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Timothy Geithner

Only A Taxpayer Would Mistake Tim Geithner For A "Banker"

Moe Tkacik | April 21, 2009, 3:11PM

Too often a tedious standoff between the somnolent/dry and the grandstanding/gratuitous, Congressional hearings about the financial crisis have nevertheless produced a few moments of existential clarity. (We refer, obviously, to the time in December when Maryland Rep. Elijah Cummings asked Neel Kashkari if he was a "chump", which was surely a question on the lips of anyone who had glimpsed the then-TARP overseer's high school yearbook photos.)

But Treasury Secretary Tim Geithner's appearance before a the TARP oversight panel this morning yielded a similarly exchange when AFL-CIO Associate General Counsel Damon Silvers dared to accuse Geithner of being a "banker":

Partial transcript after the jump.

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Topics: Elizabeth Warren, Jimmy Cayne, Timothy Geithner

AIG

Wall Street To Washington: "I Want My Campaign Contributions Back"

Moe Tkacik | March 25, 2009, 1:33PM

Yes, that was an actual sentence spoken -- or more specifically "groused" -- by an anonymous Wall Street executive concerned for his "personal safety," though not enough to be dissuaded from attending or talking to a reporter at yesterday's Wall Street Journal 'Future Of Finance' Conference, where the future sounded like it had gone back in time and purchased a hundred billion dollars worth of extra credit protection, which is to say suspiciously like Finance Past.

It looks like Wall Street, no doubt emboldened by the recent 20% runup in the S&P 500, the fourteen bucks in matching leverage the government is offering them for every dollar they invest in toxic/"legacy" assets and the prospect of better-than-awful numbers at Citigroup and Credit Suisse, got its hubris back along with its proverbial groove. In the six months since it nearly triggered global financial Armageddon, the investment banking community has seemed, if not quite chastened, at least somewhat subdued amidst the nation's ever-heightening awareness that their industry engineered the ever-intensifying economic morass. But not anymore!

This morning the New York Times ran as an op-ed the resignation letter of one Jake DeSantis, a securities trader and executive vice president at AIG's infamous financial products division and recipient of one of those million dollar bonuses ($742,006.40 after taxes.) That's right: he's keeping it. And don't ask him if he feels guilty about it because he will tell you: NO.

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Topics: AIG, Federal Reserve, Goldman Sachs, Timothy Geithner, Treasury Department

AIG

Who Are The AIG Counterparties? Here Are Some...

Zachary Roth | March 5, 2009, 4:58PM

Over at TPM, Josh has been doggedly highlighting the refusal of both AIG and the federal government to reveal the identity of AIG's counter-parties in its disastrous credit default swaps. And several lawmakers have in recent days pressed Tim Geithner and Ben Bernanke on the issue.

The question matters, of course, because AIG needed to make its most recent multi-billion dollar trip back to the public trough (that's over $160 billion in all for AIG, if you're counting) in order to pay back its creditors on those disastrous swaps -- and thereby, we're told, prevent a wider financial collapse. So identifying who those swaps were made with will tell us, in effect, who this latest portion of our money is ultimately going to.

It's worth noting, then, that, thanks to some great reporting from the Wall Street Journal and the New York Times, we do in fact have some preliminary information about who AIG's partners were on the swaps.

This Journal story from October 2008 names the following nine American and foreign banks as having bought swaps from AIG: Goldman Sachs; Merrill Lynch; UBS of Switzerland; Credit Agricole SA of France; Deutsche Bank of Germany; Barclays, and Royal Bank of Scotland Group, of Britain; and CIBC, and Bank of Montreal, of Canada.

Merrill is described by the Journal as a "big client" of the AIG unit that did the swaps.

By the end of 2007, with the value of the underlying assets plummeting, many of these banks had asked for collateral on the swaps, according to the Journal.

For instance, the paper reports that Goldman held swaps that insured about $20 billion of securities. In August 2007, Goldman demanded $1.5 billion in collateral from AIG. It ultimately got $450 million, then another $1.5 billion last October. At that point, says the Journal:

Goldman hedged its exposure by making a bearish bet on AIG, buying credit-default swaps on AIG's own debt.

That picture of Goldman's exposure jibes with a New York Times story from September 2008 about the credit default swaps, which reported that Goldman was AIG's "largest trading partner," and likewise gave a figure of $20 billion for Goldman's exposure to AIG.

The Times also implicates another domestic firm: JP Morgan (now JP Morgan Chase). In fact, it recounts that it was derivatives traders from that company that a decade ago, first brought to AIG's London-based financial products unit, run by Joseph Cassano, the ill-fated idea of doing credit default swaps.

It reports:

Ten years ago, a "watershed" moment changed the profile of the derivatives that Mr. Cassano traded, according to a transcript of comments he made at an industry event last year. Derivatives specialists from J. P. Morgan, a leading bank that had many dealings with Mr. Cassano's unit, came calling with a novel idea.

Morgan proposed the following: A.I.G. should try writing insurance on packages of debt known as "collateralized debt obligations." C.D.O.'s. were pools of loans sliced into tranches and sold to investors based on the credit quality of the underlying securities.

