Bloomberg: Geithner’s Fed Told AIG to Limit Swaps Disclosure

In a sane world Tim Geithner’s tax troubles would have kept him from being confirmed as Treasury Secretary. Unfortunately, we don’t live sane and those tax troubles pale in comparison to what we’re learning about the Geithner led Federal Reserve Bank of New York’s role in the AIG bailout:

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.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

One would think, given these revelations, that Secretary Geithner would be cleaning out his desk now, but this administration’s commitment to transparency, and honest government I wouldn’t hold my breath…As Jim Geraghty notes:

AIG’s liquidity crisis hits in September 2008. The Federal Reserve comes in to rescue them with a credit line of $85 billion, and the big, powerful banks received full cash for their credit-default swaps. But because that aspect of the rescue would be a giant p.r. headache, suggesting that the taxpayer was stepping in to make sure Goldman Sachs and the others didn’t lose anything in their deal, Geithner and his team chose to simply not disclose it to the public.

Bottom line Congressional Democrats and the media have invested a fair amount of time in demonizing AIG and its management and criticizing their bonuses. What we’re slowly learning though is that the problem wasn’t AIG, it was the sneaky and underhanded way that  Geithner and the Federal Reserve Bank of New York decided to cover their tracks by using AIG as a money-laundering device to bailout politically-connected private institutions.

WSJ: Geithner Under Fire Amid Frustration on Economy

Normally I’d say the calls for Treasury Secretary Tim Geithner’s resignation were just hot air but given the recent disclosures about his role in AIG bailout while President of the New York Federal Reserve Bank, I suspect this is more than just normal political blustering:

Snowballing frustration about the economy burst into a political fracas Thursday, with several lawmakers calling on Treasury Secretary Timothy Geithner to resign over angst about unemployment and Wall Street bailouts.

The criticism came largely from House Republicans, who have long been critics of the Treasury secretary. Mr. Geithner’s job status doesn’t appear to be in serious jeopardy and several Democrats at a congressional hearing leapt to his defense.

But joining the anti-Geithner chorus in increasing numbers are more liberal Democrats who say the White House’s economic policies haven’t done enough to boost job growth. The degree of venom aimed at Mr. Geithner is also unusual, as was his willingness to fire back.

During a Joint Economic Committee hearing on Capitol Hill, Rep. Kevin Brady (R., Texas) told Mr. Geithner “the public has lost all confidence in your ability to do the job.”

Mr. Geithner traded barbs with the Republicans, occasionally raising his voice to the point of shouting. “What I can’t take responsibility is for the legacy of crises you’ve bequeathed this country,” he told Mr. Brady.

Rep. Peter DeFazio (D., Ore.) a vocal liberal who called on Mr. Geithner to resign this week, said in an interview that the Treasury secretary’s policies are too closely geared to Wall Street. “Quite frankly, all the gambling on Wall Street is doing nothing to put people back to work in America and rebuild our economy,” he said.

I’m not sure the President can save Sec. Geithner this time, frankly given his tax troubles he never should have never been confirmed as Treasury Secretary in the first place,  but that’s an aside. What’s happening here is the effects of 10.2 percent unemployment and the election results in New Jersey and Virginia are starting to take hold.

Democrat’s on Capitol Hill are starting to worry about the 2010 mid-terms and are trying distance themselves from the White House’s economic policies. Second Republican’s are no longer scared of the White House… At least not so far as the economy is concerned. If they were they wouldn’t be calling for Sec. Geithner’s resignation, particularly to his face.

You can read the full the Special Inspector General’s report on on the AIG bailout Special Inspector General here (PDF).

Related

• Geithner under fire over AIG payments – Financial Times
• Pressure mounts for Geithner to resign – Washington Times
• Liberal Democrat Calls For Geithner’s Resignation – The Public Record

WSJ: Obama Advisers Set Groundwork to Raise Taxes on Middle Class

You don’t have to be an economist to realize the Obama Administration’s budget numbers don’t add up and that he’s going to have raise taxes on more than just those earning more than $250,000.00 to pay for his agenda. With that in mind it’s not surprising that White House economist Larry Summers and Treasury Secretary Timothy Geithner essentially floated the idea of a middle class tax hike on last weekend’s political talk shows:

Few of President Obama’s 2008 campaign pledges were more definitive than his vow that anyone making less than $250,000 a year “will not see their taxes increase by a single dime” if he was elected. And he was right, very strictly speaking: It’s going to be many, many, many billions of dimes.

