Another Geithner Ethics Compromise (Let Them Eat Cake Edition)

I am struggling for the right metaphor to describe Timothy Geithner’s conduct. Marie Antionette ain’t bad, but perhaps better is the Last Commandment from Animal Farm:

All animals are equal, but some animals are more equal than others

This blogger was troubled by Geithner’s demeanor during the Senate hearings on the Bear Stearns bailout, when he was dismissive and conveyed the impression that he thought the appearance was a waste of his valuable time.

Then we have the issue of Geithner’s failure to pay payroll taxes. Perhaps he did somehow miss the IMF memo warning that he was indeed liable for the employer and employee portion (as someone who has run a business for 20 years, I cannot fathom ho Geithner would be ignorant on this front). Nevertheless, in 2006 he was audited for 2003 and 2004 and had to pony up (but was not required to pay penalties, would mere moretals ever get such white-glove treatment?).

What really does not pass the smell test is that Geithner had been employed by the IMF in 2001 and 2002 and had not paid payroll taxes then either. He did not clear up that issue when he learned he had filed incorrect returns via the 2006 audit; instead, it was Team Obama that connected the dots and got him to satisfy the older (but unassessed) tax deficiency.

Geithner is clearly an ambitious man. Even if he though he could get away with it, good judgmenet (and ethics, but we’ll put that aside for now) would have argued for cleaning up 2001 and 2002 sooner rather than later.

But guess what, his gamble paid off, he did get away with it (as he didn’t pay until forced to, and did not suffer as a result).

Willem Buiter has repeatedly charged with the Fed being a victim of what he called “cognitive regulatory capture” by Wall Street, The latest Geithner incident illustrates both that he is literally too close to the Street and has absorbed the industry’s attitude that rules don’t apply to players.

From Politico:

Newly installed Treasury Secretary Timothy Geithner issued new rules Tuesday restricting contacts with lobbyists – and then hired one to be his top aide.

Mark Patterson, a former advocate for Goldman Sachs, will serve as chief of staff to Geithner as the Treasury Department revamps the Wall Street bailout program that sent an infusion of cash to his former employer.

Patterson’s appointment marks the second time in President Barack Obama’s first week in office that the administration has had to explain how it’s complying with its own ethics rules as it hires a bevy of Washington insiders for administration jobs…

Treasury spokeswoman Stephanie Cutter lauded Patterson’s “long history of public service in the U.S. Senate, both as a staff director of the Senate Finance Committee and policy director for the Senate leader.

Yves here. Goldman has shrewdly in the last 15 years taken particular interest in hiring former government officials (if memory serves me right, Gerald Corrigan, former vice chairman of the FOMC, was Goldman’s first high profile acquisition, and the firm has since encouraged senior staffers to seek government posts. And lest we forget, Henry Paulson was assistant to John Erlichman, who was convicted of conspiracy, obstruction of justice and perjury). Back to the story:

“He brings significant expertise to the job of chief of staff and has agreed to a far-reaching ethics pledge to remove any hint of a conflict of interest,” she added.

According to that pledge, Patterson will be prohibited for the next two years from participating in Treasury decisions related to Goldman Sachs and the specific issues on which he lobbied.

Yves again. If you believe that, I have a bridge I’d like to sell you. If Patterson rescued himself from every decision that you and I thought he should step aside from, he’d be unable to do any meaningful work for Geithner. This commitment, to the extent it is observed at all, will be interpreted very narrowly. And I’m not alone in that view, particularly given the scope of his efforts:

Still, Sloan and financial service lobbyists question how Treasury will make those determinations. “Goldman so permeates the markets, how can you separate them out?” Sloan asked.

Patterson was a registered lobbyist for Goldman Sachs from 2005 until April of 2008. Lobbying disclosure forms suggest he represented the financial giant on a wide array of issues, including visas, tax credits for cellulosic ethanol and an Indian gaming facility in New York state. ….

