Bipartisan calls for Treasury Secretary Geithner to resign

Posted by AzBlueMeanie:

A brutal report issued last Monday by a government watchdog holds Timothy Geithner — then the head of the Federal Reserve Bank of New York and now the nation's Treasury Secretary — responsible for over payments that put billions of extra tax dollars in the coffers of major Wall Street firms, most notably Goldman Sachs. Geithner Singled Out In TARP Watchdog Neil Barofsky's Scathing Report On AIG Bailout:

The authoritative new narrative describes how, while bailing out insurance giant AIG last fall, a team led by Geithner failed nearly every step of the way.

Instead of bargaining with AIG's numerous counter-parties to resolve its billions of dollars in souring derivatives contracts, Geithner's team ended up paying top dollar for toxic assets — "an amount far above their market value at the time," the report notes.

"There is no question that the effect of FRBNY's decisions — indeed, the very design of the federal assistance to AIG — was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG's counter-parties," the Office of the Special Inspector General for the Troubled Asset Relief Program said.

Wall Street firms like Goldman Sachs, Merrill Lynch and Wachovia got full value for their derivatives contracts with AIG, and taxpayers got the bill. In total, $27.1 billion of public money was transferred to companies that did business with AIG.

Throughout the bailout of AIG, the report says, the New York Fed failed to develop appropriate contingency plans; failed to properly assess the impact of its decisions; and generally engaged in negotiation strategies that were doomed to fail.

Then, after Geithner's team paid off AIG's counter-parties on Wall Street, it imposed "onerous" terms on the troubled insurer, the report says.

"[T]he decision to acquire a controlling interest in one of the world's most complex and most troubled corporations was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG," the report finds.

Geithner, now the nation's chief financial officer, just didn't bargain hard enough with Wall Street's biggest companies, the report concludes:

[T]he refusal of FRBNY and the Federal Reserve to use their considerable leverage as the primary regulators for several of the counter-parties, including the emphasis that their participation in the negotiations was purely "voluntary," made the possibility of obtaining concessions from those counter-parties extremely remote. While there can be no doubt that a regulators' inherent leverage over a regulated entity must be used appropriately, and could in certain circumstances be abused, in other instances in this financial crisis regulators (including the Federal Reserve) have used overtly coercive language to convince financial institutions to take or forego certain actions. As SIGTARP reported in its audit of the initial Capital Purchase Program investments, for example, Treasury and the Federal Reserve were fully prepared to use their leverage as regulators to compel the nine largest financial institutions (including some of AIG's counter-parties) to accept $125 billion of TARP funding and to pressure Bank of America to conclude its merger with Merrill Lynch. Similarly, it has been widely reported that the Government, while arguably acting on behalf of General Motors and Chrysler, took an active role in negotiating substantial concessions from the creditors of those companies.

Meanwhile, the Fed was attempting to keep the details of AIG's counter-parties hidden from public view — another big mistake, according to the report:

The now familiar argument from Government officials about the dire consequences of basic transparency, as advocated by the Federal Reserve…once again simply does not withstand scrutiny. Federal Reserve officials initially refused to disclose the identities of the counter-parties or the details of the payments, warning that disclosure of the names would undermine AIG's stability, the privacy and business interests of the counter-parties, and the stability of the markets.

After public and Congressional pressure, AIG disclosed the identities. Notwithstanding the Federal Reserve's warnings, the sky did not fall; there is no indication that AIG's disclosure undermined the stability of AIG or the market or damaged legitimate interests of the counter-parties. The lesson that should be learned — one that has been made apparent time after time in the Government's response to the financial crisis — is that the default position, whenever Government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with Government funds.

While SIGTARP acknowledges that there might be circumstances in which the public's right to know what its Government is doing should be circumscribed, those instances should be very few and very far between.

On Thursday, Treasury Secretary Timothy Geithner was called to testify before the House Joint Economic Committee and walked into an ambush.

A heated exchange erupted when Geithner was explicitly asked to resign.Geithner Asked To Resign; 'Mr. Secretary, The Public Has Lost All Confidence In Your Ability To Do Your Job'

The ranking House Republican on the Joint Economic Committee, Kevin Brady of Texas, ticked off a litany of economic concerns and perceived economic failures, adding that there's a "growing liberal consensus" that Geithner has failed as Treasury Secretary, and that "conservatives agree that as the point person on the economy, you've failed," before he asked Geithner: "Will you step down from your post?"

Geithner defended his track record, declined to step down, and added, "I agree with almost nothing of what you said… and almost nothing of what you said regarding the economy is accurate."

Geithner went on to say, reports The Hill:

"Again, it's just a basic fact: A year ago, this economy was falling at the rate of 6 percent a year. We were losing between half a million and three-quarters of a million jobs a month," he added, noting those numbers changed direction when President Barack Obama took office.

Brady quickly responded:

"Mr. Secretary, the public has lost all confidence in your ability to do your job. Conservatives agree… liberals agree… it is time for a fresh start." He added that Geithner's failure was beginning "to reflect on your president."

To which Geithner shot back, "If you look at any measure of confidence… it is substantially stronger today [than when the President took office]."

"Tell all of that to the millions of American who no longer have jobs because of your decisions," Brady said. "At some point you have to take some responsibility for your decisions."

Rep. Kevin Brady was correct to the extent that there is a "growing liberal consensus" that Geithner is not the right guy for the job. Rep. Peter DeFazio (D-OR) had called for the firing of President Barack Obama's top two economic aides on Wednesday, accusing them of pursuing a recovery plan skewed too heavily in Wall Street's favor. Rep. DeFazio: Fire 'Timmy' Geithner:

[DeFazio] said it was time to dismiss both White House economic adviser Larry Summers and Treasury Secretary "Timmy Geithner."

"We think it is time, maybe, that we turn our focus to Main Street — we reclaim some of the unspent [TARP] funds, we reclaim some of the funds that are being paid back, which will not be paid back in full, and we use it to put people back to work. Rebuilding America's infrastructure is a tried and true way to put people back to work," said DeFazio.

"Unfortunately, the President has an adviser from Wall Street, Larry Summers, and a Treasury Secretary from Wall Street, Timmy Geithner, who don't like that idea," he added. "They want to keep the TARP money either to continue to bail out Wall Street…or to pay down the deficit. That's absurd."

Asked specifically whether Geithner should stay in his job, DeFazio replied: "No.

"Especially if you look back at the AIG scandal," he said, "and Goldman and others who got their bets paid off in full…with taxpayer money through AIG. We channeled the money through them. Geithner would not answer my question when I said, 'Were those naked credit default swaps by Goldman or were they a counter-party?' He would not answer that question."

DeFazio said that there is a growing consensus among the Congressional Progressive Caucus that Geithner needs to be removed. He added that some lawmakers were "considering questions regarding him and other economic advisers" — though a petition calling for the Treasury Secretary's removal had not been drafted, he said.

"[Obama] is being failed by his economic team," DeFazio concluded. "We may have to sacrifice just two more jobs to get millions back for Americans."

I have said from the very beginning that I was opposed to Larry Summers and Timothy Geithner and that I was disappointed in President Obama's selection of them. It's time for a new economic team and a fresh start with the new year.