Federal Reserve transcripts show extreme cluelessness

It's a wonder anyone on the board who was so far off still has a job at the Federal Reserve. Even worse, how is Tim Geithner running the US Treasury and how is Ben Bernanke still the Fed president? This wasn't a small miss, but a massive miss.

The problem is that they were all ordinary, mainstream thinkers so of course they dismissed analysis from outsiders who questioned the building problems. The Fed board is much too insulated from the real world. If nothing else, these transcripts from 2006 show that we need to also reform the Fed, to allow more outside thinking. They were falling over themselves to congratulate Alan Greenspan on his way out and completely missed the crisis that was coming. As we saw after 9/11, how badly does one have to screw up in Washington to lose a job? LA Times:

"We believe that, absent some large, negative shock to perceptions about employment and earned income, the effects of the expected cooling in housing prices are going to be modest," said Timothy F. Geithner, the current Treasury secretary, who then was president of the Federal Reserve Bank of New York. When Geithner was finished, Bernanke asked, to a round of laughter, "Anything to report on co-op prices in Manhattan?" "As in many cases, I am not sure what you can take from the anecdote, but I guess some people say that you see a little of the froth dissipating," Geithner replied. "But I don't think the adjustment is acute.

Yeah, that's a funny one. Too bad the joke was on the rest of the country. Read the rest of this post...

GAO report rips NY Fed bailout of AIG counterparties

When AIG failed, the New York Federal Reserve stepped in to manage the wind down of the counterparties to the insurance company's massive credit default swaps (CDS) business. In short, the failure of AIG meant that they company couldn't pay off all of the bets they lost in CDSs in the residential housing market. Faced with an AIG bankruptcy, the counterparties - all big Wall Street banks - were in a position where they might get none of the money they were owed. Since the government was stepping in to save AIG, it was an open question as to how much money would be needed to pay AIG's counterparties. It was assumed that no one would be getting 100% of what they were owed, as AIG's failure meant they would probably have received nothing. Basically anything that came from AIG after it's failure was unexpected and largely undeserved money. The banks making swaps with AIG took risk when they made the bets and in the real world, but perhaps not the world of Wall Street, it's actually possible to lose money when gambling. As Dean Baker notes, "the government bailout of A.I.G. ensured that [financial institutions] suffered no consequences from their mistake."

The New York Times reports on a GAO study into the New York Fed's behavior around the 2008 AIG bailout. The GAO found that the NY Fed, under Tim Geithner, basically refused to drive a hard bargain with the AIG counterparties and have lied about their actions.

The report, by the Government Accountability Office, says that New York Fed officials have offered inconsistent explanations for their decision to pay other financial companies the full amounts they were owed by A.I.G., and that some of the explanations were contradicted by other evidence.

The report also asserts that the decision to pay the full amounts, rather than seeking concessions as the government later did in other cases, disregarded the expectations of senior Fed officials in Washington and the expressed willingness of some of the companies to accept smaller payments.

Did you get that last bit? Geithner's New York Fed even went so far as to turn down offers by banks to take less money than they were owed.

The AIG bailout was over $180 billion and, according to the Times, a quarter of that went to 16 Wall Street firms. To put it differently, money going to "save" AIG was being funneled straight to the people AIG owed money to...Wall Street banks like Goldman Sachs. The AIG bailout was a back-door bailout for the Wall Street banks which crashed our economy.

The GAO report suggests that this was done at the behest of Geithner's New York Fed, somewhat autonomously from the national Federal Reserve. The New York Fed has not been honest with the government about what they did and the conditions they were taking action in. Whether that's because Geithner's NY Fed was genuinely ignorant of the market they were entering into or they just wanted to give as much money to their friends at big banks and are lying to cover it up, it's not really clear.

But what is clear is that this is what a Tim Geithner orchestrated deal looks like: bailing out banks by preventing them from suffering losses that the market has suggested they should suffer. This is important for the current national mortgage/robosigning settlement talks with the nation's largest banks, which are being lead at the federal level by Geithner and Geithner's proxies and also include about 45 state attorneys general. By all accounts, the deal Geithner and the Obama administration are pushing looks awfully similar to the deal Geithner's NY Fed orchestrated for AIG's counterparties. That is, a sweetheart bailout for banks at the public's expense. While this shouldn't have been surprising prior to the GAO report on the NY Fed's work around AIG, the desire to bail out banks for their liability connected to foreclosure fraud, securitization fraud, and origination fraud is exactly what we now know we will get when Tim Geithner is involved. It goes without saying that President Obama should fire Geithner. Read the rest of this post...

Geithner: US to play 'very major role' in EU bailout

Here we go again. Most rational people have no problem saving our trading partners from economic collapse as this would have a severely negative impact on the US economy as well. That said, in no way should a single cent be handed over if it's to rescue the ostentatious lifestyles of the bankers. Nobody is interested in doing that again and everyone now realizes that it was Tim Geithner and Hank Paulson who led that last bailout that maintained the lifestyle of bankers. We've had enough of the free rides for those least in need.

