Methinks It May Be Time for Mr. Geithner to Go

Reggie Middleton's picture

It's going to be pretty hard extracting your metatarsus
from your anus this time around. I mean, everyone makes mistakes with
taxes, but the multi-billion dollar back door bailout that you tried to
hide via EMAIL???!!! Come on, guys. If you're not smarter than that
then you definitely won't be able to solve this financial situation
thingy... Unless he knew absolutely nothing about the biggest bailout in the history of his country - under his watch, that is.

7 (Bloomberg) -- 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. And I must ask, Why???!!!
If it was to be secret, why use email. If it wasn't to be a secret,
why'd you do it anyway! Did you assume that there would be de minimus
blowback in the form of repercussions?

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. Hey, at least somebody is doing their damn job!

New York Fed took over negotiations between AIG and the banks in
November 2008 as losses on the swaps, which were contracts tied to
subprime home loans, threatened to swamp the insurer weeks after its
taxpayer-funded rescue. The regulator decided that Goldman Sachs and
more than a dozen banks would be fully repaid for $62.1 billion of the
swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout”
of financial firms.

was actually more of a front door bailout. Pay attention all - Goldman
would be no more if the government didn't back that payment! This is
the counterparty risk that I was crowing about when I told everybody
that Bear Stearns was going to go bust three months before they went
bust -
Is this the Breaking of the Bear?. There is still a multitude of daisy chain counterparty risk out there.  JP Morgan, et. al. anyone??? An Independent Look into JP Morgan.

Click graph to enlarge




 Cute graphic above, eh? There is plenty of this in the public preview.
When considering the staggering level of derivatives employed by JPM,
it is frightening to even consider the fact that the
quality of JPM's derivative exposure is even worse than Bear Stearns
and Lehman‘s derivative portfolio just prior to their fall.

Total net derivative exposure rated below BBB and below for JP Morgan
currently stands at 35.4% while the same stood at 17.0% for Bear
Stearns (February 2008) and 9.2% for Lehman (May 2008). We all know
what happened to Bear Stearns and Lehman Brothers, don't we???
Subscribers, see The JP Morgan Full Forensic Report is ready for download.
are actually more at risk now than we were when Lehman failed! We have
more counterparty risk concentration through lesser and lesser
counterparties - As the markets climb on top of one big, incestuous pool of concentrated risk...
Risk is being taken off balance sheet that is staggering, yet remains largely unreported in the mainstream media - "Why Doesn't the Media Take a Truly Independent, Unbiased Look at the Big Banks in the US?
Everybody knows the banks are too big to safely 1control (worldwide, not just in the US), but are they broken up? Nope! Any objective review shows that the big banks are simply too big for the safety of this country.
And why not? Regulatory capture, my friend - How Regulatory Capture Turns Doo Doo Deadly - or more simply put, straight up bribery!
a matter of fact, the only thing that has significantly changed is the
fact that the Fed has instituted implicit and explicit put options
under the wayward risk taking market participants who started all of
this and acts as not only the liquidity provider of last resort, but
the liquidity provider of only resort in many if not most markets.
Ok, "Rant Engine" offline and back to the article:
appears that the New York Fed deliberately pressured AIG to restrict
and delay the disclosure of important information,” said Issa, a
California Republican. Taxpayers “deserve full and complete disclosure
under our nation’s securities laws, not the withholding of politically
inconvenient information.” President Barack Obama selected Geithner as
Treasury secretary, a post he took last year.

Bank Payments

requested the e-mails from AIG Chief Executive Officer Robert Benmosche
in October after Bloomberg News reported that the New York Fed ordered
the crippled insurer not to negotiate for discounts in settling the
swaps. The decision to pay the banks in full may have cost AIG, and
thus taxpayers, at least $13 billion, based on the discount the insurer
was seeking.

... In order to make only the disclosure that the
Fed wants us to make,” Shannon wrote, “we need to have a reasonable
basis for believing and arguing to the SEC that the information we are
seeking to protect is not already publicly available.”

disclosed the names of the counterparties, which included Deutsche Bank
AG and Merrill Lynch & Co., on March 15. The disclosure said AIG
made more than $27 billion in payments without identifying the
securities tied to the swaps or listing the value of individual
purchases by each bank, details the Fed wanted to keep out, according
to the March 12 e-mail from AIG’s Shannon.

to Shannon’s e-mails obtained by Issa, the New York Fed suggested that
AIG refrain in a filing from mentioning so-called synthetic
collateralized debt obligations, which bundled derivative contracts
rather than actual loans.

The filing “reflects your client’s
desire that there be no mention of the synthetics in connection with
this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They
will not be mentioned at all.”

... As part of a bailout that
swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a
taxpayer-funded facility designed to remove mortgage-linked swaps from
the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008,
that AIG executives wanted to publicly disclose details about Maiden
Lane the next day.

