Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

ALTHOUGH it was only April, we were in the midst of a mini heat wave in Washington that foreshadowed what would turn out to be a scorching summer. I’d been in the city for almost a year and a half, but I just couldn’t get used to the otherworldly heat, the swamplike humidity, and the complete absence of anything that might resemble a breeze. Even so, I decided to walk the ten minutes from our offices in Dupont Circle to Potenza restaurant, located on the first floor of a luxury rental building inhabited by the former banking executives and lawyers from New York who frequent the revolving door between Wall Street and Washington.

I was meeting that night with Herb Allison, who lived in the building and fit its profile perfectly. Allison was the former president of Merrill Lynch and chief executive officer of the financial services organization TIAA-CREF. He’d enjoyed an illustrious and highly profitable Wall Street career before retiring to his sprawling mansion in Connecticut. In late 2008, then Secretary of the Treasury Henry Paulson called the sixty-five-year-old while he was enjoying a vacation in the Caribbean and asked him to come to Washington immediately to run the recently failed and now government-owned mortgage behemoth Fannie Mae. Allison accepted and after a short stint was tapped by incoming Treasury Secretary Timothy Geithner to run the Troubled Asset Relief Program, or TARP, as the Treasury assistant secretary for financial stability. He became, in other words, the “TARP czar,” and I quickly became one of his least favorite people on the planet.

I had initiated this meeting. As the special inspector general assigned to oversee the spending of the TARP money—my office was known as SIGTARP—it was my job to scrutinize just about every aspect of Allison’s professional life in Washington. By April 2010, that had meant issuing a series of highly critical reports that generated a stream of negative headlines for the Treasury Department and a seemingly unending series of congressional hearings in which Allison, Geithner, and other Treasury officials were subject to bipartisan roastings, occasionally punctuated by one member of Congress or another calling for Geithner’s resignation. I offered to meet with Allison “offline” after yet another one of my weekly meetings with him had devolved into a screaming match. I wanted to get together away from the office, just the two of us, over a drink—or “over shots,” as Allison had joked when I’d invited him—to clear the air.

Never knowing how much longer I was going to be welcome in Washington, I hadn’t invested in a new Washington-appropriate wardrobe and was wearing the unseasonal dark gray wool suit that had become my uniform. I could feel the sweat pooling at the small of my back as I walked into the restaurant. Because I’d told the hostess we were only having drinks, she wanted to seat us up front, where it would have been difficult for us to have a private conversation. After first asking politely to be seated in the back and refused, Allison adopted a formidable “Do you know who I am?” tone that he’d obviously perfected over his decades as a top executive on Wall Street. The hostess was no match, and we were quickly ushered to a quiet table in the back. We chatted cordially for a few minutes about our families and nonwork lives, as people tend to do at these Washington rendezvous. Allison said how tough his weekly commute from Connecticut was, while I told him that my wife’s regular commute from New York had just ended because she had entered the final month of pregnancy with our first child. I said I was excited about the imminent arrival of our daughter, and he said how thrilled he’d been about the birth of his first son decades before. He then got to the heart of things.

“Neil, you’re obviously very talented, with a bright future,” he started. He talked about how clear the reports my office had submitted to Congress were and noted that the press was generally effusive in its praise of me and my team. Always circumspect about being complimented in Washington, I waited for the kicker.

“But you’re really hurting yourself.”

“In what way?” I asked, genuinely curious about where this might be going.

“Well, you’re a young man, just starting out with a family, and obviously this job isn’t going to last forever. Have you thought at all about what you’ll be doing next?”

It was not the first time I’d been asked that question in Washington. It’s the question that everyone asks, always to themselves and sometimes to others. What’s next? What’s your angle? What’s going to be the payout? How are you going to leverage your current position to get a better one with more power and a bigger payout? I gave Allison my standard answer, whether to a reporter, congressional staffer, senator, family member, friend, my wife, Karen, or myself.

“Herb, in my first Senate hearing, Shelby”—Richard Shelby, the top Republican on the Senate Banking, Housing, and Urban Affairs Committee and whose southern drawl I couldn’t help affecting as I told this story—“told me, ‘Mister Inspector General, you have a wonderful opportunity here. An opportunity not too many people get. The opportunity to make a real difference. An opportunity to serve the American people in a true and meaningful way. And if you do this job the right way, you’ll never be able to get a job again. No one will hire you. And that would be a good thing.’ ”

I explained to Allison how meaningful that exchange had been to me.

“Shelby was trying to be funny,” I said, “but there was an important point there too—that the only way to do this job was not to think about what I would be doing next. If I ever start thinking about a law firm job, or a job on Wall Street, or even another government job, those concerns will inevitably start creeping into my decision making.”

Allison was unimpressed with my speech. Not that I can blame him—I’m sure it sounded like a sound bite devised for a press interview. He continued, “You have to think about it. And I’m telling you, you’re doing yourself real harm. Out there in the market, there are consequences for some of the things that you’re saying and the way that you’re saying them.”

