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Geithner Gets Bashed in New Book

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Much has been written about “Turbo” Tim Geithner since he first became Treasury Secretary on January 26, 2009.  In his book, Too Big to Fail, Andrew Ross Sorkin wrote adoringly about Geithner’s athletic expertise.  On the other hand, typing “Turbo Tim Geithner” into the space on the upper-right corner of this page and clicking on the little magnifying glass will lead you to no less than 61 essays wherein I saw fit to criticize the Treasury Secretary.  I first coined the “Turbo” nickname on February 9, 2009 and on February 16 of that year I began linking “Turbo” to an explanatory article, for those who did not understand the reference.

Geithner has never lacked defenders.  The March 10, 2010 issue of The New Yorker ran an article by John Cassidy entitled, “No Credit”.  The title was meant to imply that Getithner’s efforts to save America’s financial system were working, although he was not getting any credit for this achievement.  From the very outset, the New Yorker piece was obviously an attempt to reconstruct Geithner’s controversial public image – because he had been widely criticized as a tool of Wall Street.

Edward Harrison of Credit Writedowns dismissed the New Yorker article as “an out and out puff piece” that Geithner himself could have written:

Don’t be fooled; this is a clear plant to help bolster public opinion for a bailout and transfer of wealth, which was both unnecessary and politically damaging.

Another article on Geithner, appearing in the April 2010 issue of The Atlantic, was described by Edward Harrison as “fairly even-handed” although worthy of extensive criticism.  Nevertheless, after reading the following passage from the first page of the essay, I found it difficult to avoid using the terms “fawning and sycophantic” to describe it:

In the course of many interviews about Geithner, two qualities came up again and again.  The first was his extraordinary quickness of mind and talent for elucidating whatever issue was the preoccupying concern of the moment.  Second was his athleticism.  Unprompted by me, friends and colleagues extolled his skill and grace at windsurfing, tennis, basketball, running, snowboarding, and softball (specifying his prowess at shortstop and in center field, as well as at the plate).  He inspires an adolescent awe in male colleagues.

Gawd!  Yeech!

In November of 2008, President George W. Bush appointed Neil M. Barofsky to the newly-established position, Special Inspector General for the Troubled Asset Relief Program (SIGTARP).  Barofsky was responsible for preventing fraud, waste and abuse involving TARP operations and funds.  From his first days on that job, Neil Barofsky found Timothy Geithner to be his main opponent.  On March 31 of 2009, the Senate Finance Committee held a hearing on the oversight of TARP.  The hearing included testimony by Neil Barofsky, who explained how the Treasury Department had been interfering with his efforts to ascertain what was being done with TARP funds which had been distributed to the banks.  Matthew Jaffe of ABC News described Barofsky’s frustration in attempting to get past the Treasury Department’s roadblocks.

On the eve of his retirement from the position of Special Inspector General for TARP (SIGTARP), Neil Barofsky wrote an op-ed piece for the March 30, 2011 edition of The New York Times entitled, “Where the Bailout Went Wrong”.  Barofsky devoted a good portion of the essay to a discussion of the Obama administration’s failure to make good on its promises of “financial reform”, with a particular focus on the Treasury Department:

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that.  Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises.  This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

It should come as no surprise that in Neil Barofsky’s new book, Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street, the author pulls no punches in his criticism of Timothy Geithner.  Barofsky has been feeding us some morsels of what to expect from the book by way of some recent articles in Bloomberg News.  Here is some of what Barofsky wrote for Bloomberg on July 22:

More important, the financial markets continue to bet that the government will once again come to the big banks’ rescue.  Creditors still give the largest banks more favorable terms than their smaller counterparts — a direct subsidy to those that are already deemed too big to fail, and an incentive for others to try to join the club.  Similarly, the major banks are given better credit ratings based on the assumption that they will be bailed out.