Estimates have run as high as $2 trillion for a liquidity fund, and Geithner said that whatever the figure is, it should leave no doubt that there will be more than enough.

"A basic rule of financial crises management is you want to make sure you have a level of resources that are larger than the potential need you face," he said. "If markets see that then they'll have the incentive to continue to lend, invest, to get more exposure to those countries."

By next week, IMF participants should have "a more comprehensive strategy" to solve the problem and put in place a plan at the G20 summit, which begins Nov. 3.

Read the rest of this post...

Elizabeth Warren, political power, and the banks

Suzanna Andrews Vanity Fair has a long article on Elizabeth Warren, one of the most effective advocates for the middle class:

Arrayed against Warren, and today against the very existence of the C.F.P.B., was the full force of what many, most notably Simon Johnson, the M.I.T. professor and former International Monetary Fund chief economist, have called the American financial oligarchy: Wall Street firms and banks supported mainly by Republican members of Congress, but also politicians on the other side of the aisle, along with members of Obama’s own inner circle.

At a time of record corporate profits, a time when 14 million Americans are out of work, when millions have lost their homes and, according to the Census Bureau, the ranks of those living in poverty has grown to one in six—that Elizabeth Warren could be publicly kneecapped and an agency devoted to protecting American consumers could come under such intense attack is, ultimately, the story about who holds power in America today.

The article goes on to discuss the creation of the CFPB and the massive amount of money the banking industry spent to oppose it. Despite their opposition, the CFPB was created and Warren was eventually picked by the President to get the agency up and running.

One of the things that Vanity Fair does well is tease out the reasons and ways in which Treasury Secretary Tim Geithner, President Obama's top adviser on the economy, has opposed Warren at every turn:

“Geithner hated her,” says a former administration official. Part of it was seen as personal because she had scorched him in public. But the whole thrust of her work on the oversight panel—getting the facts out to the public—was at odds with Geithner’s perceived conviction, shared by the Wall Street establishment, that the details of the banks’ TARP rescue should be hidden from public scrutiny whenever possible in order to give the banks time to recover, an assessment that a Treasury spokesperson disputes, insisting that “Secretary Geithner initiated unprecedented disclosure requirements for financial institutions.”

I hope it's startling to you to be reminded that Geithner thought "that the details of the banks’ TARP rescue should be hidden from public scrutiny whenever possible." It's a strong reminder of who he is, what he believes in, and who he thinks his core constituency as Secretary of the Treasury of the United States is.

Beyond whatever ideological sympathies exist within the Obama administration towards Wall Street, they have demonstrated a strong political need to keep bank executives happy with them. Wall Street is a key part of the Obama re-election campaign's fundraising base.

In early spring, several weeks before Obama’s April announcement that he was running for re-election, 24 Wall Street executives gathered in the Blue Room of the White House for a meeting with the president. According to the New York Times account of the meeting, Obama spent more than an hour listening to the financiers’ thoughts on the economy, the deficit, and financial regulation. After the meeting, Obama would follow up with phone calls to the executives who had not been able to attend. The event, the Times wrote, was organized by the Democratic National Committee and “kicked off an aggressive push by Mr. Obama to win back the allegiance of one of his most vital sources of campaign cash.” The financial industry contributed $43 million to Obama’s 2008 presidential campaign, a record haul. But his relations with Wall Street had soured—remarkably many of them were enraged over his criticism of their bonuses in late 2009, which is also when he called them “fat cat bankers.”

I don't think politics are the sole reason that the President decided to fire Elizabeth Warren, though it's certainly a contributing factor. As the administration tries to leverage #OccupyWallStreet into electoral support, it's important to remember that Wall Street is their actual political power base, not the people protesting it.

Andrews' piece is also a strong reminder of how successful Elizabeth Warren has been at confounding powerful political players, from Geithner and Obama to former Senator Chris Dodd and the entire banking lobby. She out-organized the banks, as well as opponents on both sides of the aisle, to not only get the Consumer Financial Protection Bureau created, but get the interim job running it. She's shown tremendous political prowess. She's now running for Senate in Massachusetts and seems to have a very good shot at not only the Democratic nomination, but winning the seat. While there are reasonable questions about whether or not moving towards the Democratic Party is a better choice than moving away from it, if elected, I would hope that she continues to fight against Democratic officials who are captured by Wall Street. She will have to carve out space within an institution which resists independent voices, but if there's anyone who has demonstrated an ability to function at a high level amidst politicians who are only accountable to wealthy elites, it's Warren. Read the rest of this post...