Asked about raising taxes on the middle class on Sunday on CBS’s “Face the Nation,” White House economist Larry Summers wouldn’t repeat Mr. Obama’s pre-election promise. “It is never a good idea to absolutely rule things out no matter what,” Mr. Summers said—except, apparently, when his boss is running for office. Meanwhile, on ABC’s “This Week,” Treasury Secretary Timothy Geithner also slid around Mr. Obama’s vow and said, “We have to bring these deficits down very dramatically. And that’s going to require some very hard choices.”

These aren’t even nondenial denials. The Obama advisers are laying the groundwork for taxing the middle class while claiming the deficit made them do it.

The liberal establishment is even further along in finally admitting that Mr. Obama wasn’t, er, telling the truth. A piece in the New York Times over the weekend declared in a headline that “the Rich Can’t Pay for Everything, Analysts Say.” And it quoted Leonard Burman, a veteran of the Clinton Treasury who now runs the Brookings Tax Policy Center, as saying that “This idea that everything new that government provides ought to be paid for by the top 5%, that’s a basically unstable way of governing.” They’re right, but where were they during the campaign?

The Federal Government now borrows nearly 50 cents of every dollar it spends, that’s just not sustainable… The Obama Administration is going to have to radically scale back it’s agenda or raise taxes on broad swath of American tax payers. They’ve already floated the idea of a European style Value Added Tax and now they’re setting the table for a “the deficit made it necessary” defense of a middle class tax hike.

After all as the as Wall Street Journal concludes:

The undeniable reality is that you can’t run a European-style welfare-entitlement state without European-style levels of taxation on the middle class (and eventually without low European-style growth and high jobless rates). It’s looking more and more like Mr. Obama’s no-middle-class-tax pledge was one of the greatest confidence tricks in American political history.

Related

• Obama’s Pledge to Tax Only the Rich Can’t Pay for Everything, Analysts Say – New York Times
• You can bet on it: Obama will raise your taxes – Washington Examiner
• 5 reasons why Obama will hike middle-class taxes – James Pethokoukis
• Video: Former CBO director says ObamaCare numbers don’t add up – Hot Air
• Income Tax Surtax Should Not Fund Government Health Care Expansion – Heritage Foundation
• Who Pays Income Taxes? See Who Pays What – National Tax Payers Union

Were Healthy Banks Forced Forced to Surrender Ownership Stakes to Government?

Were Healthy Banks Forced Forced to Surrender Ownership Stakes to Government? It’s question that needs to be answered… From reading this CNSNews.com piece it would seem at least a few “healthy” banks were forced into surrendering ownership stakes to the government:

Last October, then-Treasury Secretary Henry Paulson ordered nine banks that the Treasury Department described as “healthy” financial institutions to surrender ownership interests to the government or else face regulatory action that would force them to surrender ownership interests to the government, according to an internal Treasury Department document.

Paulson’s extraordinary threat culminated in one of the most sweeping government intrusions into the free-enterprise system in the history of the United States.

Judicial Watch, a nonpartisan watchdog organization, used the Freedom of Information Act to obtain a copy of the internal Treasury Department “talking points” that were prepared for Paulson to use at his Oct. 13, 2008 meeting with the chief executive officers (CEOs) of the nine banks.

At the meeting–to which the bankers were called at short notice–Paulson made a conspicuous display of potential government regulatory power.

Paulson was flanked by Federal Reserve Chairman Ben Bernanke; current Treasury Secretary Timothy Geithner (who was then president of the Federal Reserve Bank of New York); Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair and Comptroller of the Currency John C. Dugan.

While none of these regulators have responded to inquiries by CNSNews.com, the talking points mention each by first name.

Putting aside for the problems associated with the Federal Government bailing out failing private enterprises… Government officials should not under any circumstances be forcing healthy institutions to surrender ownership stakes to the government. It wreaks of socialism!