*   *   *

The missteps by Treasury have produced a valuable byproduct: the widespread anger that may contain the only hope for meaningful reform. Americans should lose faith in their government.  They should deplore the captured politicians and regulators who distributed tax dollars to the banks without insisting that they be accountable.  The American people should be revolted by a financial system that rewards failure and protects those who drove it to the point of collapse and will undoubtedly do so again.

Only with this appropriate and justified rage can we hope for the type of reform that will one day break our system free from the corrupting grasp of the megabanks.

In his review of Barofsky’s new book, Darrell Delamaide of MarketWatch discussed the smackdown Geithner received from Barofsky:

Barofsky may have an axe to grind, but he grinds it well, portraying Geithner as a dissembling bureaucrat in thrall to the banks and reminding us all that President Barack Obama’s selection of Geithner as his top economic official may have been one of his biggest mistakes, and a major reason the White House incumbent has to fight so hard for re-election.

From his willingness to bail out the banks with virtually no accountability, to his failure to make holders of credit default swaps on AIG take a haircut, to his inability to mount any effective program for mortgage relief, Geithner systematically favored Wall Street over Main Street and created much of the public’s malaise in the aftermath of the crisis.

*    *    *

Barofsky, a former prosecutor, relates that he rooted for Geithner to get the Treasury appointment and was initially willing to give him the benefit of the doubt when it emerged that he had misreported his taxes while he worked at the International Monetary Fund.

But as more details on those unpaid taxes came out and Geithner’s explanations seemed increasingly disingenuous, Barofsky had his first doubts about the secretary-designate.

Barofsky, of course, was not alone in his skepticism, and Geithner’s credibility was damaged from the very beginning by the disclosures about his unpaid taxes.

*   *   *

Barofsky concludes his scathing condemnation of Geithner’s “bank-centric policies” by finding some silver lining in the cloud – that the very scale of the government’s failure will make people angry enough to demand reform.

Once Geithner steps down from his position at the end of the year, we may find that his legacy is defined by Neil Barofsky’s book, rather than any claimed rescue of the financial system.


 

Senator Cantwell Stands Tough

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February 8, 2010

Back in June of 2008, when it became obvious that Hillary Clinton would not win the nomination as the Democratic Party’s Presidential candidate, Clinton’s despondent female supporters lamented that they would never see a woman elected President within their own lifetimes.  At that point, I wrote a piece entitled, “Women To Watch”, reminding readers that “there are a number of women presently in the Senate, who got there without having been married to a former President (whose surname could be relied upon for recognition purposes).”  One of those women, whom I discussed in that essay, was Senator Maria Cantwell of Washington.  Since that time, Senator Cantwell has proven herself as a defender of her constituents and an opponent of Wall Street.  Her bold criticism of the Obama administration’s handling of the economic crisis as well as her vocal opposition to the influence of lobbyists, motivated me to write a second piece about Senator Cantwell in November of 2009.  More recently, she voted against the confirmation of Ben Bernanke’s nomination to a second term as Federal Reserve chair and on February 2, Reuters reported that she was taking a stand against loopholes in proposed financial reform legislation.

On February 7, Les Blumenthal of the McLatchy Newspapers saw fit to highlight Senator Cantwell’s efforts at backing-up with real action, her tough stand against Wall Street:

To hear Sen. Maria Cantwell talk, another economic bubble is building as Wall Street banks — backed by taxpayer bailouts — continue to play the high-risk derivatives markets rather than extend credit to struggling businesses on Main Street.

Cantwell says that Congress and the Obama administration are just watching it happen.

*   *   *

“We are trying to keep the focus on what needs to be done to get credit flowing and avoid another bubble,” Cantwell said in an interview.  “Do I wish the White House team was more attuned to these issues?  Yes.”

*   *   *

White House officials have, at least twice, backed off commitments they made to her that they’d push for tougher regulations, Cantwell said.

“Their economic team is not living up to what they said they would,” Cantwell said.