EU to Geithner: Keep your advice to yourself

Neither side has come through this economic crisis with flying colors, but it's interesting to see such strong rejection of Geithner by the EU members. Europe needs to look at what they did to kick this problem down the road since many of their banks were much more highly leveraged than even the gamblers of Wall Street. That said, the US model of rescuing the banks that was built by Bush/Paulson with the help of Geithner certainly hasn't done much to help besides lining the pockets of the bankers.

The EU has had a few years to watch the US and see how the bank bailout worked and they would have to be fools to think it was a successful long term plan. We saw the bankers make few changes to their casino-style ways and all they did was use the bailout money to gamble even more without doing anything to benefit the rest of society.

In this continuation of the banking crisis, there are no easy answers, but most should at least acknowledge that the US model doesn't deserve to be promoted as a viable solution. NY Times:

“I found it peculiar that, even though the Americans have significantly worse fundamental data than the euro zone, that they tell us what we should do,” Maria Fekter, the finance minister of Austria, said after the meeting Friday morning. “I had expected that, when he tells us how he sees the world, that he would listen to what we have to say.”

Such criticism was echoed by other attendees of the meeting, including the finance minister of Belgium, Didier Reynders, who said Mr. Geithner should listen rather than talk. Jean-Claude Juncker, president of the finance minister group, said European officials did not care to have detailed discussions about expanding their bailout fund “with a nonmember of the euro area.”

American officials are aware that they need to tread carefully when advising others, especially now, and they have avoided offering specific plans or proposals.

Read the rest of this post...

Geithner refuses to blame GOP for debt ceiling blackmail

Treasury Secretary Geithner says it would be "political" to accuse the GOP of being the ones who refused to pass the debt ceiling and thus got S&P to downgrade us.  He says Congress, in general, is to blame.  That means Democrats are to blame too. Which is flat out untrue, unless you count the President, who has enabled the Republicans from the beginning, and continues to enable them through statements like this, where administration representatives just cannot bring themselves to blame the Republicans.

If you were a Republican, and you knew the President was going to have your back, and refuse to blame you, regardless of what you did, why wouldn't you continue to not only take hostages, but take more and more?  It's not "politics" to simply state a fact as to who caused a problem in the first place.

Check the transcript of Geithner's interview about the GOP hostage crisis.  The word "Republican" is said once, and only by the interviewer.  In fact, when Geithner is asked whether the GOP did this,  he demurs.

JOHN HARWOOD: You said a moment ago that Congress owns the credit rating. John Kerry, Democratic Senator, said today, "This is the Tea Party downgrade." Is that right?

TIM GEITHNER: Well, I wouldn't-- I'm not going to do politics, John. And I think if we've learned anything these last few months it's-- it's time to put the economy ahead of politics. Again, these are challenges facing the country of the United States, not-- not facing one party or the other. We both have some responsibility for coming together to dig our way out of this stuff.

And, again, this was-- you know, it's a big down payment on our fiscal challenges. Very strong bipartisan support for it. Our challenge is to build on that support and try to take the next steps that make some longer term progress. You know, we need to reform our tax system to help the middle class make this a stronger place to invest. Obviously we need to reform entitlement to secure Medicare for the next generation. And we've got to do some additional things to make the economy strong.

And what do you know - Medicare is back on the table! Which is odd, since the DNC just the other day issued a statement attacking Republicans for threatening Medicare when it's the White House, and now Geithner, a senior administration official, who keeping putting Medicare on the table. It's just not clear how any Democrat can any longer say with a straight face that the Republicans are the ones attacking Medicare. The President pretty took that issue away from us during these past negotiations, and Geithner does it again right here. Read the rest of this post...

The deficit deal is going to hurt the economy and the pivot to jobs

Yesterday, I noted that while I strongly support and believe in the need for Democrats, particularly the White House, to shift their focus to job creation, the early signs from the Hill suggested that the pivot was likely to fail. A significant part of my fear stems from the recently completed deficit hysteria, which will make any sort of jobs creation program (either by government spending or tax cuts) a certain target for more deficit hysteria.

Atrios captured this perfectly, describing the pivot to jobs as effectively saying, "We solved the deficit problem, now let's add to the deficit."

There's another layer to the challenges created by the deficit deal - namely, what impact it will have on the economy and on job creation. As Paul Krugman keeps pointing out, Economics 101 suggests a massive cut in government spending will have an anti-stimulative effect on the economy. But via Digby, we see that Treasury Secretary Tim Geithner is not operating from the same textbook as Krugman and the rest of us.  Here's Geithner on ABC:

Well, let's start with what this deal does. The most important thing is it creates more room for the private sector to grow because although it locks in some very substantial long term savings, the near term cuts are very modest. So that-- that was the really critical thing in making sure that this economy continue to grow and recover.

This directly contradicts JP Morgan's economic team's analysis of the economic impact of the deficit deal.