The Treasury lobbying rules issued by Geithner Tuesday would restrict department lobbyist contacts connected to applications for funding from the Troubled Asset Relief Program and those associated with banks receiving government assistance.

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  1. Anonymous

    Beginning to be written as a classic coup whereas the banking industry is consolidated then nationalize with Congress appearing in control but the bank masters pulling the puppet strings.

    Stranger things have happened.

  2. Anonymous

    So let me take a hint. You’re saying we’ve got a fascist government with some guy in charge of Treasury so obstinate and dismissive of our laws that he pisses on them in public whenever he can?

    Just checking.

    There should be laws against this kind of thing.


  3. john bougearel

    Not Cool that he did not pay the penalties for his tax delinquency/evasion.

    I did not even know that was possible.

    But, while cognitive regulatory capture teaches WS rules don’t apply, how does that happen, if not for the governing agencies allowing it to happen in this case the IRS shame on the govt agencies for their cognitive dissonance. No way for the govt to grab bull by the horns with this kind of contradictions/conflicts within the govt

  4. Anonymous

    What is happening in Washington is criminal activity at the highest level.

    The collapse of the American empire is unfolding before our eyes.

    Red Baron

  5. Anonymous

    Look, we’re just excercising some China envy here – how dare they think they have the corner on corrupt politicians who willfully flout the law? And how dare the American people think ‘democracy’ would make our politicians that much better than the Chinese?

  6. bg

    I fear that the focus on the tax issue distracts from the regulatory capture issue. It feels like a foot foul against treason. And while I think he should have been fouled out, I know I live in a glass house when it comes to the standard that we ask our government officials to live by. Yves, I know you will stand against my opinion on principle (you cannot run treasury if you are a tax thief). It just feels like FoxNews when you harp on the shoplifting as Rome burns.

    Obama will count Geithner as one of his mistakes, but it will be because he is in over his head, rather than because he shaved points.

  7. Ishmael

    The Fed may be a victim of cognitive regulatory capture but I say that Greenspan fell prey to “adulatory capture.” Once he was pronounced the Maestro and one of the saviors of the world, he got hooked on adulation, compelling him to conduct his infamously asymmetrical monetary policy

  8. Anonymous

    The fact that Geithner ran the New York Fed as today’s wondrous financial system was being constructed is all you need to conclude that he should never be allowed to set foot within 200 ft. of the Treasury building. The tax thing is just icing on the cake.

  9. RPB

    Yes, this is particularly loathesome. But do not hate the player, hate the game. Goldman is just doing what is legal and it is seeking its best interests. The continued legality of such moves and the lack of Obama action will only ensure it continues. Goldman has yet again proven why it retains a competitive advantage over its rivals.

    Our new President has chosen to campaign on these issues but has refused to take oval office action. Strangely enough, he has taken made choices that directly contradict his "disdain" for the Washington lobbying system. And it is quite sad that few in the media have spilled much ink over it.

    Of all the Washington political figures he could have chosen from the Democratic Party, BHO appoints Rahm Emanuel as his Cheif of Staff! We need not discuss his time working at Wasserstein & Parella or his brief, two year stint at Fannie from 2000-2002 (hmmm, what went on then???)

    It is starting to become apparent that "change" means replacing Republican cronism with Democrat cronism. But like in Chicago, we'll atleast have the fascade of effecient, functioning government.

    We need serious change, not a hybrid of the two most corrupt cities in the US.

  10. Yves Smith

    There are two issues that are being conflated. One is not mentioned directly here, but I have discussed elsewhere, is that the Obama economics picks, ex Volcker, are dreadful. The people who helped created the mess are still in charge. They will be completely unwilling to tear down the rotting edifice they built.

    The second is about hypocrisy and corruption. Even if public officials were not squeaky clean years ago, there was a greater concern about appearances, and that in turn did keep some of the worst behaviors at bay.

    Now we have a President who gives stirring speeches calling for sacrifice, yet gives his second most powerful Cabinet member a free pass on a policy Obama touted as proof that “business as usual” in DC was going to change.

