Geithner in Hot Water

by John M. Curtis
(310) 204-8700

Copyright Jan.. 8, 2010
All Rights Reserved.                    

             Causing Presdient Barack Obama more embarrassment, Treasury Secretary Tim Geithner was back in the headlines for his role as New York Fed Chairman, telling American International Group [AIG] to withhold publicly which banks received billions from the Toxic Assets Relief Program bailout funds.  By Dec. 24, 2008, after announcing Geithner was nominated for Treasury Secretary, AIG had received $182.3 billion in TARP funds.  E-mails obtained by Rep. Darrell Issa (R-Calif.), ranking member of the House Oversight and Government Reform Committee, showed that attorneys for the New York Fed asked AIG to withhold names to banks to whom they made payments on “credit default swaps,” insurance paid for failed derivative investments.  Geithner decided in Nov. 2008 to repay Goldman Sachs and 12 other banks $62.1 billion in past due credit default swaps.

            Federal Reserve Board Chairman Ben S. Bernanke played his cards close to the vest in late 2008, refusing to reveal the recipients of TARP funds, fearing panic among domestic and foreign investors.  “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a House Republican known for aggressive partisanship.  Issa forgets that Treasury Secretary Hank Paulson, former CEO of Goldman Sachs, also favored at the time withholding from the public the specifics related to disbursement of TARP money.  Issa didn’t object then to Paulson’s secrecy, a personal friend of former AIG CEO Edward Liddy, a member of Goldman Sach’s board.  Liddy resigned May 22, 2009, when his conflict-of-interest became known publicly.  Confidential e-mails also showed that Geithner asked AIG to pay back crippled banks in full.

            Whether justified or not, Geithner still finds himself embroiled in another controversy, prompting strong denials from the Treasury Dept.  “It’s been irresponsible, misleading and exhibited reckless disregard for the truth,” said Geithner’s counsel, Jake Siewert, Bill Clinton’s last press secretary.  Siewert’s hyperbole reveals more problems for Geithner, exposed for his incestuous relationship with former Bush Treasury Secretary Hank Paulson.  Before Geithner’s confirmation [60-36] Jan. 26, 2009, he endured withering criticism for failing to pay taxes on self-employment income.  Treasury General Counsel Thomas Baxter insisted Geithner was not privy to the Treasury Dept. e-mails asking AIG to withhold public information about delaying the names of investment banks receiving TARP funds.  Treasury spokeswoman Meg Reily said “Geithner played no role in these decisions.” 

            Treasury officials know that, regardless of what and when Geithner knew about the private e-mails to AIG, the buck stops with Cabinet secretaries.  Whether Geithner recused himself or not, he’s responsible for any and all major Treasury Dept. decisions.  If Treasury asked AIG to withhold information, it’s the Treasury Secretary that stands accountable.  Insisting the e-mails “were not brought to [Geithner’s] attention” doesn’t excuse secrecy.  Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information,” said Issa.  Geithner’s no disclosure policy was a continuation of Bernanke’s and Paulson’s that sought to prevent investor panic and a “run-on-the-bank,” a similar scenario following the 1929 stock market crash.  Regardless of the motives, something fishy went on at the Fed and Treasury in 2008.

            When the Treasury and Fed decided to pull the plug on Lehman Bros. Sept. 14, 2008 the stock market went into a nosedive, losing nearly 50% of its value.  Only six month earlier, Paulson bailed out investment bank Bear Stearns, letting it merge with J.P Morgan Chase. Geithner, who worked closely with Paulson, was Wall Street’s pick for Treasury Secretary, despite unanswered questions about the extent of TARP payments from AIG to Goldman Sach’s.  Geithner’s tight connection to Paulson and Paulson’s close relationship to AIG CEO and Goldman Sachs board member Liddy, raised eyebrows about how Goldman Sachs profited from government bailouts.  Geithner quickly approved sending billions in AIG’s bailout money to Goldman Sachs, despite the investment bank’s financial strength.  Whether misinterpreted or not, recent e-mails don’t help Geithner’s credibility.

            Whether or not Geithner knew about secret Treasury Dept. e-mails asking AIG to stay mum about naming banks that received bailout funds, it opens up a can of worms.  No matter what Issa’s motives, taxpayers have a right to have a full accounting of public funds, even where it embarrasses or hurts the reputation of prestigious financial firms.  Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, expects the e-mails to help get to the bottom of AIG’s relationship with certain investment banks, especially Goldman Sachs, where their former CEO Edward Liddy sat on the board.  When Geithner testifies before Towns’ committee Jan. 18, he’ll have a lot of explaining to do, especially why he thinks it’s OK keep crucial information from the public eye.  Having embarrassed Obama twice, Geithner remains on thin ice.

About the Author

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.

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