Impending fiscal drag for 2012 remains intact. The deal does nothing to extend the various stimulus measure which will expire next year: we continue to believe federal fiscal policy will subtract around 1.5%-points from GDP growth in 2012. Its possible the fiscal commission could do something to extend some measure such as the one-year 2% payroll tax holiday, though we think unlikely, as it would need to be paid for, which would be tough. If anything, the debt deal may add modestly to the fiscal drag we have penciled in for next year.

While I'm not one to prioritize the opinions of the titans of Wall Street over government officials, JP Morgan's analysis is in line with Krugman and other followers of Econ 101 are saying.  (The markets were none too thrilled with the deal either.)

Unfortunately, Geithner's spin about the magically positive impact of the deal doesn't end at growing the economy, but extends to job creation as well.

GEORGE STEPHANOPOULOS: So this won't cost us jobs?

TIM GEITHNER: No, it will not. Now ... if we put this behind us then we can turn back to the important challenge of trying to find ways to make sure that we do everything we can to get more people back to work, strengthen our growth. And we'll have more ability to do that now with people more confident and we can start to get our arms around the long-term problems.

But this just doesn't align with what non-partisan experts are saying. The Economic Policy Institute predicts the deficit deal will cost the US 1.8 million jobs in 2012 alone.

And the naive optimism, that Republicans will behave like true gentlemen when Democrats pivot to job creation, extends beyond anonymous Senate sources - Geithner is on the record making this prediction.

Well, because I think it's going to be very hard for Republicans to -- to prevent that from happening. I think it's very hard for them to stand up and say that they're going to try to block the extension of that tax cut that's worth about $1,000 a year for the average American family. Untenable for them to block that.

As I pointed out yesterday, conservatives don't care about the deficit, they care about tax cuts for rich people. As such, tax cuts could conceivably be exempted from deficit hysteria and not be offset with comparable cuts elsewhere. But I won't assume that that is the case until conservatives actually say that they won't exact their pound of flesh from federal social spending to continue the payroll tax cuts.

And before any Democrats start preaching about the unmitigated blessings of tax cuts as a vehicle for job creation, let's remember that the Bush tax cuts lead to nothing more than an average of 11,000 jobs per month over the course of Bush's presidency.

We desperately need to get people back to work in America. But it's going to be impossible for this to happen when Democrats in the administration and on the Hill are dishonest about the consequences of their deficit hysteria.  Things aren't getting better on their own, and yesterday the President signed a law that will almost certainly be a significant drag on the economy.

The response to this should be a real stimulus that focuses on job creation and infrastructure construction, and keeping Americans in their homes.  But Democrats now espouse a mindset that says government spending is functionally bad for the economy.

The embrace of austerity, and the refusal to make job creation a priority earlier on, mean that working and middle class Americans will continue to suffer, while no price will be asked of wealthy elites.  And with the balance of power as it is, it likely never will be asked of them. Read the rest of this post...

Geithner’s role in the debt ceiling disaster

It's been written that the current most powerful economics adviser in the White House is Treasury Secretary Tim Geithner. You could argue that the team-lead on the Dem side of this disaster is Treasury, and Geithner.

That said, here's Felix Salmon on how we got here, via Brad DeLong. Bottom line — Treasury decided to "go big" and this is the result (my emphasis):

The lion’s share of the blame here belongs with the Republicans in general, the House Republicans in particular, and the Tea Party caucus within the House Republicans most of all. But it’s not like these people’s existence or intransigence was any great secret. And so the White House tactics over the course of the past few months look dangerously naive….

The budget debate, of course, sets near-term taxation and spending. So seeking to make a virtue out of necessity, Treasury entered negotiations over the debt ceiling to do something longer-term: to put in place a decade-long “fiscal straitjacket” which would constrain future Democratic and Republican administrations alike…. Treasury’s bright idea backfired catastrophically. Far from putting the US on a course of long-term fiscal prudence, it put the country on a log raft with no paddle, careening straight towards a deathly waterfall…. [E]ngag[ing] the House Republicans on long-term fiscal issues was a silly idea — these are people who think you can raise revenues by cutting taxes. A fiscal straitjacket, necessarily, involves some mechanism for raising taxes; since that was always going to be anathema to the Republicans, there was no point even trying to construct one.

The cost of Treasury’s tactical mistake is going to be enormous.

Naiveté? Possibly? Electorally driven (and entirely self-centered)? Certainly. Does it matter?

I guess we'll find out. However this turns out, I hope Geithner finds a nice place for himself on Thank You Street when this mess is over and the next president gets to mislead us. The workman is worth his wages.

GP Read the rest of this post...

