Geithner Gets a Bad Rap in the AIG Scandal

I found an interesting article in Time Magazine this week. Ever since Tim Geithner has been appointed Treasury Secretary there seems to have been a concentrated effort to get him out.

From the Republican's in the Senate voting against him and painting him as a tax cheat when it has been pointed out he made a simple mistake that others have made, to big names on the left such as Arianna Huffington saying he is just too much a Wall Street person.

However, nothing has stuck so far. President Obama has come out time after time and said he is sticking with him and he is standing behind him. Very few people in the media have stood up and said he is the man for the job, or have even tried to defend him in any way.

Now finally here is someone who is trying to defend him and say he is the man for the job. But, first lets look at some of Tim's history. Since there seems to be some confusion.

We will go toWikipedia:

Geithner worked for Kissinger Associates in Washington for three years and then joined the International Affairs division of the U.S. Treasury Department in 1988. He went on to serve as an attaché at the Embassy of the United States in Tokyo. He was deputy assistant secretary for international monetary and financial policy (1995–1996), senior deputy assistant secretary for international affairs (1996-1997), assistant secretary for international affairs (1997–1998).

He was Under Secretary of the Treasury for International Affairs (1998–2001) under Treasury Secretaries Robert Rubin and Lawrence Summers. Summers was his mentor, but other sources call him a Rubin protégé

In 2002 he left the Treasury to join the Council on Foreign Relations as a Senior Fellow in the International Economics department. He was director of the Policy Development and Review Department (2001-2003) at the International Monetary Fund.

In October 2003 at age 42, he was named president of the Federal Reserve Bank of New York His salary in 2007 was $398,200 Once at the New York Fed, he became Vice Chairman of the Federal Open Market Committee component. In 2006, he also became a member of the Washington-based financial advisory body, the Group of Thirty. In May 2007 he worked to reduce the capital required to run a bank. In November he rejected Sanford Weill's offer to take over as Citigroup's chief executive.

In March 2008, he arranged the rescue and sale of Bear Stearns.; In the same year, he played a supporting role to Hank Paulson, former CEO of Goldman Sachs, in the decision to bail out AIG just two days after deciding not to rescue Lehman Brothers from bankruptcy. According to some observers, Geithner severely damaged the U.S. economy As a Treasury official, he helped manage multiple international crises of the 1990s. in Brazil, Mexico, Indonesia, South Korea, and Thailand.

On November 24, 2008, then-President-elect Barack Obama announced his intention to nominate Geithner to be Treasury Secretary.

Now to the article in Time Magazine. You can read the entire article by clicking on the link here:

Geithner Gets a Bad Rap in the AIG Scandal but here are some high points:

The first thing Fed bashers should remember about the AIG bailout is the chaotic circumstances. The Fed barely knew how to spell AIG before the panic of September 2008; it didn't regulate insurance companies, and its leaders had no idea that a division of this particular insurance company had turned itself into a giant and overleveraged hedge fund, much less that AIG was entangled with other giant and overleveraged institutions through exotic financial gambles ultimately backed by sketchy mortgages. According to accounts of the crisis like David Wessel's In Fed We Trust and Andrew Ross Sorkin's Too Big to Fail, Geithner first discovered that AIG posed a potentially catastrophic risk to the global economy just as he and the rest of the Fed were frantically trying to persuade Bank of America to take over Merrill Lynch while searching for a buyer for Lehman Brothers in order to prevent the largest bankruptcy in the history of the planet. It's not easy to improvise a bailout for a company you knew nothing about the day before while the world is going to hell.

Very true, we were told it was near to the end of the world by Paulson and Bernanke and Bush. Remember? As far as we knew the world was about to crash around our ears... and why not, we have been living under the rule of GOPers for almost 30 years, with Reaganomics holding sway over our economic situation. I am sure he did what he thought was best at the time. He had rules to follow and did what he could to keep the economy from crashing. We have to remember that.

Lehman collapsed on Sept. 15, triggering a freefall in the markets and a cascade of margin calls that required AIG to put up tens of billions of dollars it didn't have. Fed Chairman Ben Bernanke, Geithner and then Treasury Secretary Henry Paulson quickly realized that a default by AIG — which not only sold insurance to 30 million Americans and 100,000 companies but suddenly owed big bucks to many of the world's largest financial institutions — would trigger bank runs around the world. The failure of Lehman had shocked the system; the failure of a dozen more huge financial firms would have crippled it. So on Sept. 16, the AIG bailout began.

