It's really not Tim Geithner's fault. He's spent all his professional life being an understudy to more powerful men -- from Henry Kissinger to Larry Summers. He is the classic yes man, who can give you all the rationalizations you need to do whatever it is you wanted to do in the first place. So surprise, surprise -- when the time comes to cut a hard deal with Wall Street players, he doesn't have the stomach for the job. Just like Mickey Mouse in Fantasia, he has unleashed forces that he has no idea how to control.
The Nov. 16 report of the special investigator general for the TARP funds (SIGTARP) details chapter and verse. It was requested by several members of Congress who wanted to know why the big firms that had contracts with AIG wound up getting paid full market value for their bad investments, and whether government bailout money was involved. As head of the New York Fed, and thus Mr. Moneybags to Wall Street, Geithner failed to negotiate reduced payments from AIG to its customers (including Goldman Sachs, Merrill Lynch, and several large European banks) in the fall of 2008.
One of the excuses given by Geithner and his team was "the sanctity of contract." You know, the same reason that large bonuses to AIG employees had to be paid with TARP money. It's always hysterical to me when a non-lawyer starts talking about how contracts must be held inviolable under the law. What a joke! Every good lawyer knows that if you have to go to court to enforce a contract, you've already lost. That's why in law, as in many other fields, you don't get what you deserve--you get what you negotiate. Any unemployed person knows this; the person holding the money has all the bargaining power. But Geithner really didn't know how to fight back, unlike Hank Paulson who was the real muscle man as Treasury Secretary. Paulson could knock heads when he wanted, so it's hard for me to believe that Geithner acted all by his lonesome while negotiating the AIG bailout.
If you're giving out haircuts in a financial deal, you need a Big Bubba Bad Ass at the negotiating table representing the U.S. taxpayer. Somebody like Paul Volcker. Can't you see him now, chomping a cigar with his bald head shining and, like LBJ, physically dominating the other players? Or perhaps an Elizabeth Warren, Ms. Transparency with her keen lawyer's insight, who monitors the TARP program for Congress. She'd be sure to ask ask about the Fed creating a dummy corporation named Maiden Lane III to keep transactions with AIG hidden from inquiring minds. A dummy company that sounds like a brassiere manufacturer is a dead give-away.
The Fedsters say that TARP money never went to Maiden Lane III. But TARP funds went to AIG, and AIG gave money to Maiden Lane III, which bought out the big customers who had AIG over a barrel, with the help of a loan from the Fed. Money is fungible, so you can't really tell the Fed's dollar from TARP's dollar when it comes to bailing out AIG.
After Geithner went to Treasury to replace Paulson, he and his team refused to answer Elizabeth Warren's inquiries about the use of TARP money. He should have been forced to give answers by Congress, but you know Congress didn't really want the answers. None of us really did. We kept hoping that some "experts" would be able to figure it out for us, and we wouldn't have to exert ourselves. That was Geithner's thankless job, to sweat the details for us, while the economy was in a death spiral.
But keeping secrets, the lingua franca of Wall Street, is anathema to a democracy. Public money should always come with transparency, or else democracies cannot correct themselves. The SIGTARP concluded as much:
"The lesson that should be learned . . . is that . . . whenever Government funds are deployed in a crisis to support markets or institutions, . . . the public is entitled to know what is being done with Government funds."
The problem with Geithner is not that he is by nature a corrupt man. It's that he is steeped in the Wall Street way of doing business, which itself is riddled with fraud, and billions of taxpayer dollars are at stake. Geithner is a player, not a regulator, and we need somebody at Treasury who will do a better job taking care of our money. Time for the apprentice to close up shop.