    Yes, this is only one example, I am sure there are more, but I don’t follow DC inside baseball, I only see what is on my beat. And this is not good because it is so flagrant.

    bg, I disagree with your take. Values do count. The fact that we now passively accept that the rich abide by a completely different set of rules AND that that class has grown so large and adept at protecting its interests IS a big part of the problem.

    Yes, the rich have more more power, special passes and perks. That always goes with the territory. But at least until say 30 or so years ago, there was also a strong sense of noblesse oblige. That has gone out the window, as has the concern about not rubbing the noses of the peasants in their special standing.

  11. Anonymous

    We can hope Geithner will soon trip himself up again and be forced to resign. If he’s stupid enough to have made the mistakes he’s made, he’s likely to make some more before long.

  12. wunsacon

    Put a farmer in charge!

    Get someone who has contempt for the industry over what they have done to this country and few/no industry contacts. Somebody with a very different perspective.

  13. Anonymous


    Your comment at 2:01am as well as your continual hard and extraordinary work to help parse the largest boondoggle in history, is why I continually read you everyday.

    Keep up the good work!

  14. Anonymous

    This is a crisis of credibility. The only way to restore credibility is through a strong measure of justice. We need bold, ball-busting leadership. Teddy Roosevelt on steroids.

    Instead we get a kinder, gentler Bushinomics.

    I do think Obama is quite intelligent, and hold out a small amount of hope that he will realize the mistake of picking Geithner (and Summers). But I’m not holding my breath.

  15. Anonymous

    Goldman Sachs is the most powerful investment bank in the world. It owns the US Treasury…Rubin, Paulson and now Geithner. GS also has its own “inside man” in the White House watching and advising Obama in the form of Lawrence Summers. Goldman Sachs is like an octopus. Don’t be surprised when BB leaves the Fed, someone from GS will take over the helm of the Fed.GS already owns the Canadian and Italian central banks (all are headed by former GS employees).GS also owns a signiciant shareholding in the NYSE (via backdoor listing prior to its listing).I suspect John Thain will be returning to GS in one form or another.

  16. dailybail


    i’ve discovered i can write insulting things on top of photos. this is a gamechanger and will eventually get me sent to prison.

    My latest post is called ‘Taxpayers Tell Citi to Suck It! Pandit Complies.’

    It’s actually a serious piece.

    Come see before the feds come knocking. read down the page until you’ve seen 2 large pandit pics.

    with major respect for what you do, db

  17. Anonymous

    US government officals are at best incompetent or at worst corrupt on all levels. Those are the choices.

  18. Anonymous

    bg at 1:09 criticizes Yves for ‘harping’ on Geithner’s explicit tax dodge/thievery. If I’m reading the comment correctly, bg would prefer the entire focus rest on regulatory capture. BG’s either/or-ism is misplaced (and the use of ‘harp’ inartful).

    Both points are essential to any reasonable understanding of what beliefs and behaviors — what values – Geithner will bring to his new job and new organization. Geithner quite obviously believes his personal behavior is subject only to what he deems best suits his own interests. He is entirely self-interested.

    When, as head of NY Fed, it served his self interest to go along with BB and Paulson, he dis so. When, as Treasury head, it served his self-interest to parrot Obama’s words, he does so.

    Geither obviously sees himself as a special ‘player’ who, with other ‘players’, contend over power in service of self.

    Geithner has no conscience beyond that that serves him best. Obama, on the other hand, does have a conscience and, from his behaviors, seems to believe in his own capacity to provide a conscience to others, like Geithner, who lack that faculty.

    Geithner’s predictable beliefs and behaviors – his predictable values — will now set one set of rules for others to follow while preserving a different set of options for himself.

    This will happen. This is happening. This is why his tax dodge/thievery, his self-interested service to Paulson, his self-interested deal with Obama and his highly predictable Wall St values are all of a piece with one another.

    None matters ‘more’ than the others. All are worth ‘harping’ upon.