Her criticism of the financial regulatory reform bill passed by the House — as being “riddled with loopholes” — was reminiscent of the widespread reaction to the disappointing failure of the Democrats to pass any significant healthcare reform legislation:

If the bills emerging from committees aren’t tough enough, Cantwell vowed a floor fight.  She said she had support from half a dozen senators, including Democrats Dianne Feinstein of California, Tom Harkin of Iowa, and Carl Levin of Michigan.

“People are going to have to ask themselves what’s better — a weak bill or no bill?” she said.

At a time when her peers are busy selling out to lobbyists, Senator Cantwell is continuing to reinforce her image as a reformer.  Her February 4 exchange with “Turbo” Tim Geithner, during his appearance before the Senate Finance Committee, was an example of the type of challenge that other Democrats are afraid to publicly vocalize when addressing members of the administration.  Cantwell emphasized that the President has the authority to act on his own (by issuing an Executive Order) to make $30 billion available to community banks, rather than waiting for Congress to pass legislation for such a rescue.  Her home state’s Lake Stevens Journal discussed that moment:

“If we don’t implement change right now, we are going to lose more jobs,” Cantwell told Geithner.  “Do not wait for legislation.  Come to terms with the community banks on reasonable terms that they can agree to — and I think that that we will be well on our way to getting Americans back to work.”

Maria Cantwell continues to exhibit a (sadly) unique toughness in standing up to those forces bent on preserving the destructive status quo.  As disgruntled supporters of Hillary Clinton wonder whether her intention to step down as Secretary of State in 2012 could signal another opportunity to elect America’s first female President —  they would be well-advised to consider Senator Cantwell as their best hope for reaching that historic milestone.



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Disappointer-In-Chief

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April 9, 2009

President Obama must feel relieved by the cartoonish attacks against him by the likes of Rep. Michelle Bachmann and Fox News character, Sean Hannity.  Bachmann’s accusations that Obama is planning “re-education camps” for young people surely brought some comic relief to the new President.  Hannity must have caused some thunderous laughter in the White House with his claim that during a speech the President gave in Strasbourg, France, we saw examples of how “Obama attacks America”.  These denigration attempts were likely received as a welcome break from criticism being voiced by commentators who are usually supportive of the Obama administration.  Take Keith Olbermann for example.  He has not been holding back on expressing outrage over the Obama administration’s claim that the Patriot Act provides sovereign immunity to the federal government in civil lawsuits brought by victims of illegal wiretapping conducted by the Bush administration.  Another example of a disillusioned Obama supporter is MSNBC’s Rachel Maddow, who has been fretting over the President’s plan to up the stakes for success in Afghanistan by increasing our troop commitment there and settling in to fight the good fight for as long as it takes.

Nothing has broken the spirits of Obama supporters more than his administration’s latest bank bailout scheme —  a/k/a  the Public-Private Investment Program (PPIP or “pee-pip”).  Although Treasury Secretary “Turbo” Tim Geithner has been the guy selling this plan to Congress and the public, the “man behind the curtain” who likely hatched this scam is Larry Summers.  Summers is the economist whom Obama named director of the National Economic Council.  At the time of that appointment, many commentators expressed dismay, since Summers, as Bill Clinton’s Treasury Secretary, supported repeal of the 1933 Glass-Steagall Act.  It is widely accepted that the repeal of the Glass-Steagall Act helped bring about the subprime mortgage crisis and our current economic meltdown.  On the November 25, 2008 broadcast of the program, Democracy Now, author Naomi Klein made the following remark about Obama’s appointment of Summers:  “I think this is really troubling.”  She was right.  It was recently reported by Jeff Zeleny of The New York Times that Summers earned more than $5 million last year from the hedge fund, D. E. Shaw and collected $2.7 million in speaking fees from Wall Street companies that received government bailout money.  Many economists are now voicing opinions that the Geithner-Summers Public-Private Investment Program (PPIP) is “really troubling”, as well.  Nobel laureates Paul Krugman and Joseph Stiglitz have been vocal critics of this plan.  As James Quinn reported for London’s Telegraph:  Professor Stiglitz said that the plan is “very flawed” and “amounts to robbery of the American people.”