Tim Geithner is a Laughingstock in China, Too

Ouch, Treasury Secretary Tim Geithner who has become pretty much a permanent punch line here is apparently a laughingstock in China too (emphasis mine):

U.S. Treasury Secretary Timothy Geithner on Monday reassured the Chinese government that its huge holdings of dollar assets are safe and reaffirmed his faith in a strong U.S. currency.

A major goal of Geithner’s maiden visit to China as Treasury chief is to allay concerns that Washington’s bulging budget deficit and ultra-loose monetary policy will fan inflation, undermining both the dollar and U.S. bonds.

China is the biggest foreign owner of U.S. Treasury bonds. U.S. data shows that it held $768 billion in Treasuries as of March, but some analysts believe China’s total U.S. dollar-denominated investments could be twice as high.

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.

Great, just fabulous… the Chinese are laughing and the Russians are calling us Marxists.

John Shadegg: Geithner Needs to Explain Shift

Congressman John Shadegg (R-AZ) wants to know why Treasure Secretary Tim Geithner isn’t facing tough question over his apparent change in positions China’s request to abandon the dollar as the global currency:

(CNSNews.com) – An Arizona congressman wants to know why Treasury Secretary Timothy Geithner isn’t facing tough questions over his apparent about-face on whether the U.S. would consider China’s request to abandon the dollar as the global currency, in favor of a mix of currencies.

Geithner told Congress under oath Tuesday that he wouldn’t consider China’s proposal to shift away from the U.S. dollar toward a world currency — then the following day (Wednesday) said the U.S. would “be open” to the idea.

Rep. John Shadegg (R.-Ariz.) thinks the Treasury secretary’s swift about face demands an explanation.

“Beginning with his tax difficulties, and continuing through the puzzling narrative of when and what he knew about the AIG bonuses, Treasury Secretary Geithner has done little to inspire the confidence of the American people,” said Shadegg.  “Oddly, Secretary Geithner continued his bizarre and puzzling conduct this week, making flatly contradictory statements about the dollar in a span of only 24 hours. This weakens confidence not only in him, but in the currency he is entrusted to protect.

Shadegg isn’t alone in wanting answers, Rep. Michele Bachmann (R-MN) has introduced legislation that would bar the dollar from being replace by any foreign currency:

“Yesterday, during a Financial Services Committee hearing, I asked Secretary Geithner if he would denounce efforts to move towards a global currency and he answered unequivocally that he would,” said Bachmann. “And President Obama gave the nation the same assurances. But just a day later, Secretary Geithner has left the option on the table. I want to know which it is. The American people deserve to know.”

My guess is that Sec. Geithner simply misspoke but at the same time I’m not sure how he could make that mistake.

What Caused The Finacial Crisis?

A lot has been written about greed and mismanagement on Wall Street but that’s only half the story… Make no mistake greed and mismanagement played their part but so did government intervention and regulatory policy and that’s the largely untold story:

Related

• Speaking of doom, what if Obama only makes it worse? – John Ibbitson, Globe and Mail
• Geithner Is Overreaching on Regulatory Power – Francis X. Diebold and David A. Skeel Jr., Wall Street Journal

Idiot: Geithner Speaks, Dollar Sinks

In remarks before Council on Foreign Relations today Treasury Secretary Tim Geithner said the U.S. is open to an SDR linked currency… Geithner later clarified his remarks by saying that “the dollar remains the world’s dominant reserve currency” and that that is likely to continue for some time, but the results of his remarks were predictable:

Treasury Secretary Timothy Geithner sent the dollar tumbling with comments about China’s ideas for overhauling the global monetary system, only to drive it back up by affirming that it should remain the world’s reserve currency.

Geithner was initially asked at a Council on Foreign Relations event in New York about proposals from People’s Bank of China Governor Zhou Xiaochuan for a new international reserve currency. He said “as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that.”

The dollar slid as much as 1.3 percent against the euro within 10 minutes of news accounts of Geithner’s remarks. The U.S. currency was down 0.6 percent at $1.3553 as of 12:31 p.m. in New York.