It wasn't pretty. The creditors for AIG's bad bets — including Goldman Sachs and several large foreign banks — were paid in full. Critics have blasted the government for failing to impose haircuts, essentially providing a backdoor bailout for those banks in the name of AIG, but nobody has explained how or with what authority anyone could have invalidated AIG's contracts with all those far-flung institutions on the fly, or why that wouldn't have worsened the panic. Perhaps the public officials should have devised some way to limit the future bonuses AIG would pay its executives, but it's understandable that they weren't thinking about a few million dollars in theoretical perks when trillions of actual dollars and the entire financial system were at stake.

Again, very valid points the author is making. It wasn't pretty, and with the entire country's not to mention the world's economy at stake no one, let alone, Tim Geithner was thinking about any bonuses, or anyone having the guts to pay them out in just a few short months.

The second and most important thing to remember about the AIG bailout and the rest of the extraordinary government interventions during the crisis is that they worked. For all the populist fury about taxpayer giveaways for Wall Street, they did quell the panic. And they did so at a price that seemed exorbitant at the time but now looks like relative peanuts. Research by the Cleveland Fed has documented that financial crises usually end up costing national governments at least 5% to 10% of their GDP in payouts; the tab to the Treasury for this panic will be well under 1% of GDP. In fact, the Fed is about to return a record $45 billion in profits to the Treasury because the vast majority of its emergency loans have been paid back with interest. Meanwhile, the wildly unpopular $700 billion Troubled Assets Relief Program (TARP) is on track to cost only about $100 billion, including the giveaways for automakers, and the Obama Administration has proposed a bank tax that would bring that figure to zero.

Once again, I think this is pretty obvious and why this should have to be pointed out. is beyond me. But for some reason people have to be shown the obvious. I posted about the tax Pres. Obama is wanting put on the bankers, and along with that is other bills pending to help regulate Wall Street even more. WE THE PEOPLE, need to bear some responsibility for this mess too, and we have a responsibility to make sure these bills pass and get enacted so that this doesn't happen again.

The outrage that has been blasted at the decision makers who made the best of a horrible situation ought to be directed at the compulsive gamblers who created that situation — and channeled into fixing the regulatory system that allowed it to develop. AIG was a financial behemoth and should have been subject to federal financial oversight, including strict limits on leverage and strong capital requirements. The shadowy derivatives market that AIG was using as its casino also desperately needs adult supervision. Many of AIG's complex securities were based on subprime mortgages issued by unregulated brokers who had no incentive to seek creditworthy borrowers, but ratings agencies with equally strong conflicts of interest deemed the securities completely safe. And once the government had to come to the rescue, it had no emergency mechanism to wind down failed firms in an orderly fashion and impose haircuts on bondholders and other counterparties without imperiling the entire system.

In fact, the House of Representatives — with strong support from Geithner and the Obama Administration — has passed a financial-reform bill designed to address all those problems. It aims to provide stronger consumer protection, ensure that all financial firms and complex financial instruments are subject to strict oversight, and create a "resolution authority" so that no firm will be too big to fail during a crisis. And it received a grand total of zero votes from the House Republicans who are trying to fan the flames of the latest Geithner pseudo scandal. The Senate is trying to hash out a bipartisan bill, but for now the system in place is the system that failed. If that sounds outrageous to you, don't blame the firefighters who put out the last fire. Demand some real fireproofing.

So, again it is time we step up and demand that Congress do their job and enact these regulations and pass the reforms needed to regulate Wall Street and keep this from happening again. In the mean time, can we cut Geithner some slack? At least he is trying to put the fire out and it looks like he has done a pretty good job. At least we aren't falling off the cliff any more.

Give Credit to Timothy Geithner says Nouriel Roubini

A noted economist, Nouriel Roubini, and Matthew Richardson has just published an Op-Ed in the NY Daily News concerning the plan introduced by Secretary of the Treasury Timothy Geithner. He gives it high marks and praise with some conditions and some ifs, but still sees it as a good plan.

This is high praise indeed from a man who normally is reserved in his acclamations.

First a little background about Nouriel Roubini. Dr. Roubini (born on March 29, 1959) is a professor of economics at the Stern School of Business, New York University and chairman of RGE Monitor, an economic consultancy firm. After receiving his doctorate in international economics from Harvard University, he began academic research and policy-making by teaching at Yale while also spending time at the International Monetary Fund, the Federal Reserve, World Bank and Bank of Israel. Much of his early studies were focused on emerging-market countries.

