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« The Triumphant Return Of Tricky Dick: Treasury Secretary Tim Geithner Is Still Lying And We Prove It | Main | VIDEO - Female Mayor Punches Sheriff In The Face In Public Dispute Over Housing Demolition »

Tim Geithner Is A Disgrace (By Eliot Spitzer)

By Eliot Spitzer

The new AIG report reveals how the Treasury secretary—and U.S. taxpayers—were fleeced by Wall Street banks.

The issue has been festering for months: Why were AIG's counterparties—including Goldman Sachs, JPMorgan Chase, and UBS—paid 100 cents on the dollar when the feds rescued the insurance giant, helping raise the cost of the bailout to nearly $200 billion? A new report issued by Special Inspector General Neil Barofsky now reveals that government officials, notably then-New York Fed President and current Treasury Secretary Timothy Geithner, grievously damaged the nation and capitulated to the very banks they should have been supervising.

Barofsky's report reads like a case study in failed negotiation. The New York Fed didn't have the backbone to stand up to Wall Street, didn't understand its capacity to protect taxpayers, and didn't appreciate that its responsibility was to taxpayers.

Geithner and the Fed have proffered a series of spurious reasons for their willingness to pay AIG's counterparties—the leading Wall Street banks—in full while demanding concessions from every other entity with whom the Treasury or the Fed dealt. Geithner suggested he could not use the threat of AIG's default in the absence of a federal bailout to get concessions from AIG's creditors. Why not?

That is exactly what the government did with the auto industry, and rightly so. The entity providing financing to a near-bankrupt institution must always seek contributions from everyone else at risk. The fact that the Fed had a strong predisposition against letting AIG go into bankruptcy didn't mean the Fed shouldn't have used every opportunity to wrangle concessions from the other parties. For Geithner to say it would have been "unethical" to negotiate for concessions is sheer silliness. It is akin to saying that having decided that you are willing to pay up to $250,000 for a house, it is unethical to negotiate to buy it for $225,000.

Geithner also claims that using the possibility of AIG's default as a negotiating opportunity would have cast doubt on the government's commitment to financial stability. What? Seeking to get other parties to share the burden demonstrates a lack of commitment to restoring financial stability and market-based realities? Pressuring Goldman and the other counterparties to offer concessions would have forced them to absorb the consequences of making suspect deals with an insurance company that was essentially a Ponzi scheme. Forcing them to give concessions would have been one small step toward ending the moral hazard the Fed had allowed to flourish for years.

Perhaps most remarkable is that Geithner claims the "sanctity of contract" prevented renegotiating with the counterparties. But the government wasn't a party to these contracts! The government was stepping in with taxpayer money to save a broken company on terms to be set by the government. The counterparties had the contractual right to refuse the terms, throw AIG into bankruptcy, and suffer the consequences. In a workout context, the entity with cash—here, the government—can set the terms, and the other parties can either accept those terms or walk over to bankruptcy court. The government had absolutely no contractual obligation to do anything.

Continue reading at Slate...

See also:

The $25 Billion Dollar Secret: The NY Fed, Goldman & The AIG Cover-Up




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Reader Comments (8)

Geithner's DisgraceThe new AIG report reveals how the Treasury secretary—and U.S. taxpayers—were fleeced by Wall Street banks.
Nov 27, 2009 at 12:54 PM | Registered CommenterDailyBail
Wow. Spitzer callling Geithner a disgrace. With no shame. Pot meet kettle.
Nov 27, 2009 at 1:34 PM | Unregistered Commenterlbj
ok...spitzer broke a law in NY... hundreds of thousands of others break the SAME LAW EVERY YEAR...he's guilty and shamed..whom did he hurt?

His family.
Tim Geithner cost taxpayers $25 billion with AIG and trillions more if you consider his influence over bailout policy...whom did he hurt?

All of us. And he still has his job.

Enough said LBJ...
Nov 27, 2009 at 1:51 PM | Registered CommenterDailyBail
$25 billion, you are not going to count the billions he gave to foreign banks and foreign central banks.

Spitzer was caught paying way too much for sex, right? In many of your liberal socialist countries, the only crime was paying too much. DB and LBJ, did you check out all the hookers in Denmark for the fake green movement?

Geithner should be in jail because he is a dirty thief just like his boss Volcker. These guys get all the breaks, Volcker is in his 80's. We will have to deal with Geithner's ugly mug for many many many years to come.
Nov 27, 2009 at 4:20 PM | Unregistered Commentergobias
Nov 27, 2009 at 5:11 PM | Unregistered Commentergobias
Spitzer at least stepped down, what did Larry Craig, Mark Foley, and Mark Sanford do? People like Geithner and Volcker never go to jail, because they are the ones feeding the fishies (politicians) the pretty green fake money.

The law always defends the plunderer.
Nov 27, 2009 at 5:19 PM | Unregistered CommenterS. Gompers
China might be something else as well...

Nov 27, 2009 at 5:30 PM | Unregistered CommenterS. Gompers
Is one man a disgrace, or a 'class' of individuals who have foisted the same practice on the many for countless generations? When I see a bevy of 'news' reports 'independently' lambasting one individual for a matter that was disclosed MONTHS ago, well, then I know it is time to look in any direction other than the one I am being pointed to. People buying this crap?

That's the disgrace.
Jul 7, 2011 at 5:32 PM | Unregistered CommenterJoey Tavares

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