Should Obama Stop Trusting Geithner's Advice?
Did Tim Geithner know in advance the amount of bonuses AIG paid to the executives of AIG's derivatives unit who designed and sold the financial insurance policies which helped bring down the global financial system? When did he learn about it and what did he do to try to do to stop it? Did he know that most of the bonuses were already paid last Friday, so that by the time President Obama went on television on Monday to denounce the bonuses and say that he would use every legal means to stop them, it was already too late to do anything about it?
Moreover, on the bigger issue of the $180 billion AIG bailout itself, did Geithner know last September (when he was still head of the New York Fed and helped engineer the AIG bailout along with Hank Paulson and Ben Bernanke) that the biggest recipient of AIG bailout funds was Hank Paulson's former employer, Goldman Sachs? And did he know that Goldman Sachs may have misled both the New York Times and Congress about it, deceiving the American taxpayers who were ultimately on the hook for the bailout funds?
The answers to these questions may go to Tim Geithner's very fitness to serve as President Obama's Treasury Secretary. Perhaps the only good that can come from the answers is if they cause President Obama to reconsider following Geithner's advice, including Geithner's private/public hybrid plan to rescue the banks (and their shareholders and bondholders), and instead consider Federal receivership of some of the largest insolvent banks.
First, the bonuses: When President Obama went before the American people on Monday, denounced the bonuses, and promised to "pursue every single legal avenue to block" their being paid, did Geithner know that most of the bonuses had already been paid the past Friday, making it all but impossible for the President to keep his promise? If Geithner knew, did he tell the President before the President spoke? If Geithner knew, but didn't tell the President, then he set the President up to mislead the public. If Geithner did tell the President beforehand, then the President participated in the deception. Either way, the President's credibility with the American people was damaged and Geithner deserves much of the blame. If the American people come to see the Obama administration as complicit in Wall Street's unethical behavior, then Obama's entire economic program could end up in shambles.
Second, the AIG bailout itself: The nearly $180 billion in government bailout funds to AIG and its counterparties dwarfs the $165 million in bonuses to executives of AIG's derivatives unit. Until two days ago, the identity of the AIG counterparties who received most of the AIG bailout money was kept secret from the public and Congress by AIG, the Fed and Geithner's Treasury Department. Only now do we learn that over $100 billion of the AIG bailout money was passed through AIG to some of the largest banks and financial institutions throughout the world. The largest tranche went to Goldman Sachs, which received $12.6 billion. Just as AIG's executives received their full bonuses, the AIG counterparties received full compensation for their potential losses in AIG, and were not asked by the responsible Federal Reserve and Treasury Department officials to share any of the losses with the taxpayers.
Who were the officials responsible for designing and implementing the AIG bailout? Tim Geithner (who, before he was Obama's Treasury Secretary was head of the New York branch of the Federal Reserve Bank); Fed Chairman Ben Bernanke; Bush's Treasury Secretary Hank Paulson (previously Goldman Sachs' Chairman). Moreover, according to the New York Times, also present at the key Federal Reserve meetings last September which decided to let Goldman Sachs competitor Lehman Brothers fail, but to rescue AIG, was current Goldman Sachs Chairman Lloyd C. Blankfein. According to the Times, Goldman Sachs was AIG's largest trading partner, and "a collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman's side." We now learn that Goldman received $12.6 billion from the AIG bailout (as well as tens of billions more from other Federal bailout funds.) But at the time, Goldman's spokesman claimed, apparently falsely, that "our exposure to AIG was, and is, not material." In February, the very same Goldman Chairman Blankfein denied to the House Financial Services Committee that Goldman had a major stake in bailing out AIG. It now turns out that AIG and Blankfein were not being truthful. Moreover, Geithner must have known they weren't being truthful and chose to keep it a secret from the American people and from Congress.
Former New York Governor Eliot Spitzer may have had his personal sexual indiscretions, but he remains well-tuned into to the financial indiscretions of Wall Street. Writing in Slate, he asks some scorching questions about AIG which he suggests should be answered in public, under oath, by Geithner, Bernanke, Paulson, and Blankfein:
"What was the precise conversation among Bernanke, Geithner, Paulson, and Blankfein that preceded the initial $80 billion grant?
