Is Geithner in SIGTARP’s Crosshairs?

A Bloomberg story today on Neil Barofsky, the head of the Office of the Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, contained this explosive little item (hat tip Tom F):

The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.

The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment bank on April 16.

Yves here. We’ve been told that Barofsky is political, despite his “take no prisoners” image, and indeed, his report that criticized the New York Fed for paying out 100% of the notional value to holders of AIG credit default swaps bore that out when it bizarrely exonerated the Fed for its repeated retrades of the AIG funding, which is of greater economic consequence than the failure to negotiate a haircut on the CDS).

In fact, this investigation was first discussed publicly in late January, when SIGTARP made it abundantly clear that is was not prepared to tolerate New York Fed intransigence. As we noted then:

Oh, this is starting to get VERY interesting. L’affaire Fed/AIG is beginning to smell a little like Watergate, where an imperial organization that thinks it writes its own rules (then the Nixon administration, here the Fed) fights tooth and nail to keep certain activities hidden well away (recall, for instance, the Saturday night massacre).

Now of course, the Fed lacks the Nixonian appetite for dirty tricks and open confrontation. And unlike Watergate, where a crime had been committed, here instead we have a mystery: why is the Fed so desperately to hide the details of the AIG bailout, particularly since the bulk of what they say they are trying to sequester is already in the public domain? (And my own little pet peeve is that the focus has been strictly on how much Geithner knew and when. Ahem, what about Bernanke? He and Paulson were virtually joined at the hip during the crisis, and Paulson was heavily involved in all the bailouts. Was the NY Fed a rogue organization of some sort? How can you not say the board of governors is not ultimately responsible for a matter as significant as the AIG rescue?)

As this little scandal brews, the Fed has engaged in the classic error of withholding documents, so that the cover-up may well prove to be a more serious matter than the underlying chicanery (although we rather doubt that; more on that in due course). And remember, the Fed is a regulator! Here we have a body that has as one of its significant duties enforcing rules, both legislation as well as its own regulations, bending them in its dealing with the SEC and refusing to comply with subpoenas. Why should the public trust an organization that puts itself above the rule of law?

So the real significance of the Bloomberg update today is Barofsky would be unlikely to mention the idea that his investigation could result in charges unless he thought it probably would result in charges.

Another factor favoring this outcome is that Barofsky has the wind in his sails in taking on Fed secrecy. While the audit the Fed movement isn’t getting as much press as Goldman, Greece, and the financial reform bill slugfest, it continues to gain momentum. From a story at Huffington Post by Ryan Grim:

As unusual a coalition as can be crafted in the Senate plans to fight for an amendment to the Wall Street reform bill that would open the Federal Reserve to a serious audit by the Government Accountability Office. Sponsored by Sen. Bernie Sanders (I-Vt.), the language is modeled after an amendment that passed the House, sponsored by Reps. Alan Grayson (D-Fla.) and Ron Paul (R-Texas).

Sanders is joined by four Republicans of varying politics: John McCain (Ariz.), Jim DeMint (S.C.), David Vitter (La.) and Sam Brownback (Kan.). If Democrats in the Senate back the measure, it would have at least 63 votes, but Banking Committee Chairman Chris Dodd (D-Conn.) is opposed and has argued against a broad audit.

Yves here. While there is a large and growing constituency for reining in the Fed, I am not convinced that anyone in the circles of power is willing to take on a Cabinet secretary who most see as sincere but badly captured.

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  1. VenusVictrix

    The Fed would not have anything to cover up unless the AIG CDS deals were tainted to begin with. It should be suspicious on the surface that Goldman was “supposedly” doing all those CDS deals with AIG rather than with the regulated monolines – or at least some semi-legitimate entity (which AIG obviously wasn’t then, nor is it now).

    If Geithner is in the crosshairs of anything, it was an unholy alliance between AIG and Goldman, and he is the first domino that needs to fall in order for us to see the whole picture. If he actually falls, the others will too, and then maybe we can see the big picture at last.

    1. readerOfTeaLeaves

      Well, I’m just an onlooker, but it’s my sense that Goldman Sachs ran aground on the shoals of a congressional hearing yesterday, and the leakage is really only just beginning to ooze out.

      The bailouts are starting to look like political kryptonite, and we are only beginning to unravel the complex relationships.

  2. Tom Stone

    Yves.Thank you.I have hoping for a “Babes of the Finance Blogs” for some years now,with you prominently featured.Today,Luz Martin said you were,like,a dude.SAY IT AIN’T SO! restore my hope!

