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Geithner urged AIG to withhold information

Damaging e-mails have revealed that Treasury Secretary Timothy Geithner urged AIG to withhold crucial information about the deterioration of its financial condition in the lead up to its demise.  This will put further political pressure on Geithner, who has already been exposed for his dubious role in the Lehman Brothers bankruptcy.

Bloomberg leads into the story saying:

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.

These were not e-mails revealed willingly, but rather as a result of oversight and investigation. At issue is whether the 100 cents on the dollar payments by AIG to its credit default swap counterparties were a backdoor bailout.  Most market watchers believe that AIG counterparties would have received significantly less on the free market, exposing them to tens of billions in losses instead of taxpayers (see CW story from March 2009 on this issue). So, in a very real sense, many believe taxpayers were defrauded by the government’s handling of the AIG affair.  This latest revelation only adds to that belief.

Moreover,regarding Tim Geithner personally, this revelation is extremely damaging. Not only did he, Paulson and Bernanke mishandle the Lehman bankruptcy which triggered the panic central to the financial crisis, but he has now been personally implicated in withholding – covering up, if you will – vital evidence on the looting of taxpayers to the benefit of financial companies, some of whom are not even domestic institutions. You have to see this in a negative light. (Hopefully, you remember my definition of terms.)

I would be remiss if I didn’t remind you that he had direct oversight responsibilities for money center banks as president of the Federal Reserve Bank of New York.  In the past, in testimony before Congress he has denied that he was, in fact, responsible for these institutions, saying “I’m not a regulator.”

I’ve never been a regulator, for better or worse. And I think you’re right to say that we have to be very skeptical that regulation can solve all of these problems. We have parts of our system that are overwhelmed by regulation.

Overwhelmed by regulation! It wasn’t the absence of regulation that was the problem, it was despite the presence of regulation you’ve got huge risks that build up.

This is just nonsense. Jo Becker and Gretchen Morgenson put it this way in April:

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

In a pair of recent interviews and an exchange of e-mail messages, Mr. Geithner defended his record, saying that from very early on, he was “a consistently dark voice about the potential risks ahead, and a principal source of initiatives designed to make the system stronger” before the markets started to collapse.

Mr. Geithner said his actions in the bailout were motivated solely by a desire to help businesses and consumers. But in a financial crisis, he added, “the government has to take risk, and we are going to be doing things which ultimately — in order to get the credit flowing again — are going to benefit the institutions that are at the core of the problem.”

He was on the job when these firms levered up and took reckless risks that endangered our financial system. For him to absolve himself of responsibility is a disgrace. And to add insult to injury, we now learn that he urged a systemically important company to withhold evidence of his looting of taxpayers.

Tim Geithner must go.

Source

Geithner’s New York Fed Told AIG to Limit Swaps Disclosure – Bloomberg

Geithner, Member and Overseer of Finance Club – NY Times

See also Is Geithner Up to the Task? by Andrew Ross Sorkin. It explains the doubts about Geithner in November of 2008 when he was selected as Treasury Secretary. These doubts were based in large part on his mishandling of the financial crisis and led the New York Times editorial board to write a lengthy Op-Ed in December 2008 titled “Questions for Mr. Geithner” before his confirmation. If you haven’t seen this, read it.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

6 Comments

  1. LavrentiBeria says:

    For months here and elsewhere, I’ve described Geithner as a loathesome maggot. Can there now be any question that this assessment was accurate? Count on the White House circling the wagons and defending him to the last, however. The odor from this most putrescent of regimes gets more and more stiffling what with their wars, their financial chicanery and now this their so obvious heist of public monies so as to enrich their benefactors on Wall Street. Every event like this one brings us closer to the day when the peoples’ anger erupts into strikes and demonstrations. Its then and only then that snakes like Geithner will see justice realized.

  2. Anonymous says:

    Ugh. It just gets worse and worse and worse. How do these slithering snakes keep their jobs and continue to loot, loot, loot, coverup, coverup, coverup? These are the same people who blame and lecture poor people and working poor people (like me) about ethics, morals, behaving within the rule of law.

    Now I know why they got rid of Gov. Spitzer, he had too much dirt on them. Why are these people NOT punished? Fire this little man!

    • LavrentiBeria says:

      “These are the same people who blame and lecture poor people and working poor people (like me) about ethics, morals, behaving within the rule of law.”

      Yeah, but that’s only because they know so much more than you do, particularly about how the social order is to be structured. You’re just backward, that’s all, a kind of neanderthal. You don’t see the beauty in sucking the brains out of a little child who’s getting in the way of your receiving an education. What’s the matter with you, anyway?