Neil Barofsky: Obama and Geithner made a conscious choice to boost bank profits at the expense of homeowners.

This is part two of the series on Neil Barofsky’s comments to OWS Alternative Banking on Dec. 16, 2012

Neil Barofsky, author of Bailout and former SIG TARP (more info here) said that President Obama and Treasury Secretary Geithner made a conscious choice in 2009 to boost bank profits at the expense of distressed homeowners.

Let me rephrase that (these are my words, not Neil’s) Obama and Geithner encouraged the banks to take money from people who were having trouble meeting their mortgage payments because Obama and Geithner thought the financial health of the banks was more important than that of borrowers.

Here is one example. There was a program intended to help homeowners called the Home Affordable Modification Program (HAMP). It was supposed to encourage permanent reduction in mortgage payments to avoid foreclosure but it was structured in a way that mortgage servicers could earn higher fees and then foreclose anyway.

Now, one theme of Neil Barofsky’s analysis is that incentives matter. Put more simply, if a bank can make money by doing something, they will do it. So, since banks could make money by foreclosing, they foreclosed. So, there were more foreclosures and higher bank profits.

We know this was a conscious choice because Neil Barofsky, Elizabeth Warren and many others repeatedly objected to Geithner and associates. They were told that the object of the program was not reducing the number of foreclosures but just slowing them down so the banks could process them and also that they wouldn’t have to absorb the whole write-down of bad mortgages at one time. They called this “foaming the runway” so the bank crash would be less traumatic.

If you are skeptical, the gory details are in chapter 8 of Neil’s book or this article.

Neil is not some wild Tea-Party critic. He was a supporter of Obama until he saw things from the inside.

These comments are those of the author. They are not endorsed by OWS, Alternative Banking, Neil Barofsky or anyone else.