Obama supporter George Soros, the billionaire financier and hedge fund manager, had this to say to Saijel Kishan and Kathleen Hays of Bloomberg News about Obama’s performance so far:

“He’s done very well in every area, except in dealing with the recapitalization of the banks and the restructuring of the mortgage market,” said Soros, who has published an updated paperback version of his book “The New Paradigm for Financial Markets:  The Credit Crisis of 2008 and What It Means” (Scribe Publications, 2009).  “Unfortunately, there’s just a little bit too much continuity with the previous administration.”

The usually Obama-friendly Huffington Post has run a number of critical pieces addressing the Geithner – Summers plan.  Sam Stein pointed out how the plan is “facing a new round of withering criticism from economists”:

These critiques have produced a Washington rarity:  the re-sparking of a debate that, in the wake of positive reviews from Wall Street, had largely subsided.  Just as Geithner seemed to be finding his political footing, the spotlight has been placed right back on his cornerstone proposal, with critics calling into question both his projections and past testimony on the matter.

Jeffrey Sachs, an Economics professor at Columbia University, wrote a follow-up article for The Huffington Post on April 8, affirming earlier criticisms leveled against the bailout proposal with the added realization that “the situation is even potentially more disastrous” than previously described:

Insiders can easily game the system created by Geithner and Summers to cost up to a trillion dollars or more to the taxpayers.

Zachary Goldfarb of The Washington Post took a closer look at Treasury Secretary Geithner’s testimony before Congress last month, to ascertain the viability of some of the proposals Geithner mentioned at that hearing:

The Obama administration’s plan for a sweeping expansion of financial regulations could have unintended consequences that increase the very hazards that these changes are meant to prevent.

Financial experts say the perception that the government will backstop certain losses will actually encourage some firms to take on even greater risks and grow perilously large.  While some financial instruments will come under tighter control, others will remain only loosely regulated, creating what some experts say are new loopholes.  Still others say the regulation could drive money into questionable investments, shadowy new markets and lightly regulated corners of the globe.

If President Obama does not change course and deviate from the Geithner-Summers plan before it’s too late, his legacy will be a ten-year recession rather than a two year recession without the PPIP.  Worse yet, the toughest criticism and the most pressure against his administration are coming from people he has considered his supporters.  At least he has the people at Fox News to provide some laughable “decoy” reports to keep his hard-core adversaries otherwise occupied.

Geithner Goes Rogue

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April 2, 2009

Forget what you’ve heard about “oversight” and “transparency”.  What is really going on with the bank bailouts is beginning to scare some pretty level-headed people.

On March 31, the Senate Finance Committee held a hearing on the oversight of TARP (the Troubled Asset Relief Program, a/k/a the $700 billion bank bailout initiated last fall by former Treasury Secretary, Hank Paulson).  The hearing featured testimony by Elizabeth Warren, chairwoman of the Congressional Oversight Panel; Neil Barofsky, Speical Inspector General for TARP and Gene Dodaro of the General Accounting Office.  All three testified that the Treasury Department was not cooperating with their efforts to conduct oversight.  In other words:  They are being stonewalled.  Worse yet, Ms. Warren testified that she could not even get the Treasury Department to explain what the hell is its strategy for TARP.  As Chris Adams reported for the McClatchy Newspapers:

Noting that TARP passed Congress six months ago, Warren said that her group has repeatedly called on the Treasury Department to provide a clear strategy for the program – and that “the absence of such a vision hampers effective oversight.”

Although she has asked Treasury to explain its strategy, “Congress and the American public have no clear answer to that question.”

