Tired of the Status Quo. Tim Geithner Must Go.

Well over a year after the federal government weighed in with trillions of dollars to "rescue" our economy from the financial crisis, nothing has really changed. If anything, the issues that helped to collapse the economy are bigger than ever, and the only people prospering right now are the same people who caused this catastrophe, while the rest of us continue to suffer from their actions. We can no longer afford to let tax-dodging, Goldman Sachs/Wall Street insiders (the predator class) to take the financial helm and drive this country and world into another disaster, possibly much worse than September 2008.

It's time for Tim Geithner to go. He was still president of the New York Fed in the fall of 2008 when it rescued AIG with public money (now totaling $180 billion) and the facts are starting to catch up with him now, and those facts seriously raise doubts about his competence and his public integrity.

Perhaps the most explosive revelation is that Geithner's subordinates at the New York Fed instructed AIG executives to evade securities law and conceal from the public the $62 billion the insurance company paid out on contracts with the largest investment houses and banks. AIG was already bankrupt and 80 percent owned by the government, kept afloat solely with the billions being injected by the central bank. Yet the Fed told the company to pay off the bankers at full value—100 percent on the dollar—without negotiating a better deal for the public. The bankers would not have collected a dime if the government hadn't come to the rescue.

The Fed, other words, gave the largest, most prestigious banks a very sweet deal—much sweeter than anything the banks or the federal government will offer to homeowners facing mortgage foreclosure. The central bank, in effect, was operating a backdoor bank bailout that nobody could see. The public billions devoted to AIG went in one door at the insurance company and came out another door to the private banks. Goldman Sachs alone collected $13 billion.

Failure to disclose is a big no-no in corporate finance. People can go to jail if they willfully withhold material information from shareholders and the Securities and Exchange Commission (SEC), or they may be sued for investor fraud. Yet that is what the New York Fed told AIG to do. The company officers wanted to report fully to the SEC. Their Fed overseers told them to take out the disclosure out of their report to the SEC (the facts were ultimately not disclosed until five months later). The Fed, remember, is the government's principal banking regulator. It is supposed to enforce the laws, not tell regulated firms to break them.

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Does TARP + TALF = SCAM?

Back in November, I blogged that Henry Paulson's "the sky is falling" reaction in September was staged (In this crash for cash scheme, the criminals targeted innocent taxpayers) in order to panic we the people and Congress, so that he could shove Troubled Assets Relief Program (TARP) down our throats with no provisions to pay taxpayers back, and even more importantly, no limits or penalties on top executives - can't forget the three-page Paulson Doctrine declaring him ruler of the universe.

“Many of us were told in private conversations that if we voted against this bill on Monday that the sky would fall, the market would drop two or three thousand points the first day, another couple of thousand the second day, and a few members were even told that there would be martial law in America if we voted no.” -- Democratic Congressman Brad Sherman

When Senator James Inhofe was asked who was issuing the warnings of a depression and marital law prior to the bailout being passed, Inhofe responded:

“That’s Henry Paulson. We had a conference call early on, it was on a Friday I think – a week and half before the vote on Oct. 1. So it would have been the middle … what was it – the 19th of September, we had a conference call. In this conference call – and I guess there’s no reason for me not to repeat what he said, but he said – he painted this picture you just described. He said, ‘This is serious. This is the most serious thing that we faced. He said the crisis would be far worse than the great depression if Congress didn’t authorize the bill to buy out toxic debt, a proposal which he abandoned the day after he got the money."

On February 20, Dean Baker posted, Did Ben Bernanke pull the TARP over our Eyes? in his blog, Beat the Press and stated the "reason" for this urgency:

One of the important factors behind the urgency was the claim that even healthy non-financial companies (e.g. Verizon or Boeing) could not borrow in commercial paper markets to get the credit they needed to meet their payrolls and pay their other bills. Ben Bernanke contributed to this view when he answered a question at a press conference:

"I see the financial markets as already quite fragile. The credit markets aren't working. Corporations aren't able to finance themselves through commercial paper."

The weekend after Congress passed the TARP, Bernanke announced that the Fed would begin to directly buy the commercial paper of non-financial corporations.

Baker then provides new evidence that the September panic might have been nothing more than an act

At a speech at the Press Club this week, Bernanke was asked why he waited until after the TARP was approved before he began buying up commercial paper of non-financial corporations. He responded:

"Well, look at the calendar. The financial crisis intensified in mid-September and got worse to the point where there was a huge global financial crisis in early October. During that interim, Congress passed the Emergency Economic Stabilization Act, which includes the TARP. And that TARP, the money there was very useful in helping to stabilize the banking system in early October. There was this critical moment. I think it was about the 14th of October, following a G7 meeting here in Washington, where not The United States but countries around the world took very strong actions in terms of capital, in terms of guarantees and other actions to try to stabilize the world banking
system.

It was during this period that the commercial paper market and the money markets, money market mutual funds showed the worst stress. It was in those 18 weeks that that stress appeared and those markets began to dysfunction. And we can't set these programs up immediately. It takes a bit of time to get them structured legally and to arrange for the market terms and to work with market participants and so on. But we got it going actually quite quickly. It's been now more than three months since the commercial paper facility has been functioning. And it seems to have had notable impact on both commercial paper rates and on the terms of finance available."

Now, in addition to TARP, another four-lettered acronym can be added to the effort to thaw out credit and restore lending: TALF (Term Asset-Backed Securities Loan Facility). The idea behind TALF is that "lenders using the TALF would be willing to retain more of the risk associated with loans on their own books to get deals done. That should help ensure that lenders make better-quality loans in the future, because they will be liable for most of the losses."

However, according to Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist at the International Monetary Fund, TALF will provide "government subsidies to investors like hedge funds. Investors who borrow from the Fed could enjoy annual returns of 20 percent or more."

Is Tim Geithner, Henry Paulson 2.0? As Mike Whitney says, “a Trojan Horse for the banking oligarchs”?

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