Roger Altman, who worked with Geithner as deputy Treasury secretary in the Clinton administration, later asked Geithner whether he wanted to “clarify” his remarks.

“I’d like to ask one final question, in effect on behalf of the market,” said Altman, founder of Evercore Partners Inc. “Let me ask the question this way. Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency?”

‘Strong’ Dollar

Geithner responded by saying that “I think the dollar remains the world’s dominant reserve currency.” In an interview with CNBC broadcast after the event, the Treasury chief said that a “strong dollar” is in “America’s interest.”

Inexperienced, incompetent and in over is his head.

Related

• Still Mr. Lonely: Another Treasury pick jumps ship – Michelle Malkin
• Fumble! Geithner speaks, dollar dives – Hot Air
• Geithner Reiterates Support of a Strong Dollar – Wall Street Journal
• Geithner gaffe roils markets – Washington Times

44 Out Of 800???

Chris Wallace tossed out an interesting factoid on Fox News Sunday this morning… Out of 800 cabinet positions that require Senate confirmation Barack Obama has only nominated 44 and of those only 28 have been confirmed.

I’m hoping I heard that wrong it strikes me as being an absurdly low number seven weeks into an administration… But it would help explain this AFP story on Treasury Secretary Tim Geithner:

US Treasury Secretary Timothy Geithner is practically alone on the job, working night and day to cope with the worst economic downturn in decades.Of the 15 key Treasury Department positions that require Senate confirmation, only one has been filled. Stuart Levey, a leftover from the previous administration, who as under secretary of the treasury for terrorism and financial intelligence, is not central to the crisis management however.

Unemployment figures which revealed Friday that 651,000 jobs were lost in February, showed the recession is running ever deeper, but Geithner, who started work in late January, has no deputy secretary, no under secretaries for international affairs and no deputy under secretaries.

Annette Nazareth, who had been expected to be chosen as deputy secretary — Geithner’s top aide — has withdrawn her name, the Wall Street Journal reported in its online edition, citing people familiar with the matter.

I don’t even know what say at this point… There seems to be something fundamentally broken with administration… Call it lack of experience or lack of urgency or whatever but there seems to be an almost cavalier attitude towards actually leading and governing this nation.

Sydney Morning Herald: Geithner’s Incompetent

I wrote earlier that I didn’t believe the Obama Administration’s wanton destruction of our economy was the result of simple inexperience or incompetence rather than malice. Tomorrow’s Sydney Morning Herald seems to support that conclusion:

When Barack Obama announced his champion to rescue the world from economic ruin, it was the first time most Americans had ever heard the name Tim Geithner.

The initial impression was good. The stockmarket surged and the pundits swooned. “Exactly a decade ago, he was Uncle Sam’s golden-boy emissary sent into the stormy centre of what was then the world’s worst financial crisis [the Asian crisis],” reported The New York Post.

The paper gushed: “Just 36 at the time, he’d been raised in Asia and knew the culture so intimately he scored successes and won confidences that other diplomats couldn’t match. Geithner earned widespread plaudits for pulling together quarrelling Asian finance ministers into a $US200 billion rescue of their economies.”

“A fantastic choice,” said a Bank of Tokyo-Mitsubishi analyst, Chris Rupkey, as the Dow rose by nearly 6 per cent. Even one of Obama’s political rivals, the hard-bitten Republican senator Richard Shelby, agreed Geithner was “up to the challenge”.

If anyone in the US media had thought to ask a former Australian prime minister for his assessment, they would have heard a different view. And they would not have been so surprised at Geithner’s performance since.

In a speech to a closed gathering at the Lowy Institute in Sydney on Thursday, Paul Keating gave a starkly different account of Geithner’s record in handling the Asian crisis: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.”

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

Go read the whole thing… and then ask your is Tim Geithner really the right man for the job? We were told he was “uniquely qualified” to lead the nation out of economic collapse, and that he should be confirmed despite his tax troubles because no other candidate could possibly replace him… Heh!

So far all he’s done is fiddled while the stock market has crashed and unemployment has climbed to 8.1 percent.

H/T: Ed Morrissey.