Jenner & Block

Partner Neil Barofsky Looks to History to Offer a Cautionary Tale about Planned Coronavirus Bailout

During the last recession, President George W. Bush appointed Mr. Barofsky as the first special inspector general of the Troubled Asset Relief Program, the official name for the $700 billion bailout of that era. More than 10 years later, Neil is sharing insight he gained from that experience as politicians weigh a new bailout – this one, in response to the COVID-10 pandemic. 

The $2 trillion coronavirus stimulus plan proposed by Republicans has been criticized for its lack of oversight.  Democrats who blocked the plan in a procedural vote on Sunday complained that it would give the Trump administration broad discretion in handing out loans and grants. 

Both sides continued negotiating on Tuesday.  In an interview with Bloomberg Markets, Mr. Barofsky noted that it appeared that his old office might be “repurposed” for the role of oversight.  And a bailout without oversight, he warned, would be an “anathema to transparency to avoid corruption and political favoritism.”

“Remember,” he said, “a bailout is just picking winners and losers at the end of the day. You want to make sure there’s a level playing field.”

In an appearance on CNBC’s “Squawk on the Street,” Mr. Barofsky discussed lessons learned from his time at TARP.  Any bailout, he noted, must be driven by clear policy goals and must have transparency.  Whatever those goals are, there must be conditions and oversight “to make sure those conditions are being fulfilled,” he said.

Interviewed by the Los Angeles Times for a column titled The Failures of the Last Bailout Should Alarm Us about the Coronavirus Bailout, he cautioned that “if you’re going to distribute the money without conditions attached, at least incentives or penalties, your policy goals are not going to be achieved.”

In a column for Bloomberg Opinion, titled “Big Bailouts Need Fierce Watchdogs,” Mr. Barofsky observed that “without the powerful disinfectant of sunlight provided by robust oversight, there is an intolerable risk that the disease of corruption will spread like the coronavirus itself.”