Timmy Geithner Must Go

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).