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UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who covered Washington during all or part of ten of America's presidencies and who has edited alternative journals since 1964. The Review, which has been on the web since 1995, is now published from Freeport, Maine. We get over 5 million article visits a year. See prorev.com for full contents of our site

January 27, 2010

CRIMINAL NEGLIGENCE AS GOVERNMENT POLICY

If Geithner is right about the AIG bailout being necessary to avoid a "second great depression," then it can be fairly argued that the steps leading to the bailout involved criminal negligence on the part of those who permitted them. The Wall Street bubble was the financial equivalent of negligent manslaughter, a lesser form of murder that has been defined as "the unjustifiable, inexcusable, and intentional killing of a human being without deliberation, premeditation, and malice. The unlawful killing of a human being without any deliberation, which may be involuntary, in the commission of a lawful act without due caution and circumspection." It shouldn't matter whether you're behind the wheel or a Ford or the Fed.

NY Times - In heated questioning that at times took on the air of a cross-examination, Treasury Secretary Timothy F. Geithner on Wednesday defended his role and the government's actions in bailing out the American International Group, saying Washington did what was necessary to prevent "a second Great Depression."

But Mr. Geithner, who led the New York Federal Reserve Bank at the time, said he was not involved in withholding information about deals that sent billions of taxpayer dollars from the bailout of A.I.G., the insurance giant, to big banks.

"I withdrew from monetary policy decisions," Mr. Geithner said, "and day-to-day management of the New York Fed."

The committee called Mr. Geithner, former Treasury Secretary Henry M. Paulson Jr. and other officials to explain, once again, the confounding results of an $85 billion rescue loan made to A.I.G. in September 2008. The loan sheltered big banks from any losses, but saddled A.I.G. with a debt so crushing that the Treasury soon had to step in and provide even more rescue money. . .

One lawmaker, Representative John L. Mica, Republican of Florida, called upon Mr. Geithner to resign.

"I believe either you made a bad decision there, or there was the attempt to cover up one of the biggest bailouts, backdoor bailouts, in history," Mr. Mica said. "Now, you've tried to frame it as you did it in the interest of the people and the failure of the system, I'm telling you, these are lame excuses. You were in the charge and did the wrong thing, or participated in the wrong thing."

He added: "You give lame excuses then, and you're giving lame excuses now."

Firedog Lake - Stephen Lynch (D-MA), showing an unusual amount of fire, just lit into Tim Geithner in the House Oversight Committee hearing. He said that Geithner's conduct was "not on the side of the American taxpayer." He reminded Geithner that the Treasury Department "scalped the folks at Bear Stearns, 2 cents on the dollar. Goldman (Sachs, a counter-party to AIG) got 100 cents!"

Lynch added that it "stinks to high heaven what happened here" and called it inexcusable, saying "It makes me doubt your commitment to the American people." Geithner replied that the American people would not have benefited from AIG defaulting, suggesting that was the only option other than paying off the counter-parties at par.

Lynch wasn't buying it. "You were creating new facilities every week. We were changing the rules day by day. We had leverage, and we chose not to do it!"

Lynch closed by saying that "(Treasury Secretary Hank) Paulson brought everyone into a room, and said they were all taking bailout money, why couldn't he have negotiated a better rate on behalf of the American taxpayer?" Geithner responded, "Why would I want to be in front of you today explaining actions that could have been avoided. If you cannot default, you do not have leverage. There was no choice between default and restructuring."

Later on in the hearing, Marcy Kaptur (D-OH) got Geithner to admit that he never signed a formal or binding recusal agreement from NY Fed activities once he was nominated for US Treasury Secretary. The bulk of her questions sought to make the connections between the government operators involved in the AIG bailout and Goldman Sachs, the largest domestic beneficiary of the counter-party payments. She noted that the chairman of the NY Fed is elected by the individuals who sit on the board, which are the heads of the private banks in the region ("Not true," Geithner said. "I work in the public interest") She noted that Mark Patterson, Geithner's current chief of staff, worked for Goldman Sachs. She said Hank Paulson, then the Treasury Secretary, worked for Goldman Sachs. She said Dan Jester, the man hand-picked by Paulson to be Treasury's point person on AIG, also worked at Goldman Sachs. "You are suggesting that the people involved in this were not acting in the public interest… that is not true," Geithner replied.


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