It’s time for Tim Geithner to say adiós.
I’ve said it once, and I’ll say it again. He’s the wrong guy for the job.
President Obama should give him a pat on the head; thank him for his service during the economic crisis, and then give him a swift boot.
More than a year ago, I speculated on the backroom deals that allowed Goldman Sachs, Germany’s Deutche Bank and France’s Societé Generale to be paid 100 cents on the dollar for claims against credit-default swaps purchased by the mega-banks from bailed-out insurer A.I.G.
My view then and now is that it was outrageous that these firms were being permitted to double-dip from the government bailing well. After being directly rewarded with bailout funds for their bad investment strategies, these banks were allowed to further profit through the third-party insurance claims paid to them by A.I.G. at the government’s behest.
The credit-default swaps issued by A.I.G. to banks like Goldman were nothing more than fancy insurance policies that guaranteed the value of mortgage-backed securities. As the value of these securities started to plummet, along with the real estate to which they were attached, coverage under the default-swap policies kicked in.
The Timing Was Inconvenient?
The Fed and A.I.G. have taken heat for months about the secrecy surrounding the swap payments, which totaled $62 billion and have been criticized as a “back door bailout” of banks. When asked about the lack of disclosure during a congressional hearing last year, a New York Fed official said releasing such information at the height of the financial crisis would have hurt A.I.G.’s ability to operate.
Although this scheme was conceived and executed before the President took office, Geithner was the head of the New York Fed when the payments were made. It was widely reported at the time that Geithner worked tirelessly with then-Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke to craft the deal.
Recent e-mail exchanges reveal that the Geithner’s New York Fed pressured A.I.G. to keep quiet about the pact that allowed Goldman and others to get full payment on their insurance claims. It appears that lawyers at the Fed ordered A.I.G. to redact (black-out) any reference to the swap payments in their required filings with the Securities and Exchange Commission (SEC).
These disclosures suggest that Geithner – then a nominee for Treasury Secretary – was worried about the political fallout from the swap payments. Months later, when details about the deal were disclosed, Geithner was disparaged for not being more hard-nosed towards the banks.
This latest flap is reminiscent of the finger-pointing between former Bank of America CEO Ken Lewis and Paulson about whether the Treasury pressured B of A to delay in revealing Merrill Lynch’s massive undisclosed liabilities before the government-sponsored merger of the two firms.
Geithner’s Ethics Problem
Most of the controversy surrounding A.I.G. has been focused on the bonuses and compensation paid to the executives of the still-troubled insurer. These emails underscore an even more serious problem – possible government collusion in the payment of these third-party payments to the banks.
During the pendency of his nomination, Geithner was roundly criticized for his failure to pay self-employment taxes while he was working at the International Monetary Fund (IMF). Geithner sloughed it off as an unintentional oversight resulting from his inexperience with the software he used to prepare his taxes.
The President, and even Republicans like Utah’s Orrin Hatch gave Geithner a pass because they believed his competence far outweighed any potential indiscretion.
Based on these latest issues, the President should not look so kindly on Geithner’s continued tenure. Geithner may be a bright bulb on the President’s economic team, but any value he might have is undermined by his dulled sense of ethics and honesty.
Mr. President, give Timmy his walking papers. I’m sure he’ll be able to find gainful employment elsewhere.
Maybe even Goldman Sachs.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
