've advanced many times-- is that you had Congress and the administration coming out and saying, this is going to help restore lending and help homeowners. That was the last bailout. That's why we're bailing out the banks.

But the reality was, there were no conditions whatsoever to ensure that once the banks got that money that they would do so. And we went to the Treasury Department and said, hey, are you crazy? You need to have conditions. And they told us to, you know, essentially go-- go pound sand. And so all we could do at that point was to provide transparency.

And so we did an audit, and we tracked what the banks did with the money. Lo and behold, we found out that the one thing that they didn't do with it is increase lending or help homeowners, right? It just didn't happen without that type of conditions.

And so whatever it is our policy goal, whether it's continued employment, whether it's consumer-facing support, it's got to be wired in to the statute, and it's got to be wired into the agreements if we want to accomplish those goals. Otherwise, you know-- the lesson that we learned from last time is you cannot cross your fingers and really hope that all the good things will happen if that is your goal. So I think that's really important if we want to see those types of goals.

On the other hand, if the Treasury Department had said what was really in their hearts-- we don't care about struggling homeowners. We don't care about increasing lendings. We just want to save the banks because we're totally freaked out, and that's the only thing that matters-- if they had taken that truth, then there would be less criticism, right, because they executed a perfect policy to achieve that goal. So we need transparency upfront about what we're really trying to do in here. And then we need to make sure that we just don't hope and pray, but have those conditions to make it happen.

JULIE HYMAN: So Neil, given the scenario that you're outlining and what is needed, how much faith do you have in Congress, but probably more importantly in this particular administration, to be honest? I mean, let's just, you know, just strip it all the way, to be [AUDIO OUT] to do what you're describing?

NEIL BAROFSKY: Look, I tend to go in all things with an assumption that-- that people who are working and serving in government are doing so for good reasons-- to serve the American people, to-- because they believe in the policies that they work on. I come to it from that point. But the bottom line is-- and we saw this-- and again, very well-meaning with the Treasury Department-- who are not truthful on a number of different things. They were misleading about the success of different programs. They distorted and frankly, at times, just flat-out lied.

So you have to go in with your eyes wide open, and that's why there must be transparency, and that's why there must be oversight entities to hold their feet to the fire. Because even the best meaning, most well-intentioned people under the pressure and the gaze will tend towards prevarication. And so you-- I assume the best in people, but you also have to presume some of the worst, and that's why complete unimpeded access by these-- by these oversight bodies to be able to bring the truth to the surface, because people will behave if they know that their lies will be exposed.

JULIE HYMAN: Neil, finally, before I let you go, if they do create this position, again, an overseer for this, is that's-- is that a position that you would take if offered it, given your experience in this area?

NEIL BAROFSKY: You know, I think that what's currently contemplated is to actually give that job to my successor at SIGTARP, Christy Romero. And you know, that agency is now winding down, as you would imagine, during-- given-- given how many years has expired, but it is in place. She was my former chief of staff and deputy, and I think that she would be-- if she wants the job, I think she's-- she's well-positioned to continue to lead that agency and oversee it.

And I, of course, am always happy to help in any way that I can. But I think I prefer doing that from my living room in New York than-- I still got some-- some pretty deep scars from my time in Washington. And so it's a lot more fun being on this side than on that side, that's for sure.

JULIE HYMAN: I can imagine so. Neil, thank you so much for your time. We really appreciate it. Neil Barofsky is a partner at Jenner & Block, author of "Bailout," and the former inspector general for TARP. Hopefully, your scars are almost fully healed, if not fully healed at this point.