  3. Doc Holiday

    I generally like Ron Paul, but almost everything he does or talks about, falls apart and then he whimpers away like beaten dog; thus, this thing has no teeth, no bark, no bit, no gums, no tail to wag, nothing to ponder here … move along… Ron Paul is the symbol of defeat, the dog collar of lost hope, the stray dog without a bone, the puppy that can’t be sold, the flea bitten pooch at the pound … give it up dude and lose the fleas!

    1. Vespasian

      I see Ron Paul as the Cassandra of our times. The reason no one of significance gives him and his views any regard? They don’t want the truth, as it’d force them to confront how off-base they’ve been … and their egos (not to mention status) would shatter.

  4. Finance


    Looking through Fabrice Tourre’s self-evaluation…

    He states the following in his overall evaluation:

    “enabled Goldman to generate revenue through bid/offer on exotic derivatives For example, implementing the synthetic CDO “rental” strategy by crossing tranche trades to hedge funds looking for risks to buy protection on”

    What do you think he means by “rental” strategy?


  5. attempter

    So the real significance of the Bloomberg update today is Barofsky would be unlikely to mention the idea that his investigation could result in charges unless he thought it probably would result in charges.

    So when you say he’s “political” you mean he moves with unhurried deliberation, and that the “bizarre exoneration” was really just a temporary tactical silence because he wasn’t ready to publicize that part of his case yet.

    Regarding the Fed and its dirty tricks and confrontations, these have looked open enough, if nuanced. The main Fed line of attack is its version of the Status Quo Lie, claiming that its own highly political, highly ideological, highly aggressive, unnatural looting on behalf of the bank rackets via the Bailout, is in fact the “normal”, non-political (“politically independent”), non-ideological, natural state of affairs. Meanwhile attempts to change that status quo, or even just to accurately gauge it with a people’s audit, are lyingly depicted as political and ideological interference, putting this fraudulent “independence” at risk. In reality, a true audit could be a start toward restoring the Fed (its policies and/or existence itself) toward a more truly normalized, natural, moderate baseline.

    As for Sanders, this is a good action so far, but we’ll see if he follows through this time instead of caving in the way he did with his single-payer amendment.

    1. anon

      Sanders introduced the Senate bill to audit the Fed in March 2009 (S604) so it’s been around for over a year without any real progress. It had 32 sponsors, including all those mentioned above, as of September 2009 (the same number it has now).

      I had hoped that the bill’s co-sponsors would vote against Bernanke’s re-confirmation (and also vote against allowing the Senate to vote on his re-confirmation, since that was the real fight) but not all of them did. (IIRC Sanders voted against allowing the vote as well as against re-confirming Bernanke.) Hence, I’m not sure how strongly they will fight to include the Grayson-Paul language (to audit the Fed) in the Senate financial reform bill. I know that Boxer, Dorgan, Feingold, Leahy, Lincoln, and Wyden (who are Dems co-sponsoring S604) are up for re-election this cycle, as are McCain, Bennett, Brownback, Burr, Coburn, Crapo, DeMint, Grassley, Isakson, Murkowski, Thune, Vitter (Repubs co-sponsoring S 604)

      1. attempter

        IIRC Sanders voted against allowing the vote as well as against re-confirming Bernanke.

        That’s good. The notion of voting for cloture as a good little good-government soldier although you’re going to vote No on the substance, when you had the chance to defeat the substance at the cloture level but almost no chance to defeat it at the nominal substance level, is the liberal “process” mentality taken to a truly deranged extreme.

    2. Doug Terpstra

      According to the HuffPo quote, “Banking Committee Chairman Chris Dodd (D-Conn.) is opposed and has argued against a broad audit.”

      Dodd, who by now has a cushy pile of feathers in his nest, needs to go yesterday.

  6. psychohistorian

    Yves said “….who most see as sincere but badly captured.

    I don’t get how one can be both of these at the same time…unless maybe you are saying that he is sincerely without morals or ethics.

    The first definition in my dictionary for sincere says without deceit. How does one act in a badly captured manner and not be deceitful?

    It is way past time that these folks are prosecuted for their sincere criminality.

      1. steelhead23

        Might it be that this frame “well meaning, but captured” is the reason the Fed has so strenuously tried to keep those emails confidential? One could attribute this frame to the entire Administration – a kind of whocouldaknowed defense of very bad policy. Had they wished to be equitable, an experience bankruptcy judge could have divied up government funds in a manner that prevented a cascade of failures while limiting costs. I simply do not understand how a constrained cash flow from those failing CDOs could create a banking crisis of the scale that led the Fed to throw money at the problem without a hint of a haircut. Oh sure, the CDS holders could demand collateral, but hell, Bernanke sits on BIS so there was leverage throughout the banking system to allow an orderly extinguishment of the CDS, not the pure capitulation to the fraudsters we got. Yves, I think the real “cognitive capture” is that Geithner and Bernanke both believe that deals like Abacus are simply business, not fraud and that the winners (GS et al.) deserved to get paid for their brilliance.

