ILYA MARRITZ: Before we begin, a programming note. Like basically everyone else, we’re social distancing, and we’re figuring things out. That means the show will sound a little different today — we’re recording and producing it from our homes — and it’ll also come out on a slightly different schedule. For the latest, keep an eye on your podcast feed, or sign up for our newsletter at trumpincpodcast.org.
[SLOW, QUIET ROCK MUSIC PLAYS IN THE BACKGROUND]
NEIL BAROFSKY: There's this awesome power the government has — it has the ability to truly pick winners and losers.
And some policymakers sitting in the Treasury Department or some other government agency has this awesome power to say, “You get the money, you go out of business.” And one of the most important things we can do is to make sure that power is exercised fairly, consistently, and — most importantly — consistent with the policy goals that underlie this extraordinary outpouring of taxpayer money.
MARRITZ: This is Neil Barofsky. More than a decade ago, at the peak of the last financial crisis, Barofsky was given an enormous job — top watchdog for the government’s $700 billion bailout, known as the Troubled Asset Relief Program, or TARP.
BAROFSKY: And so what that means is, we can't have corruption. And when I'm saying corruption, I'm not just talking about, you know, bags of cash being delivered to award a bailout program.
I'm talking about the more insidious type that is in Washington every day: the corruption of access, of favoritism, of a company getting a bailout not because they meet the objective criteria that's developed to make sure that the best company gets that money to best fulfill the policy goals — whether that's full employment or whatever — but instead it goes to the company that has the personal connection; the family connection; the strongest, best-paid, most convincing lobbyists. That's the biggest danger. That's the biggest type of fraud, waste, and abuse.
[TRUMP INC. THEME MUSIC PLAYS]
MARRITZ: Hello, and welcome to Trump Inc., an open investigation from WNYC and ProPublica. I’m Ilya Marritz.
We’re now in year four of Donald Trump’s presidency. It will be defined by a nightmare event of a kind few people contemplated. And there’s agreement on one important issue. We need a big bailout to blunt the economic effects of this public health crisis. Then it’s up to the Trump Administration to get the money out, and spend it wisely.
At Trump Inc. we’ve been documenting the cronyism, favoritism, and profiteering that emanates from a President who runs a country and makes money from his business at the same time. That’s the backdrop for the huge bailout bill that was being finalized as we made this episode.
History says, bailouts invite corruption. If that takes hold, the economic hardship is that much worse.
Later on this episode, my cohost Andrea Bernstein talks with a journalist who’s reported on cronyism in countries experiencing economic shock, Sarah Chayes. We’re looking at these two conversations as a guide for where Trump Inc. goes next.
Now, the last time the word “bailout” was in the air was after the 2008 financial meltdown. And that’s what Neil Barofsky really knows about.
BAROFSKY: I guess the thing I'm best known for was I was the Special Inspector General for the Troubled Asset Relief Program — that was SIGTARP, the bank bailouts of 2008 and 2009 — when I was appointed and served as one of the government oversight overseers of the last bank bailout.
MARRITZ: Barofsky was a federal prosecutor in New York’s Southern District when George W. Bush appointed him to the newly-created Special Inspector job.
He calls the agency he led a “mini-FBI,” looking for waste, fraud, and abuse connected with the bank bailout and the programs to help homeowners in trouble. Not many people have gotten the kind of up-close view Barofsky had of a bailout in action — the good and the ugly.
[LIGHT TECHNICAL MUSIC PLATS]
MARRITZ: You told our ProPublica colleague Paul Kiel, “You cannot push out $1 trillion without scandal. There's going to be crime, there's going to be fraud. But with strong and effective oversight, you can limit it.” Why did you say that?
BAROFSKY: Ah, it’s because we've seen it and it's true. Um, there will be scandal. So, for example, right, there are going to be members of Congress who are going to call the decision-makers and advocate for their biggest campaign contributor in their district to get access to bailout funds, whether or not that company is worthy meets the criteria or not. There's going to be inherent bias of decision-makers to help out their friends, their former colleagues, uh, over others. And — and maybe even political persuasion will factor into those types of decisions. Those things are going to happen.
MARRITZ: This is what you saw when you were — when you were overseeing the bailout.
