Inserted from <McClatchy DC>In the weeks before Timothy Geithner's confirmation as treasury secretary, his underlings at the Federal Reserve Bank of New York directed American International Group (AIG) to delay publicly disclosing that tax dollars were used to pay in full $62 billion in insurance-like bets it owed to major U.S. and foreign banks.
The New York Fed's efforts to delay disclosure of its payment terms coincided with the nomination of Geithner, its president, and with his two-month campaign for Senate confirmation. It's not clear, however, whether a desire to protect Geithner or other reasons related to the nation's financial crisis, which was roiling at the time, drove the push for secrecy.
However, the lack of disclosure spared Geithner from having to defend the Fed's actions during confirmation hearings that already were clouded by his underpayment of federal income taxes.
Emails between the Fed and AIG made public Thursday reveal a months-long disagreement over how much the public should be told about what ultimately became a back-door bailout of AIG by taxpayers.
One series of emails describes how a lawyer for the Fed scratched out language from a regulatory filing prepared by AIG saying it had paid "100 percent of the par value" to satisfy the exotic bets, called credit-default swaps.
The payments, including $13.9 billion to Wall Street behemoth Goldman Sachs [Bernanke’s company], have been a flashpoint for controversy. A special inspector general tracking the use of bailout money recently criticized the New York Fed for overriding AIG's attempts to settle the swaps for lesser sums.
The lack of disclosure came over the objections of lawyers and officials from AIG and from the Securities and Exchange Commission after the insurer made a sketchy regulatory filing.
A Treasury Department spokeswoman, Meg Reilly, said that Geithner formally withdrew from participating in matters affecting AIG and major banks as soon as he was nominated on Nov. 24, 2009.
"Secretary Geithner played no role in these decisions," she said.
The first email resisting disclosure by Brett Phillips, an attorney in the New York Fed's general counsel's office, was sent hours after President Barack Obama announced Geithner's nomination to the cabinet post.
California Rep. Darrell Issa, the ranking Republican on the House Oversight and Government Reform Committee who obtained the emails, told McClatchy that the New York Fed's insistence on secrecy about the payments suggests that Geithner "was protecting his friends and protecting his nomination."
"If he has to answer the question, was he a good steward of the taxpayers' dollars, this would say no," Issa said. Geithner's response to questions about the need to pay 100 cents, he said, "at minimum would have been open to disagreement by many of the members of the Senate who voted for his confirmation."
Geithner won Senate confirmation on Jan. 27, 2009 by a vote of 60-34.
Treasury spokeswoman Reilly dismissed the email exchanges as insignificant, asserting that $25 billion in taxpayer funds used to buy securities underlying the AIG swap contracts are "on track to be paid back in full with interest."
She declined to elaborate on the remaining $37.1 billion paid to settle the swap contracts.
AIG issued much of the protection to cover major U.S. and European banks in the event that a sharp downturn in the U.S. housing market depressed the value of securities sold offshore. When a rash of loan defaults by marginally qualified subprime borrowers started a downhill slide in housing prices, AIG was swamped with demands for partial payment on its deteriorating portfolio of swap contracts, leading to a $182 billion federal bailout.
McClatchy Newspapers revealed in April 2009 that as part of the bailout, the New York Fed had opted to pay the full value of all of the mortgage-related swap contracts after European banks declined to accept discounted payments. Bloomberg News first reported the e-mails Thursday.
The e-mails show that AIG officials considered the swap settlements to be major events under securities laws requiring public disclosures.
On Nov. 25, 2008, AIG's Kathleen Shannon advised the Fed and its outside counsel that AIG attorneys and its law firm, Sullivan & Cromwell, "believe that the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay."
The debate persisted until AIG officials relented.
On Dec. 30, 2008, after AIG listed the $62 billion figure in an SEC filing but included no details, the SEC sent a letter to the insurer's chairman and chief executive officer, Edward Liddy, requesting a revised disclosure. Even then, Fed officials persisted, arranging conference calls with SEC officials to argue for a disclosure delay.
In March, 2009, AIG finally disclosed its payments, naming each bank and the amount of money each received.