    1. anon

      I think it may be something akin to Stockholm Syndrome where you come to depend on your captors and, realizing that they may help you in some ways, you adopt their beliefs and actually come to idealize them in many ways.

      (Or maybe it’s believing your own BS, i.e, your own rationalizations. ;)

  7. fresno dan

    “…I am not convinced that anyone in the circles of power is willing to take on a Cabinet secretary who most see as sincere but badly captured.”

    Just a point about sincerity – I am sure all suicide bombers are sincere. It does not mean that being insincere is better than being sincere, but a sincere person can cause a great deal of damage.

  8. goinsouth

    Someone needs to investigate the depth and age of any relationship between Bernanke and Blankfein. Not only are both Harvard ’75; they’re both Winthrop House. Were they roommates? Were they in the same Final Club? GS already had Paulson at Treasury. If B & B are old friends, that could further explain how Lloyd got to sit at Timmy’s elbow while the AIG bailout was being put together.

  9. dwight baker

    Goldman Sachs Sucks
    By Dwight Baker
    April 28, 2010

    Eagles Eye View Aiming at Issues for We the People Advocates

    From our Friends at Brasschecktv, comes more proof with facts that informs us to the max. And some of us have got grounded to the truth represented with facts that a change must be coming soon or we will all go down in history as the dumbest bunch to ever come on the scene.

    Timmy Geithner born with a silver spoon implanted raised to be what we see today by elite dietist has not the clue what to do when on the hot seat of trying to answer hard questions. His day finally arrived for him to ‘take over’ and looks to me that his day may go down like the Titanic. His job is so far beyond his abilities to lie that I predict soon he will disappear in some way. The fed is run sort of like the New York or maybe the Chicago Mafia.

    We have yet to get to the spot that we can point our fingers at the guilty then do something about it. And until we get to that point all the words going out daily are just more fuel added to the fires that are already totally out of control. We have those legal experts in the wings that know how to, investigate, build a case, indict, charge, prosecute, try and then convict. But most of them are pragmatic and they want and need a core of good solid folks to get in and stay in while the legal battles are fought. No trick in doing any of that, but We the Few in the many of Americas People 325 million must quit being lazy and become transfixed single minded to clean up all the messes that have plugged up the our societies works keeping our country from moving forward as should be.

    Only fools believe the financial crisis is the biggest of the big problems we are facing. The largest problem that we have is that the Rule of Law is not enforced. And from that one thing stems all the corruption from the Pentagon Congress, Senate and our Executive Administration not leaving out our Legal and Judicial System that has been run in the ground by a myriad of high ranking clowns.

    Re-Print from Brasschecktv

    It’s been a long time in coming, but Goldman Sachs has finally been called to answer questions about the way it does business.

    Unfortunately – and predictably – the Senate sub-committee was unprepared and wasted an opportunity.

    A few facts of our financial life in the USA:

    * Goldman has a multi-decade history of fraud going back to the 1920s

    * Goldman was one of the ring leaders of the Dot Com IPO scam of the 1990s

    * By being willing to package and re-sell total garbage real estate loans, Goldman & other banks massively inflated real estate prices, defrauded investors all over the world, and brought the world financial system to the brink (and we’re not out of the woods yet.)

    Criminals…and if they didn’t own the last three White Houses, some of them would be in jail.
    Excellent video a must watch

  10. Sunny

    “…anyone in the circles of power is willing to take on a Cabinet secretary who most see as sincere but badly captured.”

    They might see him differently if all the e-mails and inter departmental communications are released between Fed-GS-AIG!
    He didn’t get nicknamed Timmy turbo for nothing!

    Sincerity is nothing to do with honesty. Just like well educated doesn’t automatically ‘enlightened’

    Remember All the crooks at the helm of POWER and MONEY are well educated and graduated from IVORY TOWERS!

  11. charles

    ‘Mish’ Shedlock repeatedly says that Timmy should be indicted
    for ‘securities’ fraud’. Apart from Yves, there is a good
    deal of specialists who are on the same line: Janet Takavoli,
    David Fiderer and others. Hope you receive a call from Mr Barofsky, if he doesn’t get himself black-bagged in this process

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