Fortune magazine wrote of him, "In 2005, Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a Cassandra. Now he's a sage." In September, 2006, he announced to a skeptical International Monetary Fund (IMF) that an economic crisis was brewing. "In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession," according to the New York Times. According to the Times, he accurately foresaw "homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt." The NY Times even labeled him "Dr. Doom." In hindsight, IMF economist Prakash Loungani has called him "a prophet," and the vice chairman of AIG said "Roubini was intellectually courageous, and he called the shots correctly."

Because his descriptions of the current economic crisis have proven to be accurate, he is today a major figure in the U.S. and international debate about the economy. Although he is ranked only 410th in terms of lifetime academic citations, Prospect Magazine in January, 2009, voted him #2 on its "list of the world’s 100 greatest living public intellectuals." He has recently appeared before Congress, the Council on Foreign Relations and the World Economic Forum at Davos. Having become a sought-after adviser, he spends much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia."

Now to the Op-Ed and what he says about the Geithner plan as it is being called.

For the economy to be viable, the financial system must be healthy. For this to occur, the system needs to be cleansed of its poorly performing loans and so-called toxic securities backed by loans. This way, once creditworthy institutions and individuals come to the market looking for capital to borrow, financial firms will be in a position to lend them money.

Secretary Timothy Geithner's new toxic asset plan is a serious step in the right direction in that it creates a public-private partnership to buy the troubled assets of financial firms - in other words, to do the necessary cleansing. Up until now, with all the government bailouts, the financial system has been barely treading water. With this plan, it will still be a hard swim, but, at least, there is a path to shore.

The plan essentially calls for private asset management firms - private equity, hedge funds, mutual funds, pension funds - to invest side by side with the government.

The private investors need the government because there are so many bad loans held in the financial sector that only the government's balance sheet can handle taking them over. The government needs help from private investors so it doesn't get hoodwinked by the banks.

Why will investors participate? The deal is structured so that firms will be responsible only for losses on their initial investment. The hope is that by giving this big "freebie," the government will induce investors to participate, and that competition among them will lead to higher offer prices for the loans and securities, thus encouraging banks to sell them.

A lot of ifs, but if indeed successful, the plan accomplishes mission No. 1, namely the removal of the bad assets from banks' balance sheets. Even if banks wanted to do this on their own, they can't because the market for these illiquid assets has dried up.

But let's not have any illusions. The government bears the risk if and when the investors take a bath on the taxpayer-provided loans. If the economy gets worse, it could get very ugly, very quickly. The administration should be transparent in making clear that there is still a wealth transfer taking place here - from taxpayers to investors and banks.

Also, while this plan is designed by the Treasury, many of the big guarantees are being made by the Federal Deposit Insurance Corp. and the Fed. Why not use only Treasury funds? Well, then the administration would have to deal with Congress. While the populist hysteria of last week suggests this end run might make sense, there is something a little worrying about circumventing the legislative process on such a huge investment.

Moreover, there's the issue of transparency - or lack thereof. No one knows what the loans or securities are worth. Competing investors will help solve this by promoting price discovery. But be careful what you wish for. We might not like the answers.

Finally, we have to anticipate the likelihood that some banks will resist selling their loans and securities. Why? Currently, the government has been giving them the option to keep holding them with the hope that market conditions will improve.

Going forward, the government must insist on the banks' involvement in the new program. The reason that financial institutions must be pressured is that they are the cause of the financial crisis. They took advantage of loopholes to avoid regulatory requirements, taking a huge bet on securities they were never meant to hold in the first place.

What happens if removing toxic assets from a bank's balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, "Why keep insolvent banks afloat?" And having asked that, we will have to search for ways to manage the ensuing systemic risk.

Either way, once the plan is fully implemented, we will be entering a new phase of the financial crisis. The water is choppy. Let's hope we are strong swimmers

As I noted, yes he does have some reservations, but all in all he still holds more hope and gives it mostly a thumbs up. As most people have stated, this is a huge step to correcting what is wrong with our economy. Once these "toxic" or "Legacy" Assets whatever you want to call them are off the books of the banks, it will be easier for them to start lending and moving money again.

With the money starting to move again our economy can really start to become profitable again, or so the hope is. I don't pretend to understand it, in fact I am mostly clueless.. but I do know as long as the banks have these things laying on their books, holding down their profits they can't do anything. Just as you are in your home books, if you have more owed than you do coming in, there is no way you can ever break even.