Was it already known who the counterparties were and what the exposure was for each of the counterparties?What did Goldman, and all the other counterparties, know about AIG's financial condition at the time they executed the swaps or other contracts? Had they done adequate due diligence to see whether they were buying real protection? And why shouldn't they bear a percentage of the risk of failure of their own counterparty?
What is the deeper relationship between Goldman and AIG? Didn't they almost merge a few years ago but did not because Goldman couldn't get its arms around the black box that is AIG? If that is true, why should Goldman get bailed out? After all, they should have known as well as anybody that a big part of AIG's business model was not to pay on insurance it had issued.
Why weren't the counterparties immediately and fully disclosed?
Failure to answer these questions will feed the populist rage that is metastasizing very quickly. It will raise basic questions about the competence of those who are supposedly guiding this economic policy."
No one is accusing Geithner of personal corruption or of trying to enrich himself. But his passivity in the face of the AIG bonuses, his willingness to pay AIG's counterparties 100 cents on the dollars, and his seeming complicity in the cover-up of Goldman Sachs' misstatements, indicate that he's far too close to Wall Street's special interests and far too out of touch with Main Street's concerns to serve Obama and the nation well.
Nowhere is this clearer than in his approach to the financial crisis which rejects government receivership of insolvent banks and instead provides government guarantees to hedge funds and private equity firms to buy toxic assets and prop up the management and shareholders of the private banking system. As Robert Kuttner points out, this approach may be in danger of leading Obama and the nation off a cliff.
If the questions regarding Geithner's recent actions leads Obama to reassess relying on Geithner's advice, and consider alternative plans to rescue the financial system, including putting insolvent banks under temporary Federal receivership, then it might end up doing some good.
Stanley Kutler: Financial Oversight: There Is No Change (Again)
The buccaneers of the financial community remain free to restore the disaster from which they were rescued with taxpayers' money.
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The Goldman Sachs Rescue Program-at the expense of all of us,Obama should remember who elected him,oh! maybe he does.
Spitzer was taken out of the loop. He was going to expose Goldman Sachs.
OPersonally i don't really give a crp about who Spitzer was banging or how . I am more concerned about how i've been banged and took no pleasure in it.
"Should Obama Stop Trusting Geithner's Advice?"
Yes -- if it is inconsistent with Obama's true goals.
On the other hand, ...
I agree, lets get Geithner outta there!
Geithner has convinced Obama that they cannot stop Swaps, shorting, hedged funds and derivatives.
I'm sure the argument goes like this:
Since the stock market has become corrupted from 90% actual stock trades, to 90% derivatives trades in the BushCo Wild wall Street days, We can't stop the 90% of the economy, can we?
Yes, we MUST.
The money will flow back to actual stock purchases.
See more profile for proof including links.
One man is ready to beat the banksters again:
Kucinich.
Geithner comes to his job with some real negatives, including his failure to pay taxes. It is hard for him to win the confidence of taxpayers because he has been on he inside the Federal Reserve under the direction of Alan Greenspan and very close to New York banking interests.
If Geithner has any original ideas, he should put them on the table now. If not, President Obama should find a new face to lead the economic recovery.
Just like the executives at AIG can be replaced, so can the Secretary of the treasury if he does not break his ties to Wall Street. President Bush put loyalty ahead of competence so we know what happens when failure is rewarded. Brownie was not doing a great job.
"a big part of AIG's business model was not to pay on insurance it had issued."
How is AIG any different than any Organized Crime operation. The only difference that I can see is that when the Mafia ran a protection racket at least they didn't pretend to the victims that they were legit. They at least were open about the fact that they were Criminals. Is Liddy and AIG, or for that matter most of these so called reputable Business Operations willing to admit that they are nothing but Criminals? I doubt it.