Geithner is driving the economic agenda, which means Obama reelection strategy, too

Today, the Washington Post has a profile on Treasury Secretary Tim Geithner. Apparently, according to the conventional wisdom in DC (such as it is), Geithner is now the guy setting our economic agenda. He's got Obama's ear. Since the reelection is tied to the economy, Geithner is determining the reelection strategy:

Geithner has not only survived but quietly gained influence, which he has used to press President Obama to curb the nation’s soaring debt even at the expense of spending that might more directly spur employment.

His success at driving the agenda signals his status as the president’s closest economic counselor. With the departure this summer of Austan Goolsbee as chairman of the Council of Economic Advisers, Geithner will be the last remaining member of the president’s original economic team and, with Federal Reserve Chairman Ben S. Bernanke, one of the two remaining architects of the great banking bailout that began in 2008, even before Obama’s election.

Geithner, who was once a registered Republican and then an independent, has a faith in the marketplace that puts him at odds with many of Obama’s traditional Democratic allies, whose skepticism about markets seemed vindicated by the financial crisis. His debut on Obama’s team was also shaky. He faced questions about whether he had properly paid all his taxes, and his initial public defense of the administration’s plan for rescuing the financial industry was uninspired, prompting anxiety in the markets.

But over the past year, he has fared better, especially at pushing his viewpoint in internal White House debates. While forces outside the White House — in particular, Republican lawmakers — have helped turn Washington’s attention to the nation’s debt, Geithner’s efforts inside the White House have shaped how Obama confronts this defining moment. At stake in the months ahead are the size of government, the generosity of the nation’s safety net, the taxes people will pay and the debt that will weigh on future generations.

The policies molded by Geithner — and the balance they strike between slashing the deficit and supporting the economic recovery — could also ultimately determine whether Obama will win a second term.

Yep, move over Jim Messina. Geithner is running the reelection. I've never been overly impressed with the White House political operatives (yes, they got him elected against great odds when no one thought he would win. Heard it. That still seems to be their singular accomplishment.) I'm pretty sure Geithner does not understand electoral politics. And, he doesn't seem to know -- or care -- that his policies could cause serious political problems for the President. He's much more in tune with what Wall Street wants than anything related to the needs of voters -- like jobs. And, the Democratic base values the nation's safety net.

This article has quotes from Obama's Chief of Staff William Daley. It was written with input from the highest levels at the White House. They want us to know of Geithner's status. It doesn't provide much comfort to those of us who are hoping the President will focus on job creation. He's playing on the GOP's turf of debt reduction. But, it's Geithner's turf, too.

If this nation doesn't start creating jobs, Obama and Geithner run the risk of losing theirs. And, as the latest Washington Post/ABC News poll showed us yesterday, the numbers on the economy are really ugly:

By 2 to 1, Americans say the country is pretty seriously on the wrong track, and nine in 10 continue to rate the economy in negative terms. Nearly six in 10 say the economy has not started to recover, regardless of what official statistics may say, and most of those who say it has improved rate the recovery as weak.

The Republicans destroyed the economy. They weren't held accountable and are not getting the blame. It's Obama and Geithner's economy. And, what happens with their economy is going to have a huge impact on the 2012 election. Read the rest of this post...

Obama appoints Geithner and Lew to find tax deal with GOP

Oh. My. God.

However, in one sign of action, Obama said he appointed Treasury Secretary Tim Geithner and budget director Jack Lew to work with congressional Republicans and Democrats to come up with a deal on taxes in the next couple of days.

If no agreement is reached before Congress breaks for the holidays, taxes on all Americans would increase, a new year shocker that would increase pressure on Washington to act.

Immediately following the meeting, congressional Republicans said the discussion with President Barack Obama was a positive one in which both sides agreed to spend more time working together and finding common ground on tax and other tough issues.

Read the rest of this post...

CNBC: So Long, Tim Geithner

He's survived so far but will the election results force the issue? Outside of the White House, it's hard to find anyone who was impressed with the financial regulation, which still lags behind the FDR regulation.

There will be heavy pressure from within the Democratic party for the Obama administration to make changes that will both publicly mark a change of direction for the administration and privately send a message to party insiders that the White House is accepting its share of the blame for the loss of the House of Representatives.

Geithner is a clear candidate to play the fall-guy. In exit polls, six in 10 voters said the economy is the nation's No.1 problem. Around four in 10 believe their family's financial condition got worse since Obama took office. Geithner is the nation's chief economic official. A large share of the blame for last night's results will likely fall on him.

Geithner outlasted many other economic advisers to the president, including Peter Orzsag, Herb Allison, Steve Rattner, Larry Summers and Christina Romer. Insiders say the role he played in getting Congress to pass the financial reform bill has significantly strengthened his position in the administration.

Read the rest of this post...