That's why the banks can't do anything. Once the banks move these holdings off their books, by selling them.. to investors, then they can start to show an income again and start moving money... just as if you had a garage sale, or an auction, (which is what they are going to do ) and bring in some money, so you can buy more junk....lol

On of my Favorite Stategists Weighs In

Bob Shrum, who has always been one of my favorite strategists, weighs in on a little bit of everything going on in and around President Obama. Bob has been a senior adviser to the Gore 2000 presidential campaign, the campaign of Israeli Prime Minister Ehud Barak, and the British Labour Party. In addition to being the chief strategist for the 2004 Kerry-Edwards campaign, Shrum has advised thirty winning U.S. Senate campaigns; eight winning campaigns for governor; mayors of New York, Los Angeles, Chicago, Philadelphia, and other major cities; and the Democratic Leader of the U.S. House of Representatives.

So, as you can see he has plenty of experience and is pretty knowing about all things political and Democratic.

Here is what he had to say:

In my time in politics, I was often called a populist—and I don’t mind. To me, the idea is to confront entrenched interests and to build, as Al Gore said, “a stronger, fairer, more prosperous society.”

But the panicked spasm that drove Congress’s approach to the AIG bonuses represents a phony populism that wouldn’t even dent the systemic maldistribution of opportunity in America. The bonuses were both tone-deaf politics and indefensible policy. If the company’s CEO was unwilling to put a stop payment order on $165 million lavished on executives of the very AIG unit that had helped infect the global system with risky financial instruments, then he’s not worth the dollar a year he’s currently paid. But Congress’s rush to impose a 90 percent tax—not just on the AIG bonuses, but on bonuses at every enterprise receiving federal assistance—would punish sound financial managers along with irresponsible manipulators.

The tax couldn’t even be collected from British citizens who work in the London offices of American companies. Moreover, the tax provision—and the threat of more of the same—would be a disincentive to executives who make the right decisions and aid the restoration of credit markets and the financial system.

Instead of seeking a solution, Washington is searching for scapegoats. And in the present atmosphere, where psychic satisfaction trumps accountability or economic sense, the scapegoats aren’t limited to Wall Street. Two others are already in the shoot—Treasury Secretary Tim Geithner and Connecticut Senator Chris Dodd. The biggest one of all—President Barack Obama—has been positioned at the gate.

In February, Geithner was blamed for delaying the bank rescue plan when he decided that the blueprint on the drawing boards was defective. Evidently his critics believe that he should have pursued the financial version of the Rumsfeld approach—act first, think later. Then, he compounded his offense by failing to block the AIG bonuses—his critics aren’t quite sure how he should have—and he is accused of lying about what he knew and when. Alabama’s Richard Shelby, the ranking Republican on the Banking Committee, who hasn’t had a single constructive thought during the entire crisis, happily predicted that Geithner “won’t last long.”

Shelby is a paragon of responsibility compared to the House Republicans’ new shooting star, Eric Cantor, who offered the most demagogic and dangerous idea of all: stop the bailouts for AIG and perhaps other firms, thus risking another, even bigger, financial meltdown. As a member of a bankrupt party, it seems Cantor wishes a similar fate on the rest of us.

Rather than get bogged down in costly recriminations and cheap thrills, Geithner has announced a bank rescue plan that enlists private capital and is sensible and likely to be effective. He will soon shed his scapegoat status; sorry, Senator Shelby, Geithner will “last long.”

The road to redemption will be longer for Chris Dodd, who’s been blamed for doing the wrong thing because he tried to do the right thing. Just a month ago, he wrote an amendment into the stimulus bill that provided limits and oversight on Wall Street bonuses and golden parachutes. For his pains, Dodd was roundly attacked by financial executives who claimed his amendment was too restrictive. Later, an exemption for previously agreed payments was inserted into the legislation at the request of policy wonks and lawyers from the Administration. Everyone who’s ever worked on Capitol Hill knows how this works; legislation is vetted and altered in the last stages, usually by staff and often late at night. The change permitted AIG’s bonuses—although Dodd continued to be assailed by many on Wall Street.

Dodd is now scorned for being “bought” by campaign contributions from AIG executives. In the style of the Red Queen in Alice in Wonderland—first the verdict, then the trial—he’s been pronounced guilty for facilitating the bonus abuse he tried to prevent. Dodd, for whom I was a strategist and media adviser in 1998, seems doomed to remain a scapegoat until the end of his 2010 re-election campaign. By then, the facts may at last catch up with the smears.

A third scapegoat headed for the shoot this week is Barack Obama. New York Times columnist Frank Rich, who often captures the deeper meaning of events, misfired this time, labeling the AIG episode Obama’s “Katrina moment.” The President’s offense was insufficient anger, compounded by his decision to rely on financial experts like Geithner and White House economic adviser Larry Summers. Is Obama instead supposed to call on Joe the Plumber?