... Do you think it might be feasible to hold
off on the Maiden Lane III 8K and press release until next week?” Brett
Phillips, a New York Fed lawyer wrote in an e-mail that day. “The
thinking is that the Maiden Lane III closing will be a less transparent
event, and it might be better to narrow the gap between AIG’s
announcement and the New York Fed’s publication of term sheet

“Given the significance of the transaction, AIG
would be best served by filing tomorrow,” Shannon wrote. “We will of
course be guided by your counsel.” The document outlining the Maiden
Lane agreement was posted on Dec. 2, 2008.

believe that the agreements listed in the index (i.e., the Master
Investment and Credit Agreement and the Shortfall Agreement) do not
need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25,
2008. “Please let us know your thoughts in this regard.”

Shannon replied that “the better practice and better disclosure in this
complex area is to file the agreements currently rather than to delay.”
The agreements were included in the Dec. 2 filing.

Reserve officials provided AIG’s counterparties with tens of billions
of dollars they likely would have not otherwise received,” Barofsky
wrote in a Nov. 17 report. “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.”

AIG’s first rescue was an $85 billion credit
line from the New York Fed in September 2008. The bailout was expanded
three times and is valued at $182.3 billion...

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Anonymous's picture

clearly Tiny Tim should be indicted, but don't hold your breath....

Ripped Chunk's picture

Seems time reveals that most things called "conspiracy theories" presently end up being revealed later as truth.  It just takes time. If we have any time left............    

"33 Conspiracy Theories That Turned Out To Be True, What Every Person Should Know…"  I thought this was a good summary.

Cold comfort in the fact that the internet allows news to travel more quickly than ever. In the past you just had to shut up the mainstream media. Ah the good old days!

Please keep up the great work and most importantly keep the faith.

Anonymous's picture

I second that opinion. Geithner must go. Fire that fucker. Then indict him.

Anonymous's picture

If Timmy the Tax Cheat looses his job whats to stop him skipping the country, and taking all his cash (our money) with him?

We have a better chance of getting to the bottom of this skullduggery, and prosecuting the perpa-traitors if they are still in their respective seats of power. I still want to know who placed those puts on BS after the NY Fed's big round table right before the crash.

I have only been on this site a few months, but I am simply loving the real investigative journalism, and the commentary that has so long been absent in the main stream media.

Keep up the great work, both authors and commentators.

bugs_'s picture

Arrogance of power, arrogance of unaccountability.

rc whalen's picture

Good post.  The real question raised by this latest example of Geithner's criminal behavior is why Mary Schapiro and the other SEC commissioners are sitting silent.  We prosecute hedge fund gurus for insider trading, but when a government official illegally interferes with the disclosure of public companies, the SEC does nothing.  Tim Geitner needs to go at Treasury, but that may only give us Chris Dodd as a replacement.

Jefferson's picture

The reason that Schapiro and the rest of the clowns at the SEC remain silent is they are bought and paid for.

The fact that an admitted tax cheat can become Secretary of Treasury tells everybody all they need to know about the nature of the scum running our government.

But, of course, there is a much bigger agenda at work than simply looting the taxpayer.

It is apparent Geitner et. al. are out to INTENTIONALLY bankrupt the US government.

Meanwhile the banking oligarchs are getting their most recent marching orders at meetings with the BIS.

Say goobye national sovereignty.




Anonymous's picture

Pegging JPMs derivative exposure at 85tril vastly overstates what their risk is. The majority of that is interest rate swaps where the notional plays no roll other than deciding what the payments will be based on and the risk is a very small percentage of the overall notional.

Reggie Middleton's picture

You need to read the whole document to get the gist of my message, my friend.

Anonymous's picture

I understand and agree with some of the message. I just don't like when irrelevant eye-popping figures are used as support.

Anonymous's picture

You mean to tell me that you prefer Summers over Geithner ?

Oh My.....

Look I know about this great CDS program......

And I cannot wait to tell you about alternative investments such as private placements....

Mr. Summers.....You used to work at Harvard ?

And you are aware they have have lost quite a bit of $dough....?????


Anonymous's picture

Let's think this way....

Let's say I give you a banking license....

I let you margin 30:1.....

I loan you money at 0%....."All you want"....

I then sell you my short term debt at 2%.....

Mom and Pop.....give you their life savings....
You pay them 0%....nothing....and do it for years....
Which forces them to spend what they have....

For every $1000000 in MOM and Pop savings you have .....I pay you 2%....BUT the 2% is paid on 30X1000000=$30,000,000....Thus you get $600,000....

And Mom and Pop get nothing....

Is this in the interest of Mom and Pop ?


Is this in the interest of banks only ?

Since taxes are the source of the 2% paid.....of
which the majority is paid by Mom and Pop as well....

What does this suggest ?

Anonymous's picture


It suggests that the "free money" the banks are getting from Uncle Ben is not really "free" but is actually being stolen from savers through Bubble Ben's ZIRP policy. I have lost tens of thousands in potential interest income in my MMs and T-bills the last two years due to ZIRP.

Anonymous's picture

Exactly right. And every time I look at my accounts at Vanguard, I get just a little bit more pissed off about it and one day soon, I'm going to find someplace else to put my Roth and Traditional IRA monies because I'm being ripped off. I just didn't worry about that much because I thought the end was so close last spring that why should I bother?