Geithner has spent more time with Goldman's CEO than Pelosi or Reid

But in all fairness to Timmy-boy, it's important to spend a lot of time and maintain a good working relationship with your boss. There's always another promotion out there, right around the corner. Smart thinkin' Timmy! After all, who really needs input from political leaders that are elected by the public? Huffington Post:

Treasury Secretary Timothy Geithner has met more often with Goldman Sachs CEO Lloyd Blankfein than Congressional leaders, including the Speaker of the House and the Senate Majority Leader, according to his official calendar.

Goldman CEO Lloyd Blankfein has shown up on Geithner's calendar at least 38 times through March 2010 since the Treasury Secretary took office in January 2009, three more entries than Senate Majority Leader Harry Reid, 13 more than House Speaker Nancy Pelosi, and nearly four times as many as Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner combined, according to a copy of Geithner's daily log recently published online by the Treasury Department. The imbalance is striking, considering that Geithner was heavily involved in financial regulatory reform legislation, which Congress was grappling with during the period covered by the calendar.

All told, Geithner met with, spoke to, or attempted to secure conversations with Wall Street chieftains at least 49 times during the five-month period ending in March 2010, a slight increase from the 37 entries on his calendar during the previous five-month period.

Read the rest of this post...

Why did Geithner and Paulson so strongly favor the banks during the bailout?

Besides cozy relationships, it's hard to explain why both the Bush and Obama administrations were so friendly to the banks yet so harsh with AIG and Chrysler. Wouldn't it be nice is either of the two administrations were honest with the public about their reasons for favoring the banks that delivered the global recession? The long term love affair hasn't even ended regardless of who is sitting in the White House, unfortunately.

The documents also indicate that regulators ignored recommendations from their own advisers to force the banks to accept losses on their A.I.G. deals and instead paid the banks in full for the contracts. That decision, say critics of the A.I.G. bailout, has cost taxpayers billions of extra dollars in payments to the banks. It also contrasts with the hard line the White House took in 2008 when it forced Chrysler’s lenders to take losses when the government bailed out the auto giant.

As a Congressional commission convenes hearings Wednesday exploring the A.I.G. bailout and Goldman’s relationship with the insurer, analysts say that the documents suggest that regulators were overly punitive toward A.I.G. and overly forgiving of banks during the bailout — signified, they say, by the fact that the legal waiver undermined A.I.G. and its shareholders’ ability to recover damages.

“Even if it turns out that it would be a hard suit to win, just the gesture of requiring A.I.G. to scrap its ability to sue is outrageous,” said David Skeel, a law professor at the University of Pennsylvania. “The defense may be that the banking system was in trouble, and we couldn’t afford to destabilize it anymore, but that just strikes me as really going overboard.”

“This really suggests they had myopia and they were looking at it entirely through the perspective of the banks,” Mr. Skeel said.

Read the rest of this post...

Congressional Oversight Panel rips AIG bailout

The fingers are being pointed directly at Hank Paulson during the Bush administration and the Federal Reserve which would be Tim Geithner at that time and location. Taxpayers will never see their return on this and Goldman is still getting a free ride from the billions they had riding on that deal. Paulson was of course the former CEO of Goldman Sachs.

The federal government didn't exhaust all its options before it committed tens of billions of taxpayers' dollars to bail out the American International Group during the height of the 2008 financial collapse, according to a new report from a congressional watchdog panel.

The Congressional Oversight Panel , which was created to monitor the spending in the 2008 bank bailout bill known as the Troubled Asset Relief Program, or TARP, detailed in its latest monthly report the government's extraordinary rescue of AIG and its lingering effects on taxpayers and the financial markets.

AIG, once one of the largest and most successful insurance companies in the world, collapsed in 2008 when it couldn't meet the collateral demands of its customers. The firm, the oversight panel said, had an "insatiable appetite for risk" but a "blindness to its own liabilities."

Read the rest of this post...

Dear Tim Geithner: Please stop telling us you had to bailout Wall Street

Most sane people understand that it was ugly, but had to be done. We get it. Really, we do. The problem all along has been the implementation of the process. Not the process itself. Geithner repeats the same line whenever he's questioned about the bailout yet as unpopular as the bailout may have been (and remains) the issue has consistently been that Wall Street hardly missed a beat with enriching itself. That is what infuriates America. Wall Street is important but in no way did they or do they deserve to rise above this recession ahead of the Americans who were victims of Wall Street's games. Deal with that and you'll get a lot more support. Keep telling us about how it had to be done and you only annoy everyone outside of your closest family.

Everyone expected former Goldman CEO Hank Paulson to help out his old friends on Wall Street but most assumed there would be some changes from the administration that campaigned on "change." Staying the course is not change.

But in a nationally broadcast interview, Geithner also argued that President Barack Obama had no choice when facing a financial crisis but to support then-President George W. Bush's "unpopular" bailout plan.

Geithner said the other option was to "stand back" and do nothing, "and that would have been calamitous for the American economy."