It's not 100 percent clear, then, that JP Morgan Chase is a current counter-party of AIG on the swaps -- but it certainly wouldn't be surprising.

That same Times story offers another hint, albeit a vague one, about the identity of the counter-parties.

While clients and counterparties remain closely guarded secrets in the derivatives trade, Mr. Cassano talked publicly about how proud he was of his customer list.

At the 2007 conference he noted that his company worked with a "global swath" of top-notch entities that included "banks and investment banks, pension funds, endowments, foundations, insurance companies, hedge funds, money managers, high-net-worth individuals, municipalities and sovereigns and supranationals."

What to make of all this? Well, here's one thing. As Josh has noted, the usual argument given against disclosing the identities of the counter-parties is that it would reduce public confidence in the banks that were named, with potentially disastrous consequences for their positions. But there's little evidence we're aware of that any of the banks named above suffered such an effect when, for instance, the Journal and the Times published their stories -- whose accuracy have not been questioned.

In fact, Geithner and Bernanke haven't deigned to explain their position in even this much detail -- so it's difficult to know whether there are factors we're not considering. But in the absence of a fuller explanation, we'll keep pressing...

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Topics: AIG, Bailout, Ben Bernanke, Federal Reserve, Financial Crisis, Merrill Lynch, Timothy Geithner, Treasury Department, Wall Street

Barack Obama

Ex-IMFer On Geithner's Speech: "This Is Not A Plan"

Zachary Roth | February 10, 2009, 12:30PM

Timothy Geithner's speech laying out the Treasury's plan for bailout 3.0 struck us as devoid of key details that might have settled some of the uncertainty and confusion surrounding the Obama administration's approach.

That's how it struck Simon Johnson, the former chief economist for the IMF, too.

Johnson told TPMmuckraker that the Treasury Secretary's speech laid out some important principles, especially in regard to the need for transparency and accountability. And he said that Geithner's willingness, in contrast to his predecessor, Henry Paulson, to criticize bankers and policy-makers -- implicitly himself -- was also welcome.

But then, said Johnson, the speech went into "Paulson-land," as Geithner said he would take input from the public on the public-private investment fund the Treasury is considering creating.

That lack of specificity, said Johnson, isn't helping restore confidence, pointing to a sharp drop in the market today, especially in the financial sector. "The market is responding to vagueness," said Johnson. "This is not a plan. In the annals of plan-announcing, this is very vague."

The "stress test" that Geithner discussed today, said Johnson, is a promising idea, but again wasn't fully enough fleshed out to know whether it'll be effective. The proposal, used effectively by Sweden in the early 90s, would require banks to lay their cards on the table, allowing the government to make a rough -- and conservative -- valuation of their assets. That would then allow the government to take over those banks that are truly insolvent, rather than continue to try to prop up failing institutions and suffer a "death by a thousand paper cuts."

Johnson had harsh words for the administration's plan, announced late last week, to modestly limit executive compensation. He called it "a joke," and said Geithner had lost credibility because of it. "No one in the markets is buying those [limits] as meaningful."

Geithner will testify before Senate committees this afternoon and tomorrow morning. So we'll see how many more details we get then. But it looks like this is all still a work in progress.

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Topics: Bailout, Barack Obama, Timothy Geithner, Treasury Department, Wall Street

Timothy Geithner

Treasury Issues New Rules On Bailout Lobbying

Zachary Roth | January 27, 2009, 11:43AM

On his first day on the job, Treasury Secretary Tim Geithner has issued new rules designed to curb lobbyists' influence over the bailout, limit conflicts of interest and increase transparency over the department's investment decisions.

From a Treasury statement:

Combating lobbyist influence in the EESA process: The Treasury Department will implement safeguards to prevent lobbyist influence over the program, including restricting contacts with lobbyists in connection with applications for, or disbursements of, EESA funds.

Keeping politics out of funding decisions: The Treasury Department will ensure that political influence does not interfere with EESA decision making, using as a model for these protections the limits on political influence over tax matters.

Certification to Congress on objective decision making: In reporting to Congress, the Office of Financial Stability (OFS) will certify that each investment decision is based only on investment criteria and the facts of the case.

The investment process will be transparent and based on objective criteria:

-Only banks recommended by the primary bank regulator will be eligible for capital investments.

-OFS will publish a detailed description of the investment review process undertaken by the regulators and OFS.

-The Treasury Department will ensure adequate resources exist to process applications as quickly as possible with priority to the date of the application as received by OFS and will formulate procedures to ensure integrity and regularity in the application process.

Over the weekend, the New York Times reported that many of the banks receiving bailout funds continued to lobby the government -- including on the bailout itself.

The devil, of course, will be in the details -- and those details don't yet appear to be forthcoming. What sort of safeguards, for instance, will limit the lobbying and political influence? How will OFS guarantee that investment decisions are on the level? Etc. Etc.

Still, combined with Geithner's assurance in his confirmation testimony that Treasury will insist that banks do more to track the funds they receive, we can at least hope that the second half of the bailout will be slightly better run than the first.