Friday, January 8, 2010

Fire Tim Geithner, Part 643

If you've been reading this site with any regularity, it's not news that I'm not a fan of Tim Geithner. He's been too friendly to the big banks at every turn, on a Treasury department wide crusade to make sure voters know the Democratic president isn't on their side when going up when dealing with those who destroyed our economy.

His most recent scandal involves his role as chair of the New York Fed during AIG's bailout. David Sirota recaps:
For some history, the New York Fed, headed by Tim Geithner, bailed out AIG and then had the company famously pay back its creditors at 100 cents on the dollar. These creditors were huge banks that were taking big risky bets on mortgage-backed securities, and then buying "insurance" from AIG (more on this concept of "insurance" in a second) on potential losses on those bets. When the mortgage-backed securities lost their value in the housing bubble collapse and they called in their insurance, AIG was about to go under, until the New York Fed swept in.
If AIG had gone into bankruptcy like a normal corporation would have, there's little chance its creditors would have been paid back at 100 cents on the dollar. A bankruptcy judge or AIG shareholders/executives would have negotiated a much lower reimbursement rate. But because it was taxpayer money on the line, and because politically influential banks like Goldman Sachs can influence the government officials who made those reimbursement decisions*, AIG paid them in full with our taxpayer dollars. Put another way, the decision to pay back AIG's creditors in full with taxpayer cash was a massive giveaway/sweetheart deal to the big banks.

Well, you say, even if normal bankruptcy proceedings might not have paid back creditors at 100 cents on the dollar, ethically, shouldn't those creditors have gotten 100 cents on the dollar for an insurance policy? Well, maybe - if the insurance policy is real insurance. But what Goldman et. al bought from AIG wasn't insurance - it wasn't regulated like a regular insurance policy because it wasn't a regular insurance policy. It was simply another risky investment called a credit default swap that both the banks and AIG deceptively called "insurance" (The banks did this to allow them to show less risk on their books and thus be able to take more risk and AIG did this to sell more credit default swaps). In fact, even calling Goldman and the other banks "creditors" of AIG isn't right - they were investors in AIG's risky schemes.

So, I'm sorry, no - when you take risks and then "cover" your risks by taking other risks, you aren't entitled - legally or ethically - to getting back 100 cents on the dollar on either set of risks. That's why they're called risks. Having the government pay out 100 cents on the dollar on those absurd risks is a taxpayer ripoff.
And to be clear, these are the facts we knew before the most recent scandal. So just to show how absurd this whole thing is, apparently everything you just read wasn't enough reason for Geithner to lose his job before. Actually after knowing about the information above, Obama promoted him to Treasury Secretary.

Regardless, here is the latest bombshell:
Jan. 7 (Bloomberg) -- The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”
He's a walking train wreck. I'd say this last scandal should be the nail in his coffin, but since none of the other idiotic/corrupt things he's done seem to matter, I'm not sure why this would be any different.

And one more note: Look at that last quote, made by a Republican member of congress. No matter how corrupt and in bed with the banks they have been throughout their careers, the Republicans are not stupid.

Unlike the Democrats, they seem just fine with using populist lines of attack to nail their political opponents to the cross for their ties to extremely unpopular banking industry.

It would be hypocritical, maddening and done 100% in bad faith.

And you know what else? It will win them elections in 2010, 2012 and beyond.

The outlook is not pretty, but pick people like Tim Geithner to be your Treasury Secretary, and this is the bed you make.

I want to throw up.

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