Little Timothy Geithner has Been a Bad, Bad, Boy

Bloomberg is reporting that the New York Bank of the Federal Reserve instructed AIG not to make disclosures that SEC regulators were demanding regarding their payouts on swap contracts (The New York Times has more, including copies of the emails in questions, which I've posted below.):

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

Now, I take anything from Darrell Issa with a grain of salt, he's a liar, and one of the rather more corrupt Republican members of Congress, but seeing as how House Banking Committee Chairman Barney Frank is saying that this is "Troubling," and he wants hearings, and both Edolphus Towns, Chairman, and Elijah Cummings, member, of the House Oversight and Government Reform Committee, have been screaming about getting a hearing about this, it seems that Frank may get his wish.

The big deal here is that the NY Fed took over negotiations, and paid off AIG's swaps at 100¢ on the dollar, which is pretty much unheard of, and at the time that this information was being suppressed, Geithner was already the nominee to be Secretary of the Treasury:

This episode suggests that the NY Fed – and Geithner, then a nominee for Secretary of the Treasury – were worried about any political fallout from the swap payments. When the details were released months later (and after Geithner was confirmed as Treasury Secretary), critics alleged that Geithner had failed to negotiate a better deal for the swap payments with the Wall Street firms.

They perpetuated a fraud upon the American public and on Congress, because little Timmy wanted to be SecTreas.

The New York Fed is now saying that Geithner was uninvolved in the decision to suppress this information, but it's a no-win situation.

Geithner was front and center in making sure that the swaps were paid off at face value, so the attempt to suppress the date was either because he was covering his own ass., or because he was incompetent and uninvolved, and the Fed bureaucracy bailed him out because they saw him as being the Fed's Bitch^*.

FWIW, I think that this was all part of the campaign by the bureaucracy of the Fed to make Geithner Secretary of the Treasury, though Felix Salmon has a point when he says that the completely over the top culture of secrecy at the central bank was has always been a flaw in the culture of the institution: Independence does not equal secrecy, though the Fed always has seen it that way.

David Dayen at FDL makes the cogent point that even if the payouts were legal, it appears that the cover-up was not legal.

The real problem, as Barry Ritholtz so ably notes, is as follows:

Between Summers and Geithner, it appears that President Obama has made the exact same mistake that one George W. Bush did: Instead of filling his administration’s most important posts with his own people, he reached back to prior admins (Cheney, Rumsfeld, etc) and loaded up on incompetent retreads.

(emphasis mine)

One thing is certain though, that the case for auditing the Federal Reserve has been made much stronger by the most recent scandal.

^*A good bet, since the history shows that Timothy Geithner has been the bitch of anything remotely close to a bank or a brokerage his entire career.

Emails reproduced after break:


E-mails from N.Y. Fed to A.I.G. to Not Disclose Counterparty Payments