Asked whether its insistence on secrecy bore any connection to Geithner's nomination, a spokesman for the New York Fed declined comment Thursday… [emphasis added]
If you had told me a week ago that I would actually be agreeing with Darrell Issa, I would have questioned your sanity, and asked if you’ve been teabagging.
Ed Schultz covered this issue quite well:
There can only one conclusion, in my opinion. US banks were ready to negotiate a settlement with AIG and accept partial payment. Geithner ripped off US taxpayers to keep his bankster buddies from taking a haircut in collusion with his mentor, Henry Paulson, Secretary of the Treasury under Bush. To keep Congress from finding out before he was confirmed as Secretary of the Treasury under Obama, Geithner had his bankster cronies at the New York Fed pressure AIG, who actually wanted to obey the law, into withholding the evidence. Obama’s only hope to restore any credibility whatsoever is to fire Geithner and instruct DOJ to conduct an investigation into whether or not Geithner broke the law. Furthermore, he needs to clean his administration from the bankster stain by firing Summers, and withdrawing Bernanke’s nomination. Do we agree?
Off topic, check out the video in today's Open Thread. It's hilarious.
16 comments:
Yes we agree 100% but I will bet you that the president will take no action against Geithner and come out and say that the 100% payments were necessary to stabilize the global economy and stop the slide into the depression.
A depression which we fell into regardless of the TARP. The next wave is coming in the commercial markets where now the banks who bought commercial property are beginning to walk away from those mortgages.
It will be interesting by June to see what happens when the governments of the world pull out the props they placed under their local economies.
Thanks, TC.
I knew I could rely on you to cover this for us (as I slipped away to write about Orville Schell's profound piece at Tom Dispatch on the melting glaciers signifying the melting away of America's importance on the world scene).
You rock hard.
S
Geithner ripped off US taxpayers to keep his bankster buddies from taking a haircut in collusion with his mentor, Henry Paulson, Secretary of the Treasury under Bush. To keep Congress from finding out before he was confirmed as Secretary of the Treasury under Obama, Geithner had his bankster cronies at the New York Fed pressure AIG, who actually wanted to obey the law, into withholding the evidence.
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Obama is losing respect on a daily basis by sticking with Geithner and Bernanke. Economics and Finance is a complex subject unless you are part of the elite that understands how the system works. Geithner and Bernanke understand, Obama doesn't, no president does, but this president had better surround himself with better and more honest people before Main Street gets reamed again.
I honestly don't understand why this position can't be filled by someone who has no relationship with big banks. Perhaps it's time to put an economist in the role. The fact that Geithner claimed to have under paid his taxes because he used Turbo Tax, has never rung true with me. I think the President went out a limb to get this guy through the nominating process and at the very least a investigation is warranted. Geithner just seems slimey to me. His ties to Wall St. are well established. It would be nice, if for once, those in charge of regulating our economy gave a sh*t about the people who actually pay taxes.
There has been this unjoly trinity of foxes running our chicken coop economy for far too long now. The more the extortionist parasites on Wall Street get, the less productive and more self-serving they become. It is hugh time we dump these enemies of Main Street and scrap the rusty old dilapidated Wall Street buggy we've been crawling along with for too long. A MAJOR rebuild top to bottom, Iacocca-style, is in order here. Time to roll out a shiny new Nustang for the masses on Main Street!
Mark, I'm too bright to take that bet, but I hope we're wrong. On what's coming, I've read several economists' projections and their support for them. In the short term, I just don't know. But unless we fix the systemic problem, even the best outcome will be short term.
Thanks Suzan. While I lack your economic expertise (folks, I'd like to see this gal heading up Treasury) and tend to be harder to convince where conspiratorial interpretations are concerned, I call them straight.
Holte and Mycue, Obama had some brilliant progressive economists advising him during his campaign. I expected him to carry them forward into his administration. I think that party leaders got to him and told him what he needed was the bankster set. On a scale of one to ten, he should have never listened to them.
Welcome, Mycue.