BAROFSKY: Saw it in the bailout, and it will happen here, because Washington is transactional and that's how it works. And that's how it always worked, right? There will be fraud, because you can't push out $500 billion and think that people are not going to come out with ways to steal.
You know, there's an old expression we used, uh, when I was prosecuting securities cases when there is a victim, and that's a “whale,” right? The “billion dollar whale.” Uh, the idea of a — a victim that has so much money and is so dumb [CHUCKLES], it — that it's easy to defraud them.
$500 billion government fund is the mother of all whales, and every con man and con artist is going to think about ways to try to steal money from it. [EMPHATICALLY] Like, it's going to happen. It happened before it — it has to happen now.
[MUSIC COMES BACK UP IN THE BACKGROUND, STILL LIGHTLY]
MARRITZ: When he was Inspector General, Barofsky became known as a harsh critic of the design of last bailout. He said it failed, too often, at helping the people who needed help, like homeowners in trouble.
So I asked him what we can do to make this bailout — which is more than twice the size — more effective.
BAROFSKY: Well, I think you first need to start with a clear articulation of the goal, right? Is the goal to keep people employed? You know, is the goal consumer protection? Last bailout, the stated goal was to increase lending and help struggling homeowners. The problem is that the stated goal has to also be the real goal, because the real goal in the last bailout from the Treasury Administration was not to increase lane lending and help struggling homeowners. It was to save the big banks at any cost, without frankly giving a damn about struggling homeowners or “Main Street.”
And so, when you have that disconnect, what happens is there's no conditions — there's no requirements to achieve those goals. And it would've been very easy to do that. All you have to do is write into the bailout contracts with the banks that they had to use the money to restore lending, and you had to use some of the money to help struggling homeowners. Treasury refused to do that ‘cause they didn't really want to do that. So here you have many, many disparate industries and companies. But what is the goal?
MARRITZ: I think, uh, when people were getting concerned about this exact issue — especially Democrats in Congress — when they were getting concerned about oversight, someone put the question to President Trump at one of his news conferences and he said, “I'll be the oversight.”
[CLIP OF TRUMP’S MARCH 23RD NEWS CONFERENCE PLAYS]
REPORTER: … [INDISTINCT] our Treasury have the unilateral authority to dole out all this money?
TRUMP: Well, look, I’ll be the oversight, I’ll be the oversight. We’re gonna make good deals. We make good deals.
[AUDIO FADES UNDER AS MARRITZ AND BAROFSKY CONTINUE TALKING]
MARRITZ: Did you catch that?
BAROFSKY: I did. I did. And look, I don't think there's a President in the history of the United States who wouldn't like to be their own oversight. Uh, I mean, of course, that is the instinct of every, uh, senior officer in the executive branch, to be clear. But — but obviously that's not the type of oversight that we need.
MARRITZ: There are so many things that are different today from 2008, but one of the most [PAUSE] peculiar differences is we now have a President who has a company that could conceivably be a beneficiary of the bailout, uh, because he owns this hotel and golf resort and hospitality business. So what kind of questions or challenges does that introduce?
BAROFSKY: We should be entirely indifferent as to who owns the company, right? It shouldn't matter if it's a Trump-owned hotel or some other entity-owned hotel. If they fit the objective criteria and they apply, um, they should receive the funds. That's the ideal.
Based on my time in Washington, you know, basically, if you are in any way involved in the decision-making process, whether you're the President or you're a treasury official, you should not be involved in any way, um, with making decisions that impact companies in which you'll derive a financial interest in.
And so I think, discretion being the better part of valor, my advice to the Trump Administration, uh, would be that they shouldn't ask for bailout funds, because it does create terrible appearances, and even if you have a perfectly designed program, you are going to harm its credibility and the faith that people have in it if there is the appearance, fair or unfair, of money being distributed, uh, to companies that will have a financial benefit to the President or the Treasury Secretary or other decision-makers.
[A LITTLE MUSIC BEAT PLAYS]
BAROFSKY: Yeah. People tried to steal money from the TARP, but I think within a month or two, we had our first conviction and put somebody away for jail — in the jail for ten years, and that sent him a message.