  19. Michael Fiorillo

    Doug Henwood of Left Business Observer, who deserves citation here, had an interesting observation about Obama in an interview posted on his site (

    Henwood has been skeptical of Obama all along, and mentioned that BHO’s insistence on “post-partisanship” and undue haste to concede to his adversaries indicates – not to get too psychoanalytical about it – a ambitious outsider’s need to be liked and accepted. FDR, on the other hand, secure in his status as a member of the ruling class, was able to make the decisions to save the system from itself, even though it outraged his class peers. He was confident enough to speak about driving the money changers from the temple, and to welcome the hatred of the dunces he was trying to save from their own greed and self-delusion.

    I believe that if Obama continues to play nice with these bastards, and continues to seek their approval, he will be ground to bits. He’s going to have to take a hard line, rhetorically and policy-wise, for his own self-preservation.

    At least, that’s what the optimist in me is saying.

  20. Anonymous

    I’m with Red Baron above:

    “What is happening in Washington is criminal activity at the highest level.

    The collapse of the American empire is unfolding before our eyes.”

    How does one restore Trust, Confidence, Rule of Law, Regulatory Competence when we see before our very eyes, that the Criminality accelerates and is not prosecuted. If Crime is not prosecuted it spreads.

    It amazes me that even some Ballpark Analysis of the Criminality in the US Financial, Healthcare, War Rackets bears no detailed analysis. As the Criminals expand their power and influence, there is less economic pie to go round, pretty simple. Meanwhile, our great Economic Experts meet in Davos for a Klosters**** mouthing both Brie and platitudes that have no relation to actual solutions.

    As for Timmie, don’t forget he also involved his children in his criminality, using them illegally for tax deductions for their camps. And then the illegal immigrants he employed. In any judicious society, all of this would not only have been disqualifying but would have warranted further investigation for other crimes, like insider tradings, securities fraud, bribes, etc.

    All of which explains why Bankers will not lend money to each other; they all know they are Criminals. So, a Third Party, US, must guarantee their bets.
    Also, pretty damn simple.

  21. fresno dan

    Although it is outrageous that people in government who pass laws(the senate) think other people in government (Geithner) need not obey those laws (and thereby breed contempt for the rule of law and show “equal justice under law” is meaningless), the real question is:
    When Geithner was running the New York Fed, did he know how Goldman, Bear, and Lehman made money??? Any answer is disturbing

  22. robert

    Geithner is a little punk and I would like to smack that stupid little entitled smirk off his face. The fact that he was confirmed says it all- it didn’t matter what his infractions were with the IRS. He purposely didn’t pay and he doesn’t really give a sh*t either. I am surprised that more attention was not paid to the selection of this pathetic piss poor excuse of an American.

  23. Anonymous

    Regarding my swindlers, huckster comments:

    Look, I am not writing specifically about Tim Geithner, perhaps he has tried to fight against corruption, and continues to do so.

    I am writing about the overall financial industry, and how it overran all of us, and we let it.

  24. Bob_in_MA

    “Perhaps he did somehow miss the IMF memo warning that he was indeed liable for the employer and employee portion…”


    Somehow those apologist bloggers have managed to fog this issue, please don’t you fall for this nonsense. He didn’t miss a memo. He filed QUARTERLY requests to be REIMBURSED for at least half this tax, each time acknowledging his obligation to pay it. He worked there over the course of four years, so he filed at least TEN of these.

    Then, ten or more times, he received checks from the IMF to pay these and other taxes and with each payment a statement stating what part of it was to cover the employers half of the self-employment tax.

    He took the money and never paid the tax! This is way beyond a mistake on a tax form.

  25. Anonymous

    Despite all the proclamations and hoopla, the only thing that ever changes are the benefactors and beneficiaries.

  26. Anonymous

    Geithner’s demeanor is not that of an honest man, let alone the kind of man we need right now.

    We need a mature, clear spoken public servant for the job of Treasury Secretary.