Geithner was president of the Federal Reserve Bank of New York at the peak of the crisis. The New York Fed managed bailouts including the $182 billion rescue of insurance giant American International Group Inc.

In September 2008, the government embarked on a program of assisting the threatened financial institutions, eventually creating the sweeping, $700 billion Troubled Asset Relief Program (TARP) used to rescue teetering banks.

Read the rest of this post...

GOP still blocking Treasury appointees and increase risk to US financial system

Do they ever do anything besides obstruct? The Democrats are going to have to step up the pressure here and do a much better job of showing how the Republicans are owned by Wall Street and are risking financial failure due to their policies. How is it possible to have gone through such a colossal financial failure that was so deeply tied to GOP policies and not give a damn about improving the system? That said, it's hard to believe how relaxed the Democrats are about this. How do they not make the GOP eat this issue?

For more than a year, the Treasury Department has grappled with a monumental global economic crisis while many of its most senior people have had to walk out of internal meetings at critical moments and have been barred from joining in-depth exchanges with foreign governments.

That's because the appointments of these officials have been blocked at times by various Republican senators. Until now, their reasons for thwarting the Treasury have been largely unknown beyond the halls of Congress.

It turns out the sources of discontent apparently were not the appointments themselves. In one case, it was a tax penalty on small businesses. In another, the passage of an anti-tobacco plan in Canada. Yet another involved a tussle over online gambling.

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Geithner warms EU on protectionist policies

The protectionist game is one that leaves me with very little patience. While it's more open than a few decades ago, protectionism is alive and well and not necessarily always a bad thing. Everyone screams "foul" when the other country or region does it but has a million justifications when they do it themselves. In this case, the EU is indeed promoting protectionist banking plans though they're not entirely wrong to pressure Washington on more regulation for the Wild West gamblers in the US financial industry. (Not that they don't exist in the EU though, because they do.) Better coordination and more unified regulation is in the best interest of most people outside of the banking gamblers. They're making too much money with too little downside to want any change. CNBC:

European Union officials are mulling plans to regulate hedge funds and private equity firms, which Greek officials said bear part of the blame for the country's debt crisis because they speculated on its debt.

Some analysts also said that by placing bets that a country is likely to default, hedge funds destabilize markets.

Geithner sent a letter this month to Michel Barnier, the European Union's commissioner on internal markets, warning of a clash with the US if the Commission goes ahead with a law that Washington fears could be protectionist, the Financial Times wrote on its Web site.

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My Bad. Apparently the meeting with Geithner was more on the record than I thought.

I just got back from dinner with a number of the bloggers who joined Joe and me at the Geithner meeting earlier today, and I learned a funny thing. Apparently there was a mis-communication and the meeting was not as off the record as Joe and I had understood. We still can't quote anything anyone said, but we can paraphrase what was said, so long as we don't attribute it to any one of the handful of senior Treasury officials who were at the meeting. I know, not perfect, but it's better since Joe and I can now talk openly about what happened at the meeting, and about our impressions about Treasury.

So, tomorrow Joe and I will be posting in more detail about what happened, and what we think, but in the meantime both Sam Stein and Ryan Grim at Huffington Post, both of whom understood that they could post more content, did. Here's Ryan's piece, and here's Sam's. Read the rest of this post...

Joe and I just met with Treasury Secretary Geithner

UPDATE: Apparently the ground rules for the meeting were not entirely clear. Contrary to what I wrote below, we apparently were permitted to write about what was said at the meeting, provided that we did not quote anything directly, and provided that we did not attribute anything by name to anyone at the meeting. I know, it's still a bit silly, but at least it will permit Joe and me to write tomorrow about what actually happened substantively at the meeting. I've written a bit more about this here.
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It was pretty fascinating, and there's not much we can tell you about it because Treasury wanted the entire meeting with Geithner, and most of the rest of our time at Treasury, on deep background. Meaning, we could use everything we were told, but could never attribute it to anyone, anywhere. So, if I learned a fact at the meeting, I could mention it some day in passing, but couldn't say how or why I know it.

The meeting was the second time, I'm told, that Treasury has invited a group of bloggers to meet with some of the senior staff and the Secretary (second time?) It took place in the Treasury building next to the White House, and it included around 18 bloggers. I know I'm going to leave someone out, but those I could recognize (or read their name plates) included: Faiz and Amanda at ThinkProgress, John Amato at Crook & Liars, Duncan Black of Eschaton, Sam Stein, Shafein Nasiripour and Ryan Grim of Huff Post, David Kurtz of TPM, Felix Salmon of Reuters, Megan McArdle of the Atlantic, Matty Yglesias of ThinkProgress, Patrick Garofalo of the American Prospect, James Kwak, Joe Sudbay of AMERICAblog and me. From Treasury, among others, were Secretary Geithner, Deputy Secratary Neil Wolin, Assistant Secretary for Financial Institutions Michael Barr, Assistant Secretary for Economic Policy Allen Kruger, and Counselor to the Secretary Gene Sperling. Quite an impressive, high level group.