We had high-profile task force on Wall Street to make sure that bankers knew — “You try to screw with this program,” like, “we’re here, and it's not just a little SIGTARP. It's the FBI, it's the United States Postal Inspection Service. We're all here. We have our experts lined up. We're watching.” So that's what I mean in it — it's going to happen, uh, but you … It is totally under control, of how much you can limit it.
MARRITZ: We’re recording this on Thursday, March 26, with a $2 trillion stimulus bill about to become law. It includes more money for unemployment insurance, and loans for businesses.
The New York Times is reporting the fine print also includes a lot of stuff businesses already wanted. Boeing, which was troubled, can qualify for aid. For-profit colleges will be able to benefit. And Senior White House Advisor Jared Kushner’s family business is also eligible for help.
And there’s an Inspector General. I asked Barofsky for his thoughts. In an email, he said this legislation appears to copy the bill passed by Congress 12 years ago. Quote, “It will require quick nomination and confirmation of an experienced IG, who will unfortunately have to do what I did — trying to stand up an office, monitor and design programs, with no staff, and with an eye toward a 60-day report.”
[A BEAT FOR MUSIC]
Trump Inc. will be back in a minute.
ANDREA BERNSTEIN: And we’re back. I’m Andrea Bernstein.
SARAH CHAYES: In times of panic and fear, there is a rush to do something. Do something, do anything!
BERNSTEIN: This is Sarah Chayes. She was the NPR correspondent in Kabul after 9/11.
CHAYES: Uh, “Why can't we get this trillion-dollar,” you know, “economic stimulus thing out the door, right this second? There are people who are, you know, not being paid, and not getting their unemployment, and there are companies that are going to go down, and we have to do something.” That is a moment when all prudence gets jettisoned.
BERNSTEIN: Chayes saw this firsthand in Afghanistan in her work as a journalist for a non-profit, and, later, as Special Assistant to the Chairman of the Joint Chiefs of Staff.
The US government spent what would amount to $133 billion trying to rebuild Afghanistan.
With that came rampant corruption and cronyism. The Special Inspector General for the Afghanistan rebuilding effort found billions and billions of dollars were misspent. Chayes says that’s a common phenomenon with enormous government spending, whether it's reconstruction contracts for Afghanistan, bailing out Wall Street — or what’s likely to come in response to the coronavirus.
Chayes studies and writes about what she calls “corrupt networks” — government officials and wealthy people who take advantage of adversity and uncertainty to enrich themselves. In her book, Thieves of State: Why Corruption Threatens Global Security, Chayes describes these networks.
CHAYES: They are very attuned to windows of opportunity. So that certainly takes the form of self-dealing contracting. So when there are vast sums of money that are pouring into a system — such as, for example, in developing countries or post-conflict situations, vast influxes of foreign aid, or in other cases when there's a sudden need for certain products or services, uh, newly expanded government contracting — those provide sudden revenue streams. And believe me, the — these networks are so attuned to where revenue streams are entering their systems. It's really shocking.
BERNSTEIN: Let’s — let’s talk about that. Let's sort of talk about what, you know — how you personally experienced and witnessed that.
CHAYES: I’ve lived in it in Afghanistan where, you know, you had reconstruction projects, you had roads and bridges to build, and, you know … So one example there that I — that I'll never forget is there was a bridge that you had to cross to basically leave Kandahar to get anywhere.
[LIGHT MUSIC PLAYS]
CHAYES: And that bridge must've been rebuilt five, six, eight times, over a number of — let's say three to five years — because, you know, with the glut of money, contractors were grabbing contracts and then what they would do is sell the contract on to subcontractors, who would sell it on to a sub-subcontractor, and so on until the guy at the bottom of the line, who was actually doing the work, had such a narrow margin that he was using incredibly shoddy equipment and supplies.
And so this bridge kept springing holes and you would, like, drive across the bridge and be looking down, you know, through the rebar at, you know, either, uh, gushing torrent if it had rained, or, often, you know, rocky, sandy — you know — disaster.
And I can't tell you how many times I've negotiated the talcum powder dust in a four-wheel drive vehicle, you know, uh, my Taliban Jeep that I had, um, to get down into that river course and back up the other side.
BERNSTEIN: Chayes says the kind of corruption that led her to drive a riverbed in a Jeep also appeared in America after the financial crises.
