Neel Kashkari was wrapping up his call to a talk radio program in Los Angeles this week when, having aired his views on the state budget, drought and high-speed rail, the Republican candidate for governor was reminded of a fundamental difficulty in the race ahead.
“Love to get you in studio for a longer-form thing, because I know that you’re going to be attacked,” KABC’s Bryan Suits told the former U.S. Treasury Department official. “Because people are going to say you were (former Treasury Secretary) Hank Paulson’s Goldman Sachs, you know, lickspittle and the whole thing.”
Kashkari, 40, knew when he started laying the groundwork for his campaign last year that his time running the federal bank bailout known as the Troubled Asset Relief Program could be problematic. The program, which Kashkari managed in the final year of President George W. Bush’s second term and at the start of the Obama administration, was deeply unpopular and became a liability for many congressional Republicans whose constituents viewed it as a handout.
Kashkari, a former Goldman Sachs executive, did more than support the program; he executed it. Now, in the earliest stages of his campaign for governor, he is embracing the bailout, seeking not only to sell himself to voters, but also the merits of TARP.
“The program that I ran, we spent, we deployed $422 billion from the American people, and we stabilized the economy,” Kashkari said when he announced his candidacy last month in Sacramento. “And I’m really proud to say to you today we got every single dollar back.”
Kashkari’s remarks are supported by Treasury Department estimates of the government’s return on TARP investments. But he is seeking to demonstrate far more from his record managing the program. Running against a third-term governor and a state assemblyman, Kashkari has no other government experience to claim.
“I spent three years in Washington, D.C., battling the worst economic crisis that our nation has faced literally since the Great Depression, and that experience taught me two things that I think are directly relevant to fixing California,” Kashkari said. “No. 1, although it doesn’t happen often, it is possible to get Republicans and Democrats to work together to tackle a major crisis. And No. 2, you don’t break the back of a crisis with small policies. You break the back of a crisis with overwhelming force.”
In 2008, at the time of the financial crisis, major financial institutions were buckling and the economy was seemingly in free fall. In its final report on TARP, a congressional oversight panel concluded in 2011 that while the program “does not deserve full credit” for averting a depression, it “provided critical support to markets at a moment of profound uncertainty.”
But the report’s authors and other critics faulted the Treasury Department for failing to require banks to reveal how they spent billions of dollars in government aid, and the program was not intended only to help Wall Street. The special inspector general for TARP criticized Treasury for moving too slowly on programs to help homeowners facing foreclosures.
These criticisms persist.
“There was zero accountability,” said Ran Duchin, an associate professor of finance at University of Washington who co-authored a study last year showing banks made riskier loans after being approved for government assistance. “The government just wrote them a check.”
Taxpayers did “get most of their money back,” Duchin said, but “down the road, I think there are some potential dangers. Banks are even bigger than they were before. If they were too big to fail before, now they’re even bigger.”
William Isaac, chairman of the Federal Deposit Insurance Corporation during a period of economic turmoil in the 1980s, said TARP was an unnecessary intervention that only worsened confidence in the nation’s financial institutions.
“I think they panicked, and they took the first idea that came along,” he said. “They didn’t think it through, which was true of so many things they did during the crisis.”
Since announcing his candidacy, Kashkari has faced relentless criticism over TARP from Gov. Jerry Brown’s political team. Dan Newman, a spokesman for Brown, called Kashkari “someone who’s spent too much time at Goldman Sachs and handed over too many taxpayer billions to Wall Street banks.”
But Brown’s own view of the program is unclear, and Newman has declined to illuminate it. In an email, Newman said, “I simply don’t know of him discussing it and can’t imagine why he would have.”
Tim Donnelly, the other Republican in the race, has also criticized Kashkari on TARP, dismissing the campaign of an aspiring politician whose “claim to fame is being the bank bailout chief.”
Asked if the program did not have any merit, Donnelly, a Twin Peaks assemblyman, said, “That’s his case to make to the public.”
Bill Whalen, a research fellow at Stanford University’s Hoover Institution and former speechwriter for Gov. Pete Wilson, said Donnelly is well served using TARP “to appeal to every tea partyer and conservative who doesn’t like big government.”
Kashkari, Whalen said, is seeking to reach a more moderate audience whose considerations of the bailout may no longer be foremost on the mind.
“He just has to make a declarative sentence about it and move on,” Whalen said. “And I think that declarative sentence is a question about whether or not it worked. And the answer is it worked.”
The Emergency Economic Stabilization Act, signed in October 2008, authorized $700 billion – later reduced to $475 billion – to bolster the nation’s financial system. It poured capital into financial institutions, the automotive industry and grant programs designed to help homeowners avoid foreclosures.
Phillip Swagel, who was assistant secretary for economic policy at the Treasury Department from 2006 to 2009, said Kashkari was regarded within the department as “someone who gets stuff done,” and he was picked by Paulson to manage the program.
“He set up a team to invest $250 billion into American banks rapidly, and to do it in a smart way,” Swagel said. “It’s one thing to go to Congress and ask for authorization to deploy hundreds of billions of dollars. Then you actually have to do that.”
Pressure on the Treasury Department to act quickly was intense. Kashkari’s colleagues recall him working 15 hours a day or more, sometimes sleeping at the office. Kashkari got headaches and put on weight.
“We didn’t have any room for dry runs and practices,” said Jenni Main, a former chief financial officer for TARP. “We literally built the plane while flying it.”
Kashkari held standing room-only, all-hands meetings in the morning with TARP employees, while meeting with top advisers in his office at night.
“He wants to hear from everyone, and then he wants to get closure and move on,” Main said. “It made you feel very loyal to him, because you know that he wanted to hear from you ... Whatever the decision came out as, you’d at least had an opportunity to participate in it.”
In his book “Bailout,” Neil Barofsky, the former special inspector general for TARP, called Kashkari “combative, not always forthcoming, and excessively deferential to Wall Street.”
However, Barofsky wrote that Kashkari “had generally been straightforward with me” and that he had “a grudging respect for him.”
“I thought of our disagreements as just that: differences of opinion passionately held by two people with very different world-views,” Barofsky wrote. “But I never questioned his deeply patriotic commitment to his job.”
Kashkari said he shares concerns regarding the message the bailout sent the financial industry about the government’s willingness to intervene.
“It’s the concept of moral hazard,” he said. “That’s why we hated that we had to do this,” and “We wanted to let all the banks fail, because they deserved to fail,” he said.
But even if the government hadn’t been repaid and the program did cost $700 billion, he said TARP would have been justified to avert an economic collapse.
“Yeah, even if it had cost the $700 billion, it would have been worth it in light of the trillions of dollars of damage that would have been inflicted on the American people,” he said.