November 27, 2009

Geithner Under Fire, Perhaps Being Shown the Door

ObamaAndGeithner0109Things are so bad for Tim Geithner, who shouldn’t have been appointedin the first place, and should have resigned back in March, that even a column in Forbes (“The Gathering Geithner Storm”) by Thomas Cooley designed to buck him up for the tough times ahead acknowledges the horrid job he did running the Federal Reserve in New York, particularly with the AIG situation:

The most recent bump in the road has been the scathing criticism of Geithner by Neil Barofsky, the TARP special inspector, over the funneling of taxpayer funds intended to bailout AIG to its counterparties including Goldman Sachs. As the report put it:

“There is no question that the effect of the FRBNY’s decisions–indeed, the very design of the federal assistance to AIG–was that tens of billions of Government money was funneled inexorably and directly to AIG’s counterparties.” And the report was particularly critical of the fact that there was no attempt to extract haircuts from the counterparties–they were all paid 100 cents on the dollar.

As a result, the conspiracy theorists are having a field day. Consider their fuel:

As president of the Federal Reserve Bank of New York, Geithner worked very closely with Henry Paulson–his predecessor as Treasury Secretary and before that head of Goldman Sachs–as was warranted by the situation.

Geithner’s primary deputy at the New York Fed was William Dudley, a former Goldman Sachs economist.

The chairman of the Board of the Federal Reserve Bank of New York until May 2009 was Stephen Friedman, former Chairman of Goldman Sachs, and a member of the Goldman’s board at the time of his New York Fed service.

Friedman also chaired the search committee that selected Geithner’s replacement–William Dudley.

At the time his former Goldman Sachs colleague Dudley was appointed–December 2008–Friedman purchased an additional $3 million of Goldman stock in violation of the rules.

Now ask yourself, surrounded by this crowd of influences, how likely is it that Geithner would have asked Goldman Sachs to take a serious haircut on their AIG positions?

You don’t have to be a black helicopter fan to recognize that the proximity of the small world that is Wall Street to the very institutions and public servants who are meant to regulate them can seriously compromise their credibility. This proximity and the fact that Wall Street ran amok on Geithner’s watch as president of the Federal Reserve Bank of New York–the top regulator–has damaged his credibility in his current role.

With all due respect, Mr. Cooley, I don’t think there’s a lot of “theory” left to this conspiracy. AIG was a first-order fiasco, and the only question is whether Geithner was a conspirator or so utterly incompetent that he got taken for billions by the rest of them.

It would appear that Geithner’s time is short. The Wall Street Journal editorial I cited earlier the morning pointed out that “not a peep of support emerged for Mr. Geithner from the Obama White House.”

I think Democrats are concluding that forcing Geithner’s resignation is an act of self-preservation. The longer he hangs around, the more likely it is that clearer evidence will continue to come out that the whole September-October 2008 bailout that created TARP and marked the beginning of direct state investment in private entities was either totally unnecessary or was caused by his stumbling and fumbling. They can’t have that.

They calculate that the establishment media will consider any new information important only if Geithner is still around, and will ignore it as “old news” if he’s not. They’re probably correct.

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