CHAYES: And we saw this in 2008, in the Great Recession, where a lot of federal money was shoveled out the door.
BERNSTEIN: One of the people who benefited from a federal infusion of money in the last bailout through his bank is Steve Mnuchin, the current Treasury Secretary. He was part of a group of investors that received a billion dollars to take over the failed IndyMac bank. After the bailout, and the takeover, IndyMac proceeded to foreclose on 100,000 families.
CHAYES: This is not a person, um, who has a track record of putting the public welfare ahead of his own personal benefit. And this is exactly the type of private-public sector overlap that I have seen in kleptocratic networks around the world.
BERNSTEIN: So, how are you interpreting and viewing and making sense of the federal response as directed by the Trump Administration, and what do you expect?
CHAYES: What I expect from the federal response, delivered by the Trump Administration, is how to mine this situation for lucrative opportunities. That's what I expect. And that means any infusion of cash, any loosening of regulations will be fundamentally aimed at capturing revenue streams for the network that has converged on this administration, um, using everyone's concern and fear as, um, a stalking horse.
BERNSTEIN: Chayes says that crisis, while producing corruption, can also increase intolerance for corruption. She says that happened during the World Wars and the Great Depression. And she sees signs it’s happening now.
CHAYES: It’s been so universal that it actually has sparked a lot of the disaster solidarity that other widespread crises, uh, have produced. And to the point where I actually think people's tolerance for, um, selfish, hogging, me-first behavior is really low. And one example of that has been the stories about, um, Senators in particular.
BERNSTEIN: As ProPublica first reported, North Carolina Republican Senator Richad Burr dumped $1.7 million of his stock [PAUSE FOR IRONY] while reassuring the public about coronavirus preparedness. (Burr has asked the Senate Ethics Committee to review the stock sale. He says he relied on public news reports to make his decision.)
CHAYES: That got no tolerance from its own side of the aisle, which is a marked change from recent — um, I would say — voter behavior, which has tended to be very, very loyal to party and clan, if you will. Uh, people's tolerance for that type of self-serving behavior has plummeted.
BERNSTEIN: Sarah, other than people who are journalists or watchdogs or otherwise concerned about what might be going on here, is there something that people can do in their everyday lives to [PAUSE] watchdog and combat the kind of cronyism that we're about to see?
CHAYES: Ordinary people need to make their displeasure known when they see any example of profiteering from this. They need to band together. They need to hold their own. And the same thing, um — avoid being caught up in the sort of “Rush, rush, rush to do something, do anything,” um, kind of panic, and demand better of their public servants. And that means corporate executives too. They are — they have a public role. Make your expectations of them known.
[ATMOSPHERIC MUSIC PLAYS]
BERNSTEIN: Sarah Chayes’ forthcoming book — On Corruption in America and What is At Stake, out in August.
MARRITZ: We here at Trump Inc. will continue to cover the Trump Administration’s response to the coronavirus. And there’s a role for you to play here. So please, reach out if you’ve got something to share — you can go to propublica.org/getinvolved or send an email to firstname.lastname@example.org.
We especially want to hear from people who work in government, or have knowledge of the industries that are gonna receive bailouts. If there’s something happening at your agency, or at the company where you work, that you think we should look into, please let us know, even if you’re not sure how big of a deal it is. We also want to hear from workers at Trump properties. Go to ProPublica.org to share a tip or idea securely.
This episode was produced by Katherine Sullivan and Alice Wilder. It was edited by Eric Umansky and Andrea Bernstein. Jared Paul does our sound design and original scoring. Hannis Brown wrote our theme and additional music.
Matt Collette is the executive producer of Trump Inc. Emily Botein is the Vice President for Original Programming at WNYC and Stephen Engelberg is the Editor-in-Chief of ProPublica.
I’m Ilya Marritz. Thanks for listening. Please wash your hands.
BERNSTEIN: So, we at Trump Inc. are, you know, obviously sort of thinking, “What do we do now?” [LAUGHS LIGHTLY] What are the guidelines that you would give, having been through this kind of situation yourself, for how to track it?
CHAYES: I would strongly recommend that you interview Neil Barofsky.
BERNSTEIN: Oh, we're interviewing Neil Barofsky! [BOTH LAUGH]
CHAYES: Great. So tell him hi when you do.
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