Timothy Geithner Engineered Unconscionable Payoff to Gambling Buddies

03/18/2010 05:12 am ET | Updated May 25, 2011

Yesterday, Bloomberg News continued to shine a light on the back room dealings that took place at the height of the financial crisis.

Rep. Darrell Issa (R-Calif.) obtained emails that revealed the former head of the New York Federal Reserve, Tim Geithner, instructing AIG to withhold details about paying counter-parties a bewildering "100 cents on the dollar for credit-default swaps they bought from the firm."

Why did Geithner tell AIG to exclude this material information from their regulatory filings?

The answer: Because the Federal Reserve "decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps" on which they gambled.

Timothy Geithner demonstrated unconscionable behavior in America's capitalist system. Goldman Sachs and the other banks knew very well that AIG did not possess the collateral to pay the claims in the event of a default scenario. If AIG were legally obligated to possess that collateral, the swaps would have been called "insurance." Therefore, Goldman et al assumed a risk, and they failed. However, Geithner abated the other culprits to give his gambling buddies a full payment courtesy of our hard earned tax dollars.

In this case, Tim Geithner wasn't acting to save the system (as he claims) because a 100 cents on the dollar repayment was not required.

In what alternative universe do gamblers get paid 100 cents on the dollar for bets gone awry? Only in a universe regulated by Tim Geithner and the other cronies at the Federal Reserve and United States Treasury.

"Federal Reserve officials provided AIG's counterparties with tens of billions of dollars they likely would have not otherwise received," Neil Barofsky wrote in a November 17 report. "The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds."

For capitalism to work, rewards must flow to those who bet correctly, and punishments must flow to those who are wrong. We do not need cronies shuttling taxpayer dollars to their former firms and colleagues. We do not need U.S. Treasury Department officials lying to us (See "The Treasury Department Endorses Lying to the Public"). At this point, it's time for the Justice Department to investigate whether we are witnessing one of the greatest insider heists in the history of the world.