That article also included Warren’s testimony that she experienced similar difficulties in obtaining information about the TALF (Term Asset-Backed Securities Loan Facility):

TARP is one of several programs the government has launched in recent months to help ailing institutions and even bolster healthy banks.  Warren singled out one program, known as TALF, for involving “substantial downside risk and high costs for the American taxpayer” while offering big potential rewards for private interests.  She said the public information about that program was “contradictory, promoting substantial confusion.”

Matthew Jaffe of ABC News pointed out that Neil Barofsky, Speical Inspector General for TARP, voiced similar concerns during his testimony.  Not surprisingly, the prepared testimony of the GAO’s Gene Dodaro revealed that:

We continue to note the difficulty of measuring the effect of TARP’s activities.

*    *    *

. . .  Treasury has yet to develop a means of regularly and routinely communicating its activities to relevant Congressional committees, members, the public and other critical stakeholders.

The Treasury Department’s inability to account for what the banks have been doing with TARP funds is based on the simple fact that it hasn’t even bothered to ask the banks that question.  As Steve Aquino reported for Mother Jones:

Neil Barofsky, the Special Inspector General of TARP, testified that the Treasury has yet to require TARP recipients to deliver reports disclosing exactly how they are spending taxpayer money.  “[C]omplaints that it was impractical or impossible for banks to detail how they used TARP funds were unfounded,” Barofsky said.  “While some banks indicated that they had procedures for monitoring their use of TARP money, others did not but were still able to give information on their use of funds.”

Apparently, Treasury Secretary “Turbo” Tim Geithner has adopted a “Don’t Ask — Don’t Tell” policy on the subject of what banks and other financial institutions do with the TARP money they receive.  Steve Aquino’s article emphasized how Elizabeth Warren’s testimony raised suspicions about the relationship between the Treasury and AIG — along with its “counterparties” (such as Goldman Sachs):

Congressional Oversight Panel chair Elizabeth Warren — who made news last month when she reported the Treasury had received securities worth $78 billion less than it paid for through TARP — cast more doubt on the Treasury’s relationship with AIG, saying “the opaque nature of the relationship among AIG, its counterparties, the Treasury, and the Federal Reserve Banks, particuarly the Federal Reserve Bank of New York, has substantially hampered oversight of the TARP program by Congress.”

That quote is particularly damning of Treasury Secretary Tim Geithner, because Warren specifically mentions the New York Fed, which Geithner headed before coming to Washington, and who also organized the first bailout of AIG.

At this point, it is difficult to understand why anyone, especially President Obama, would trust Turbo Tim to solve the “toxic asset” problem, with the scam now known as the Public-Private Investment Program or PPIP (pee-pip).  John P. Hussman, PhD, President of Hussman Investment Trust, wrote a superb analysis demonstrating the futility of the PPIP.  Here’s his conclusion:

The misguided policy of defending bondholders against losses with public funds has increased uncertainty, crowded out private investment, harmed consumer confidence, and prompted defensive saving against possible adversity.  We observe this as a plunge in gross domestic investment that is much broader than just construction and real estate, and a corresponding but misleading “improvement” in the current account deficit as domestic investment plunges.

Aside from a few Nobel economists such as Joseph Stiglitz (who characterized the Treasury policy last week as “robbery of the American people”) and Paul Krugman (who called it “a plan to rearrange the deck chairs and hope that that keeps us from hitting the iceberg”), the recognition that this problem can be addressed without a massive waste of public funds (and that it is both dangerous and wrong to do so) is not even on the radar.

In short, attempting to avoid the need for debt restructuring by wasting trillions in public funds increases the likelihood that the current economic downturn will be prolonged, places a massive claim on our future production in order to transfer our nation’s wealth to the bondholders of mismanaged financial companies, and raises the likelihood that any nascent recovery will be cut short by inflation pressures.  We are nowhere near the completion of this deleveraging cycle.

Unfortunately, we are also nowhere near finding someone who has the will or the ability to pull the plug on Turbo Tim’s recipe for disaster.