I was impressed with Allison’s approach. By that point I’d been in Washington long enough to know when I was being played, and Allison was essentially threatening me with lifelong unemployment. But, to his credit, his tone dripped with sincerity.

“Herb, I know that. I understand that. But like I just said, I really can’t think that way. I wouldn’t be doing my job if I started thinking that way.”

Having failed to achieve the desired response by holding up the specter of homelessness for my wife, my soon-to-be-born daughter, and me, Allison shifted course.

“Well, it’s not just that. On the Hill, I’m hearing a lot of things about you. Sure, during a hearing they may say some nice things, but there are a lot of members of Congress, particularly in the Senate, who think that you’ve gone too far, and you’re losing credibility fast.”

A much better play, Herb, I thought. Allison had struck a nerve. The relevance of my oversight depended on strong credibility with members of Congress. At SIGTARP we had limited authority, and without strong backers in Congress, our work would quickly recede into irrelevancy.

“I can’t control that, Herb,” I responded. “It’s not as if we sit there and craft each word in our reports based on how we think some senator or congressman might react. We just tell the truth in the way that we see it.”

Allison persisted, “It’s not so much the content as it is the tone. Your tone is the problem.”

My tone was part of my job, I explained. “Herb, when I first got here, a senior congressman took me aside and said, ‘Neil, let me tell you how this town works. You can write the best and most important reports in the world, and Treasury will ignore you. The only way that you’re going to be able to have an impact is to get us, Congress, involved. And the only way that we’ll pay attention is if your reports are covered in the press. Then we’ll embrace you. And then Treasury will pay attention.’” I explained to Allison that I had stuck with that advice and it had proven exactly right, and that my tone was necessary to penetrate all of the noise in Washington and get the attention of the press, Congress, and ultimately Treasury itself.

Allison changed gears. “Well, is it an appointment you might be looking for? Something else in government? A judgeship?”

I laughed. “Herb, obviously that would be amazing, but there is no way that this White House, after the things we’ve said, is going to nominate me for anything.”

Allison paused. “Well, Neil, it doesn’t have to be that way. It’s not necessarily off the table. All you really have to do is change your tone, just a bit, and things can really change for you. Including with the White House.”

It was my turn to pause, as I took a good sip of my wine. “Well, Herb, I certainly appreciate your advice,” I said, not quite believing what I thought he was saying, and then tried desperately to turn our conversation back to more trivial matters.

But Allison wouldn’t give up that easily. He stuck to his script for a good ten minutes more before I managed to steer the conversation back to beltway gossip and other banal niceties before wrapping up.

I was all of thirty seconds back out into the heat when I called my deputy and friend for nearly a decade, Kevin Puvalowski. Kevin and I had met as prosecutors in the United States Attorney’s Office in Manhattan in 2001, and we worked closely together on cases against the world’s biggest drug cartels as members of the international narcotics trafficking unit.

“How’d it go?” he asked. We had both been curious about how this encounter would play out.

I burst out laughing. “You are not going to believe it,” I responded, and then recounted the conversation.

Kevin laughed. “It was the gold or the lead.”

“Yeah, the bullet or the bribe, I think he totally Escobarred me.” We were referring to the practice that, as former narcotics prosecutors, we both well knew. The most notorious method of persuasion used by the legendary Colombian cocaine kingpin Pablo Escobar to bend elected officials, police officers, or local judges to his will was to offer them one of two choices: a giant pile of pesos to do his bidding or a bullet in the head. I’d just received the Washington equivalent. Either I started playing ball and would then get either a plum appointment or a lucrative job on Wall Street, or I’d end up discredited and unemployed.

Kevin responded, “Unbelievable. Every trick in the book. He flattered you, insulted you, tried to scare you, and then effectively tried to bribe you. Welcome to Washington.”

“Yeah, but what about what he said about the Hill?” I asked. “Do you think we have a problem there?” Allison’s assertion that some members of Congress had become unhappy with me was a little unnerving.

But Kevin wasn’t worried. “Don’t give it a second thought,” he said. “He’s probably full of shit.”

Looking back, I don’t now think that Allison was in fact really threatening me, nor do I think that he was actually offering me a plum appointment if I played ball. I think he was, in a very Washington way, sincerely trying to be helpful, to educate me on how to survive and thrive, both in Washington and on Wall Street. They are both worlds where if you play by the rules of those in power, great things can follow, whether in the form of multimillion-dollar paydays in the private sector or escalating power and prestige in the government. The allure of those payoffs is a powerful and pernicious force in government service, especially, as I saw up close in my dealings with Treasury, in agencies that deal with Wall Street.

As an elder statesman now of both worlds, Allison was, I think, probably just trying to explain to me how the system worked. Although he was undoubtedly right, I hadn’t left a job I had loved in New York to go down to Washington and play by its rules. I was still a prosecutor at heart, and for as long as I managed to hang on at SIGTARP, I was going to keep doing exactly what I’d been given the job to do: hold Treasury and the banks it had bailed out accountable for their management and use of hundreds of billions of taxpayer dollars.