The meeting took place in an absolutely stunning room of what is the most stunning federal office building I've seen in all my years. Much of official Washington is kind of old. State isn't exactly a pretty building on the inside, nor is DOD, nor a number of other agencies, and even the White House has parts that are kind of eh. Not Treasury. Stunning building, stunning hallways, stunning meeting rooms. This room was amazing. It's called the Secretary's Conference Room. Huge pendulum clock on the wall. Huge. Wide dark wooden doorways framed in gold. Beautiful etched transoms above the doors, ornately painted ceiling, and a beautiful 200 year old portrait of George Washington on the wall. Simply stunning. You can read more about the room here.

The meeting began on the record with the Deputy Secretary telling us about a new policy to permit private citizens in Iran, Sudan and Cuba to be able to legally have access to free US-based Internet services like Twitter and YouTube. It was a bit vague, and we pressed for more specificity, but perhaps this post over at Tapped will help explain it better.

From that point on, we entered secret-agent land where none of us were permitted to tell you what happened, other than who we met with. Judging by the content, it's not terribly clear why Treasury didn't want us reporting back to you, especially since everyone in attendance from Treasury did a damn fine job. There wasn't one person who in any way said or did anything that the agency might have wanted to keep off the record. It's unfortunate really. Sam Stein from Huffington Post, to his credit, registered a rather large protest over the fact that the meeting was off the record.

Here's the thing. I've argued before that I think it's necessary, sometimes, to have meetings off the record. It just is. Sometimes you need to conspire with like-minded souls, or even your political enemies, out of the public eye, especially if you're partisans and not simply objective journalists. In this case, the meeting wasn't about having a private strategy session with fellow partisans. At least it didn't seem that way. The bloggers in attendance asked questions about a large range of topics of the day, much as any journalist would. And we got the kind of answers you might expect Treasury officials to give mainstream journalists on the record. So, it just isn't clear why it was off the record. Or why, for example, I wasn't even permitted to photograph the meeting as I did for our blogger meeting at the White House.

Speaking of the White House blogger meeting, you might recall that at the WH meeting I had a back and forth with the VP's top economic adviser, Jared Bernstein over whether bloggers were partly to blame for the stimulus not selling well, and more generally, over the White House's lack of effective messaging on the stimulus and other issues. Without going into the content of our deep-background discussions at Treasury, I can say that the blogger questions for Geithner were as hard, if not harder, than the question I raised at the White House for Bernstein. And the reaction from the folks at Treasury, including Geithner himself, to the tough blogger questions was simply fabulous. Geithner handled himself extremely well. Shockingly so, really. He walked in, didn't have any opening remarks, and just opened the floor up to questions for a good hour. We all got our say. Repeatedly. It was great. Geithner handled himself so well, and was so impressive, intellectually and personally, that it's all the more harder to understand why we're not permitted to talk with you about the substance. Geithner doesn't exactly have a stellar reputation among a lot of Democrats. If they were to see him as we saw him today, that view might begin to change.

Overall it was a very interesting meeting with Geithner. The administration should have started holding these kinds of meetings a year ago. Still, I think it was worthwhile, and other agencies should copy what Treasury did today (but on the record - or at least part on, part off).

PS On a personal note, Orszag has nothing on this guy. Read the rest of this post...

Geithner reportedly told Wall Street that Obama is sacrificing good policy for politics

Reuters reported two hours ago that multiple financial industry sources claimed that Treasury Secretary Tim Geithner was unhappy with the President's plan he announced today to rein in the banks. The sources said that Geithner thinks Obama is sacrificing good policy for politics.

President Barack Obama's newest Wall Street crackdown was met with hesitation from Treasury Secretary Timothy Geithner, who is concerned that politics could be sacrificing good economic policy, according to financial industry sources.

Now, sure, we don't know the names of those sources. But for Reuters to run this piece, the sources had to be some pretty senior people on Wall Street with extremely close ties to Geithner, who came from the NY Fed before he took the job at Treasury. Even stranger, the Treasury refused to comment for the story.

Now, if a cabinet member reportedly leaked to his buddies in NYC that he thought the President, his boss, was harming the country for political expediency on a major policy initiative, and the story was wrong, the Treasury would immediately tell Reuters that the story is a bunch of BS. Instead, Treasury refused to comment.

Now there's an updated story that includes a White House official saying Geithner worked on the plan with Volcker and Summers. Though, what's not coming from the White House official in the Reuters story is an outright denial of the story itself - that Geithner told friends in NY that Obama was harming the country for politics.

Oh, and the updated story came out two hours after the first story. And guess what it doesn't include. A denial from Treasury either. Read the rest of this post...