    Geithner’s persona is its opposite: the slack expression of a spoiled momma’s boy with the rhetorical style of an obfuscator.


  27. Anonymous

    Bob-in-MA: I weas agnostic about the importance of the Geithner tax issue but if that NRO piece is correct, it’s absolutely shocking he was confirmed. A domestic tax specialist I know called Geithner a tax evader when we were chatting recently, which I thought was hyperbole. Not anymore.

  28. Born Again Democrat

    Keep in mind that America’s 13,000 wealthiest families avoid paying $300 billion in taxes annually which they legally owe. At least according to David Kay Johnston, former chief financial correspondent of the NYT (see his book, “Perfectly Legal”).

    They constitute America’s “donor class” and effectively bankroll both political parties, again according to Johnston. They also use their influence to prevent effective tax enforcement via the IRS of their off-shore holdings and secret bank and brokerage accounts in places like the Cayman Islands. You don’t suppose this includes the hedge fund industry, do you?

    Anyway, until this sink of corruption is drained it will be hard to have honest government or effective law enforcement, not only nationally or internationally, in my humble opinion.

    Just as an aside: could the international drug cartels and terrorist organizations operate without access to the international banking system via secret bank accounts? If not, isn’t this a rather high price to pay for America’s elite not to have to pay its taxes? Poor things.

  29. Anonymous

    I would like to take the focus off of Geithner and put it on Obama.

    All the comments, including the ones about dishonesty, immaturity, self-interest and attitude, yes even smirk, apply to Obama.

    Now we see the real Obama. Obama is the same as Geithner, except he has a great skill (greatness in historical proportions) at delivering speeches. But his character is the same as Geithner. Geithner has been unmasked, and we see a reflection of the real Obama as well.

    “You will know them by their fruits.”

  30. S

    Geithners performance at the BS hearing was all you need to do. It is useful to watch this performance; the arrogance drips off his face. worse yet may be the GS shill Dudley who oversaw the capital markets programs that have been an utter failure.

    The real tell on this bad bank will be whether GS is allowed access. If this is about lending and loans, there should be a minimum threshold put in place. The true tell on the bad bank will be whether MS and GS get access.

  31. dearieme

    “the Obama economics picks, ex Volcker, are dreadful”: President Santa was bound to pick elves, wasn’t he?

  32. Anonymous

    EVeryone in DC is a Criminal..I just wonder when the American People are going to have had it up to their necks and therefore will eventually arrest all the Traitors in peacock suits and have the made an example of? Where are the guts and glory of the so called Heroes in this nation?

    American True Patriot

  33. GregG

    We have to assume that Obama knows or thinks all this. So then really the speculation is “why”. Like everything else Obama’s doing, he seems to be putting in the best players he can get away with. It’s the “get away with” part that I’m sure we’d all find really loathesome and unacceptable if we knew the details, but none the less, Obama’s probably in the best position to make the call. Personally I’d feel so much better just knowing exactly *why* even if I totally disagreed and had no power to change it. At least then you can act accordingly. It’s this constant “surely they can’t be that stupid, so they must be doing something smart that I don’t understand” (and then it’s neither) that really wears me down these days.

  34. Anonymous

    Holy cow, CNBC just put up a table showing Geithner made ~$400,000 as head of the NY Fed and will make ~$200,000 as Treasury Secretary.

  35. Anonymous

    Acoording to Phil Grande (better listen to him! Goldman Sachs is the 5th largest shareholder in the private company, the Federal Reserve. Also, here’s some other tidbits from Phil, who has connections and has called EVERYTHING right on the market:
    Between 20-25% of the Federal Reserve owners’ families had their money with Madoff, and behind the scenes, they are trying to get the SIPC insurance changed RETROACTIVELY, TO NO-LIMIT. Like Paulson, Bush Sr. wrote a law that Cabinet officials can sell their company stock TAX-FREE upon working for the White House, Paulson sold his Goldman Sachs stock to a “blind trust” $600 MILLION WORTH. How many shares does Geithner have? Is this why it’s jumped almost $30 since his appointment?

