Timmy Geithner Must Go

By L. Randall Wray

Breaking News: As reported on Bloomberg here and in NYT here, secret emails show that the NYFed under Geithner’s command prohibited AIG from reporting that it was passing government bail-out funds directly to counterparties, including Goldman Sachs. AIG had been negotiating with the banks, asking them to take as little as 40 cents on the dollar against bad CDOs they held. AIG was the biggest insurer in the country and had provided $62 billion of credit default “insurance” to these banks. The CDOs went bad and AIG could not cover claims. It was forced into insolvency and the government came to the rescue, with $182 billion of bailout funds through last June. By all rights, its counterparties should have lost big on their bad bets. Apparently, Geithner arranged the bailout of AIG with full knowledge that it would pass the bailout funds directly to the banks. Whether or not some protection should have been provided to the banks, it clearly was not good public policy to provide dollar-for-dollar protection to them. If you are a favored Wall Street bank, no bet can go bad!

Note that Geithner worked with then Treasury Secretary Paulson to broker this deal. Paulson, of course, had been the CEO of Goldman. Geithner is the protégé of Clinton’s Treasury Secretary Rubin, also from Goldman.

According to Representative Darrell Issa, Republican of California, “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the S.E.C.”. Not only did Geithner want to keep this information from the public, but also from fellow regulators. (Whoops, Geithner admitted he was never a regulator.) This smells fishy because it is. Geithner not only oversaw the operation but his office prohibited AIG from telling the truth about it. Remember, this is the same guy who “forgot” to pay his taxes (see here). He is ethically challenged. Should he be running the Treasury?

As Republican Congressman Brady of Texas put it, “Conservatives agree that, as point person, you’ve failed. Liberals are growing in that consensus as well. Poll after poll shows the public has lost confidence in this president’s ability to handle the economy. For the sake of our jobs, will you step down from your post?” (see here).

6 responses to “Timmy Geithner Must Go

  1. And just watch the filth at the White House circle the wagons for this eel over the next several days, with Obama foremost among them. Just this afternoon, I see that Frank – you know the Barney Frank of the recent kill-the-Paul/Grayson-fed-audit fame – is callng for a congressional investigation. If there's ever to be comedy in Washington it'll be Barney Frank up on a moral high horse leading an investigation into bag man, Tim Geithner, and his long list of characterological deficits. Will Geitner turn the tables and mention Steve Gobie?

  2. This travesty is turning out just as I had expected. The White House is standing behind Geithner and Barney Frank is calling demands for an investigation Republican political tactics. Here we have a replay of the Blue Dress episode with many of the same slugs posturing in precisely the same way as they did then. Andrei Vyshinsky

  3. U dont actually get it. Geithener was paced at NY Fed by peterson CEO of Blackstone, the NY Fed hired Blackrock/Blackstone to advise and earn on Bear Strearns, and Rubin aof Citi and Greenberg of AIG were close associates, co-directors, of Peterson's other responsibility of overseeing US foreign policy at the NY Council on Foreign Relations. Sec. Defense Cohen and Trade Rep. Carla Hills, both directors of AIG at the same time, also worked for Peterson at the CFR, while also working for China and Saudi Arabia. Geithner is a China expert from CFR spinoff Kissinger Associates, which also works with Albright, Cohen, Hills,. A very small group indeed, buzzing around the honey pot of US Fed-Treasury largesse. Such an outlandish, in your face, naked bald example of crony capitalist grand theft nation belongs in a Tom Clancy Novel, if it wernt so tragic and deliberate in its absolute evil. No one would believe such a story as fiction.

  4. BTW Sec. defense Cohen was under inquity for receiving a house from the Saudis (Wash Post), and Trade Rep Hills is a director at the US China Business Council. They both resigned as directors at AIG at the same time, a few months before the revelations of imminent bankruptcy. What did they know about the internal difficultires of AIG when they resigned? Was that inside information sold to China Saudi as part of their consulting work for those nations? What is the role of BP Plc and Shell , both linked to Goldman-Citi-Blackstone through John Brown of the CFR?

  5. It's important to remember that credit default swaps are highly leveraged bets, costing a fraction of the coverage, typically 2%-3% of the notional value. Hence, the counterparty payouts probably resulting in returns of 30x-40x. Even a payout of 40 cents on the dollar would have resulted in massive profits. This was the biggest transfer of wealth from the general public to the rich in the history of mankind.

  6. thanks to anonymous for providing the rest of the links to the rest of the story.