Neil Barofsky: Presidential Election A Choice Between 'Bad, Worse' On Bank Regulation

If you've been listening to Neil Barofsky gripe about the Obama administration's handling of bank bailouts, you might think he's got it in for President Obama. But he thinks Mitt Romney could be worse.

This is what you get when your democracy is so powerfully influenced by Wall Street money -- no matter who wins the presidential election, chances are good that regulators will either be willfully captured by the banks they regulate, or bullied into submission.

Barofsky, the former special inspector general for the Troubled Asset Relief Program -- "SIGTARP" for short -- says that, when it comes to bank regulation, the choice in the presidential election comes down to one of bad versus worse. Barofsky made his comments last week at the Museum of American Finance in New York, according to American Banker.

“Obama wants to work within Dodd-Frank to make it a little more painful," Barofsky said. "Romney wants to repeal Dodd-Frank and replace it with we’re not sure what.”

Neither option is very appealing, particularly considering that Dodd-Frank itself has already been lobbied to a pale shadow of its intended self. But this is the choice we have.

Barofsky donated money to Obama's election campaign in 2008, but his book, "Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street," released earlier this year, was deeply critical of the Obama administration's approach to bank regulation after the crisis -- to the delight of Republicans. In his view, banks were given wheelbarrows full of free cash, with the only condition being that they not spend it all in one place. Barofsky has carried that criticism far and wide in a series of media appearances.

According to Barofsky's view, the Obama administration missed an historic opportunity to hold banks accountable for their misdeeds before the crisis and put significant regulations in place to keep such crises from happening again.

He has been especially critical of Treasury Secretary Tim Geithner, whom he describes as being almost entirely beholden to the banking industry, constantly fighting Barofsky's efforts to shed light on how the bailout money was being spent and how banks were getting off easy. He also accuses Geithner of ignoring his warnings about possible fraud in the government's housing programs. Geithner and Barofsky did not get along so well, with Geithner once unloading a barrage of f-bombs when Barofsky dared question him.

Is Barofsky a grudge-holder bent on wreaking revenge on Obama for ignoring him? We can't read his mind. But it is a painful truth that, after Bush, not much seemed to change in the government's approach to bank regulation.

“Many of the people running the programs came from the financial institutions that got us into the mess,” he said of Obama administration bailout programs. Comparing the Obama and Bush administrations, he said, "the only thing that changed were the names."

Life might be easier for banks under Mitt Romney, who has vowed to overturn Dodd-Frank. That, plus Obama's hurtful words about bankers being "fat cats," has led to a flood of campaign donations to Romney from Wall Street. But given that lobbyists have already rendered big parts of Dodd-Frank toothless, and much of it has not even been implemented yet, the difference in the two administrations could be small.

It is possible that Barofsky might be overly dour about the outlook for regulation in a Romney administration. Tim Fernholz at Quartz notes that major changes to Dodd-Frank will require bipartisan support, particularly in the Senate, where Democrats may not play along. And some of the harshest critics of too-big-to-fail banks are on the right.

But that sweet campaign money will keep flowing to both sides, and we have seen how persuasive it can be.