Tag Archives: Geithner

Krugman and Obama’s Dangerous Austerity Myths

By William K. Black

Austerity in response to the Great Recession has proven to be an economic weapon of mass destruction.  On January 10, 2013, Paul Krugman (Nobel Laureate in Economics) and President Obama launched the same dangerous austerity myth in remarkably similar language.

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The Peril of Obama’s “Man Crush” on Geithner is exposed by the Debate

By William K. Black

FDR transformed the nation when he was confronted with the Great Depression and World War II.  He famously welcomed the hate of the banksters.  President Obama wanted the love (and the contributions) of the banksters.  He chose Timothy Geithner to be his pipeline to the banksters because Geithner shared Obama’s lack of passion for holding the banksters accountable for their frauds that drove the ongoing crisis.  We have known the core of these sad facts for years, for they were revealed (irony of ironies) in a May 22, 2010 article whose theme was that we had all done Geithner and Obama a terrible injustice by criticizing them for their servile approach to the banks.  The key facts that the article disclosed can be summarized in a sentence:  Obama developed a “man crush” on Geithner and decided to follow Geithner’s policies to bail out the banksters rather than hold them accountable for the frauds that made them wealthy and caused the Great Recession.  Obama’s “man crush” is particularly odd given the fact that Geithner is a Republican who, as a fig leaf, became an independent.

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Reinventing Crony Capitalism: the Context of Geithner’s Obscene Rant against Barofsky

By William K. Black

Neil Barofsky, the former Special Inspector General for the Troubled Asset Relief Program (TARP) (SIGTARP), was one of the officials that made one proud of America.  Naturally, Treasury Secretary Timothy Geithner detested him.  Barofsky discusses Geithner’s antipathy for him in a newly published book: “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.”  The juicy parts that have been discussed in the media involve Geithner’s epic “f” word rant against Barofsky in fall 2009 in response to Barofsky’s recommendations for greater transparency about TARP. Continue reading

Geithner’s Ploy: Saving U.S. Banks at Taxpayer Expense, Once Again

By Michael Hudson


U.S. and foreign stockmarkets continue to zigzag wildly in response to expectations about whether theeuro can survive, in the face of populations suffering under neoliberalausterity policies being imposed on Ireland, Greece, Spain, Italy, etc. Here’sthe story that I’m being told by Europeans regarding the recent turmoil inGreece and other European debtor and budget-deficit economies. (The details arenot out, as the negotiations have been handled in utter secrecy. So whatfollows is a reconstruction.)

In autumn 2012, it became apparentthat Greece could not roll over its public debt. The EU concluded that debtshad to be written down by 50 percent. The alternative was outright default onall debt. So basically, the solution for Greece reflected what had happened toLatin American debt in the 1980s, when governments replaced existing debts andbank loans with Brady bonds, named for Reagan Treasury Secretary Nicolas F.Brady. These bonds had a lower principal, but at least their payment was deemedsecure. And indeed, their payments were made.
            

This write-down seemed radical, butEuropean banks already had hedged their bets and taken out default insurance.U.S. banks were the counterparties to much of this insurance.

In December (?) 2011, a quartercentury after Mr. Brady, Mr. Obama’s Secretary Geithner went to Europe met withEU leaders to demand that Greece make the write-downs voluntary on the part ofbanks and creditors. He explained that U.S. banks had bet that Greece would notdefault – and their net worth position was so shaky that if they had to pay ontheir bad gambles, they would go broke.
            
As German bankers have described thesituation to me, Mr. Geithner said he would kill the European banks andeconomies if they did not agree to take it on the chin and suffer the lossesthemselves – so that U.S. banks would not have to pay off on the collateralizeddefault swaps (CDOs) and other gambles for which they had collected billions ofdollars.

Europeans were enraged. But Mr.Geithner made a deal. OK, he finally agreed: The White House would indeedpermit Greece to default. But America needed time.
            

He agreed to open a credit line fromthe Federal Reserve Bank to the European Central Bank (ECB). The Fed wouldprovide the money to lend to banks during the interim when European governmentfinances faltered. The banks would be given time to unwind their defaultguarantees. In the end, the ECB would be the creditor. It – and presumably theFed – would bear the losses, “at taxpayer expense.” The U.S. banks (andprobably the European ones too) can avoid taking a loss that would wipe outtheir net worth.
            

What really are the details? What wedo know is that U.S. banks are pulling bank their credit lines to Europeanbanks and other borrowers as the old ones expire. The ECB is stepping in tofill the gap. This is called ‘providing liquidity,’ but it seems more to be acase of providing solvency for a basically insolvent situation. A debt thatcan’t be paid, won’t be, after all.
            

Geithner’s idea is that what workedbefore will work again. When the Federal Reserve or Treasury picks up a bankloss, they simply print government debt or open a Federal Reserve bank depositfor the banks. The public doesn’t view this as being as blatant as simplyhanding out money. The government says it is “saving the financial system,”without spelling out the cost at “taxpayer expense” (not that of the banks!).
            

It’s a giveaway.