In answer to the question. YES. If Obama continues to let Geithner stay at the helm of the Treasury, it will be like letting a Drunk engineer remain at the helm of a speeding train. If Obama can have the courage to stand in front of an audience and take responsibility for the Bonus debacle, even though we know better, then he should have the courage to fire Geithner. It may look to some like he is undoing a bad choice that he should never have made in the first place, but at least he will have had the sense to undo it before it gets worse.
Do you seriously believe Obama didn't know about these bonuses before this week? Really? Obviously, he did know, but did not anticipate the witch hunt this whole bonus flap became (and I'm sorry, but it is a witch hunt).
Let's get some things straight: Paulson ran Goldman-Sachs, and they have been getting money from AIG, along with other banks and European banks. Paulson is the one who wanted, as Treasury Secretary to Bush, an unregulated bank bailout! Geithner was in charge of the Fedral Reserve in New York. He may be acting on behalf of the banking industry instead of the American Taxpaying Public. there is no doubt who Paulson was working for!
bho & Geithner together are doing just a bang up job.
Geithner and Summers are Trojan Horses for the mega-financial syndicate. They are functioning outside the sphere of Obama. They cannot be trusted. They are fully culpable in the facilitation of this economic crisis.
www.takeba
http://eye
Obama needs to follow the example of his hero Lincoln and fire his generals until he gets one he can trust to win the war for him.
And Paulson needs to be grilled by Congress about his connection to Goldman Sachs in all of this!
So Obama's plan is to take over the banks and when the whole thing goes sour he throws his Treasury Secretary co-consipirator under the bus. No wonder they can't find anyone to join Geitner at Treasury. You need someone honest enough to not be up to his neck in ethics violations like most of the candidates have been, then he needs to be dishonest enough to betray the American public like they did with the AIG bonuses, then he needs to be stupid enough to be a great big target when things go wrong. Nope, there's not very many Getiners out there to be found.
As Fed Chairman (of NY) his duty was to protect the banks. He doesn't get that his job now as Treasury Secretary is to protect the people against the banks. Apparently, he has not read his job description. Who's got some suggestions to replace Geithner?
Krugman, Volcker
Nader!
IMHO, Geithner is too much a product of Wall Street culture to be an effective watchdog. He seems to lack a healthy sense of skepticism or cynicism in dealing with with this crowd. They have proven they cannot be trusted.
He doesn't stink as much as Hank Paulson!
So who do you want? Somebody with no experience dealing with this crowd? That person would get EATEN ALIVE.
"If the American people come to see the Obama administration as complicit in Wall Street's unethical behavior, then Obama's entire economic program could end up in shambles."
It could also end up in shambles if based on a faulty assumption.
Obama’s economic team tacitly assumes that our money and banking system is inherently stable, and to get back on track just needs to be "corrected" with bank bailouts, an economic stimulus and proper regulation. A fatal error.
Our money system is based on fractional reserve banking. By making loans, banks create “credit money" from nothing, virtually our entire money supply. That system is unsustainable and doomed to fail.
It is easy to show that such a system must have ever-increasing levels of debt, since interest accrual means that banks are owed in total more money than exists - they create only principal, not interest, when they issue loans. To cover interest accruals, debt must increase forever without limit. But it can't - nothing can. Eventually credit hits a limit. Desperate to increase debt, banks make "liar loans" to anyone who will sign, and begin to fail when the liars default. As now.
We must replace the unsustainable fractional reserve system with a full reserve system, and, as Lincoln once did, claw back the power to create money to the Federal government where it belongs.
Only after his economic program is in shambles and misery prevails will Obama overrule his team and do this. Too bad not now.
It looks to me that rather than us selling Democracy to the Arabs they have sold their corrupt method of government and doing business to us..
The Arab nations are built on corruption and bribery and have been for years..It is a normal way of doing business and running a government
If big corporations find that they have to use bribery and corruption in the Arab countries in order to do business don’t you think they will bring this method home and try to use it here in our socalled Democracy.
I think the Neocon no regulation Capitalism that we have at present is a great breeding ground to use methods that they find to work in the
Arab Countries.
Therefore rather than us selling Democracy to the Arabs they have sold us their method of doing things which is bribery and corruption
Necessary Socialism but not necessarily Socialism.
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