Rich at least gave Obama credit for taking responsibility—“more than he needed to, given the disaster he inherited.” Other critics were not so measured. How dare Obama talk to Jay Leno in this time of economic distress—even though Obama used his “Tonight Show” appearance as a kind of fireside chat to explain his policies in clear and colloquial terms. How dare he laugh on “60 Minutes” when he ruefully noted the streams of conflicting advice that pour in everyday.

One of Obama’s greatest strengths, however, is that he keeps his cool. He’s calm and centered on the big issues. He defended Geithner even before the markets validated the Treasury Secretary as the 497-Point Man on Monday. The President knows, as he’s said, that he’ll be judged by “results.” And to achieve results, he’s willing to resist the distractions and expedient excesses of anger that could impede progress. If the Republicans were as mature, they might finally come to understand that politics has to stop at the edge of the financial cliff. And maybe the rest of us could decide that if Barack Obama can keep his cool, then we can keep ours.

The emphasis is mine.. I thought this was something that was really out of line. To compare Pres. Obama's handling of the AIG bonus fiasco to Bush's handling of Katrina?? No, I am sorry. Frank Rich was way out of line on that one. I agree with Bob. How could he even suggest something like that? How could anyone think that because Pres. Obama didn't get as angry as everyone might have wanted him to be that would be the same as ignoring a city drowning, playing on his ranch in Texas, eating birthday cake with McCain. Then flying over and finally watching a CD of the damage 5 days later and saying oh wow, it's bad huh.. That's what you think Pres. Obama has done with AIG??

Give. Me. A. Break.

Do you remember during the campaign.. One of the things everyone made the comment was that Pres. Obama was Mr. Cool.. He wasn't going to fly off the handle and be like McCain.. He was going to think before he acted.. He wouldn't do the GUT reactions like Bush did. That's why people liked him.. Now because he wasn't angry enough, this is his Katrina moment...

I reject that. Simply reject that.

I will hold off on my other thoughts for another post. I have said before how I feel about Tim Geithner, so there is no reason to post it again. I will just close it here. I hope I didn't step on any toes, but I just think Rich was over the line and Bob said it better than I ever could.

Geithner Answers Senators Questions Thursday

Here is a video of some questions and answers from Tim Geithner and Democratic Senator Jeff Merkley, from Oregon Thursday. This is what I mean about him getting a bum rap by the media.

Geithner has always been a behind the scenes person, never been in front of the cameras much and so isn't very comfortable when he is speaking publicly. I think this is what hurt him when he made the presentation that everyone criticized.

Now, he just needs to either keep making them so he gets more comfortable or find someone else to speak for him...lol Either way, I still like the guy and think we have the best team for the job. Just listen to his answers and how he can hit the point and answer questions in a clear way. He sure doesn't seem to me like he is having trouble putting words together as the media has painted him.

Tom Daschle Tax Problems too big to handle???

I have said all along if there was a problem I would talk about it. Well, I have a problem today.

Tom Daschle. It looks like he is becoming a problem. He has known since June that he had a tax problem and he just now is paying them and it is just now coming out. Why did he not pay them in June?? That would have really defused this whole thing.

Also, why did he not know he had to pay these taxes. If he had an accountant, what was he paying this guy to do?? I think I would be firing him and finding another one if he missed this and it cost me that much.

No, I am not blaming this on Pres. Obama, but I am saying it can present a problem for him that we really don't need right now. After dealing with Tim Geithner, now this.

Pres. Obama is struggling with the ethics issues he wants to hold to on the lobbying issues. They are so entrenched in Washington politics that it is hard to find good help in Washington that doesn't have ties to them, no matter who or what administration you are from. It seems once you leave office you automatically go to work for a lobbying firm.

He has already had to relax his stance from when he was on the campaign trail and is getting lots of heat from the media and some pundits over that. Now after asking for some waivers he is getting even more. Even though the ones he has hired fit in with the guidelines he set, Politico and others are trying to say he is stretching his boundaries by hiring so many. Lets see... he has 12 people who have very tenuous ties to lobbying out of nearly 8,000 employees. I don't think that's too bad.

But, back to the main issue here of the Daschle problem. What are we to do?? He himself never lobbied, but his wife did, so are they going to use that against him also?? I don't know for sure what to think about it, I am torn.

I was really leaning toward Howard Dean for this position anyway, and never understood the pick of Daschle. So, maybe it is time for a change here. I still think it might be a good use of Dean. Of course, we still don't have anyone in the Surgeon General position... Whatever happened to the Sanjay Gupta story anyway???