  36. Anonymous

    Obama will count Geithner as one of his mistakes, but it will be because he is in over his head, rather than because he shaved points.


    Obama is in over his head AND shaving points. It’s your vanity that insists Obama wouldn’t shave points.

  37. Eric L. Prentis

    President Obama was co-opted into selecting Tim Geithner for Treasury and Lawrence Summers as his White House economic advisor. Geithner/Summers have a narrow focus on saving banking institutions and will sacrifice the American people to rescue their precious banking class. President Obama should not rely on Republican thinking which equates “saving the banks to saving the US economy” to get the US out of a this Republican induced banking catastrophe.

    The people that got the US into this GREAT RECESSION, i.e. Geithner/Summers/Bernanke, who are all shills for the financial ruling class, don’t want bank directors, senior bank managers, bank stockholders or bank bondholders to pay to get themselves out of their self-induced economic hole. Replacing bank management, equity and bond holders through nationalization is the only fair and effective solution, anything else just condemns the US to a decade of poor economic growth.

  38. Anonymous

    But do not hate the player, hate the game.


    You believe Geithner was dragged kicking and screaming all the way to the top?

  39. Anonymous

    But at least until say 30 or so years ago, there was also a strong sense of noblesse oblige.

    Yves, one needs only to read actual news accounts of 19th and 20th century America to know that is a crock. Manifest Destiny, anyone?

  40. Anonymous

    Put a farmer in charge!

    LOL! Farmers? Those welfare addicts?

    Last farmer in charge screwed up so badly Volcker had to spend years fixing it.

  41. robert

    A Eric L Prentis

    ???? We can’t blame Obama for his own selections?? He was co-opted and therefore not a man with his own firmly held positions?? Or worse- he was duped and therefore a fool? I do agree however that nationalization is the way to go and that shareholders should be wiped out for investing in bankrupt companies and management fired and barred from positions in banking/finance in the future. I do not know how to get the ill-gotten bonuses and pay back but if their is, I’m all for that too.

  42. Anonymous

    P.J. O’Rourke put it best, “when buying and selling are controlled by legislation, the first things to be bought and sold are legislators.”

    Replace “buying and selling” with “money supply” and “legislation/legislators” with “The Fed,” and it’s obvious how we arrived at this point.

    I agree that there’s been a loss of a sense of honor in the banking class, but it’s more of a symptom than a cause.

  43. john bougearel


    Just for you –

    Nice soundbites on Roach and Trevor Manuel stuffing Geithner for espousing a bunch of crap ~ it is good to see Geithner’s political capital squandered so early on

    Eric and Robert:
    The policy objective is not to nationalize but how to keep them private. Geithner says so: "“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,”

    Read that twice, "we'd like to do our best to preserve the system."

    Here is the new political math for you sophisticated folks: "Obama's change = Geithner's preservation."

    What? You don't like the new math on Capitol Hill…

  44. robert

    @ john bougearel:

    I did read it and it pisses me off. If the government is injecting cash because a company has failed or purchasing the bad debt because the company has failed then why do shareholders benefit- they have invested in a failed undercaptialized bankrupt company and they deserve to lose all their investment. The management of these banks should be fired if it must rely on the government to survive because they did not make it as a private enterprise- they failed! And failure is not the end of the world: you brush yourself off and push on. But these banks are failures and management and investors sgould not benefit.

  45. Anonymous

    I agree with he let it fail mindset, is this the way we have crawled out of the primordial soup.

    Seems its the only way individually or collectively that we learn any thing, is through suffering. Let the pain and suffering begin to bring on the next stage of our evolution.


  46. april

    Why did Obama pick lier and cheater into the government?

    Lier: H. Clinton. Did anybody recall her lies during her campaign?

    cheater: T. Geithner. His cheating on his taxes is sad.

    The devil lies in the details. It shows that these people can not be trusted, let alone let them be in the government.

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