Well said, Jack. I completely agree, but what's a Nustang? ;-)
"If you had told me a week ago that I would actually be agreeing with Darrell Issa, I would have questioned your sanity, and asked if you’ve been teabagging."
I would have said that you'd gotten into my Perocet or Oso's 'medicine stash'. The very last person I would find myself agreeing with is Darrel Issa. He's in the same category as Rush, Newt, etc. for sliminess.
MyCue23 " The fact that Geithner claimed to have under paid his taxes because he used Turbo Tax, has never rung true with me."
Ok, I do people's taxes using turbo tax all the time. In order to screw up your taxes using Turbo Tax, you would have to be a blithering idiot. A monkey could do your taxes using turbo tax. And this guy is Treasury Secretary? Seriously? The only way to screw up your taxes using Turbo Tax is to put in the wrong numbers. If you can't manage to use Turbo Tax to do your taxes, you should be in 1st grade, not running the Treasury.
Lisa, that's a great observation. It reminds me of when former SCOTUS Chief Justice William Rehnquist was exposed for having signed compacts not to resell to a minority for two separate residential properties he owned. His excuse was that he had signed the contracts without reading them.
Man, am I a bad typist sometimes! :-) As you've undoubtedly guessed, a "Nustang" isn't some clver pun; it's a typo. I meant to say "Mustang." (They tell me I'm half nuts---gotta find that other half SOON)! :-)
Why not just insert the Turbo Tax disc into the big computer and let it run Wall Street?
Seriously, this joker needs to go. Obama's rep is diminished when he stays with people like Geitner. And Geitner is a lowlife for not resigning. I don't know why he thinks he needs to be loyal to Wall st. bankers. They are lowlife scum that would grind Geitner up and flush him down the toilet once his usefulness is gone.
FYI: rumor on the right wing squauk shows is that dodd will be the next treasury secretary, and senator credit card (tim johnson) will be the next chair of the banking committee...
Don't think Geithner was one of the best things Obama has done.
This is on the investing blog I follow, he is a self-proclaimed Libertarian for the most part.
This is ancient news, and is either too far over American's heads or out of sight and just don't care.
The blogosphere can cry a river over this, the back door payments through AIG, the fact that for the first couple quarters into the crisis Goldman booked almost all of its profits off the government bailout of AIG, the fact that the reason all of the banks are doing so well is that they have the implied backing of the Federal Reserve, that the banks pressured Mark-to-Market to become Mark-to-Magic, and that most of the money being booked by banks currently is from investing free money from the Fed in the Markets or buying 3% T-Bills. These are all of the things I could probably do about 15 minutes of research on and find supporting news articles on everything I just mentioned. We have not even gotten a PROPOSAL, barely an IDEA, from Congress or the Pres. on financial reform. We have plenty of rhetoric: "This was bad." "We should do something" "This can't happen again" "We will find who was responsible" blah, blah, blah. You had better get used to what has already happened with investigations: A whole lot of nothing.
I would blame the Dems, but I already know that the Repubs are in no way better, and not that much worse, when you look at it.
Graham was the Repub Sen. that deregulated banks, Clinton was the President that signed it. Barney Frank has been on the Hill for... too long whatever it is, and he did... little to nothing. So, whatever.
They say that the political machine runs on money, it is quite obvious who has the most money and has to be kept afloat. And it isn't you or I.
Jar-Jar Binks looking for new job.
Summers, Emanuel, Clinton, and Gates need to go too.
Dang, Jack!! I wanted a Nustang!! ;-)
Truth, that's the way I feel. But Turbo-Tax is a no-no for banksters. It finds only honest deductions.
RJ, that one has been floating around the left since the day after his plans not to run leaked. While fine on most issues, Dodd has a history of bedtime with banksters. I'd prefer him over Geithner, but would rather have someone else.
Karen, that;s an understatement! :-)
Otis, you also would have found those things posted here, but it was before your time. My solution is 100% public financing for federal elections.
Ivan, he'd have no trouble finding one. He knows where too many skeletons are buried.
Libhom, Clinton seems to be doing a credible job at State. Otherwise I agree.
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