Earthside Comments: The U.S. Secretary of the Treasury, Timothy Geithner, should resign or President Obama should fire him.
As head of the New York Federal Reserve, Geithner was one of the architects of the AIG bailout under the Bush regime ... along with his income tax problems, he was a flawed choice to lead the Treasury Department from the beginning.
Geithner is a Wall Street insider who is clearly playing the game for the benefit of his Wall Street cronies. Obama needs to make a break with the conventional, establishment, corporate financial gamblers -- getting rid of Geithner is a necessary first step.
If Obama stays on his present course of simply trying to re-inflate the credit, borrowing and consumption bubble, then his economic polices will ultimately be doomed to failure.
Yes already, the time has come for Geithner to go.
Geithner and Summers AIG Bonus Timeline | Chris Bowers/OpenLeft.com
In response to this scandal, it is time for President Obama to demand Timothy Geithner's resignation. The timeline in the extended entry explains why. Not only is Geithner the person responsible, but it would demonstrate that President Obama is deadly serious about reform in the financial services industry. ...The AIG bonuses are Geithner's fault. Here is why:1. September 16th, 2008: The Federal Reserve Bank of New York, then headed by Timothy Geithner, provides an $85 billion line of credit to AIG that gives the federal government a 79.9% stake in AIG:
On the evening of September 16, 2008, the Federal Reserve Bank's Board of Governors announced that the Federal Reserve Bank of New York had been authorized to create a 24-month credit-liquidity facility from which AIG may draw up to $85 billion. The loan is collateralized by the assets of AIG, including its non-regulated subsidiaries and the stock of "substantially all" its regulated subsidiaries, and has an interest rate of 850 basis points over the three-month London Interbank Offered Rate (LIBOR) (i.e., LIBOR plus 8.5%). In exchange for the credit facility, the U.S. government will receive warrants for a 79.9 percent equity stake in AIG, and has the right to suspend the payment of dividends to AIG common and preferred shareholders.2. October 8th, 2008: It is revealed that, the week after they received the bailout from the Federal Reserve Bank of New York, AIG executives spent $440,000 on a vacation spa trip:
American International Group Inc. spent $440,000 for a spa retreat for AIG executives just days after the company received a federal bailout. AIG executives had spa treatments, banquets and golf outings, according to lawmakers investigating the insurance company's meltdown.Apparently, the first loan contract did not forbid executive spa retreats.
3. October 9th, 2008: The day after the spa trips were revealed, the Federal Reserve Bank of New York, still headed by Timothy Geithner, gave AIG another $37.8 billion bailout:
On October 9, 2008, the company borrowed an additional $37.8 billion via a second secured asset credit facility created by the Federal Reserve Bank of New York.4. November 25th, 2008: AIG says they will not give out bonuses for top executives in 2008:
American International Group Inc Chief Executive Edward Liddy will receive $1 in salary this year and next, and there will be no 2008 bonuses for the company's seven most senior executives, the troubled insurance conglomerate said on Tuesday.Yey!
5. December 13th, 2008: It is revealed that AIG is paying secret "retention bonuses," equal to at least a year's salary and as much as $4 million, to at least 2,000 employees:
American International Group Inc., the insurer under fire for paying 168 executives not to quit after a government takeover, is giving retention awards to at least 2,000 more employees, according to a person familiar with the matter. The "retention bonus" equals as much as a year's salary and recipients were ordered to keep the payment secret, said the person, who declined to be named because the plan was labeled confidential. (...) AIG Chief Executive Officer Edward Liddy told Congress last week the payments will go to 168 people, with some getting as much as $4 million.Apparently, neither the first nor the second bailout contracts, both of which were handled by the New York Federal Reserve under Geithner's watch, forbade employee bonuses.
6. January 15th, 2009: Prior to the Senate vote on releasing the second $350 billion of Wall Street bailout money, incoming National Economic Chair Larry Summers sends a letter to Congress promising improvements in the program. Among these promises are requirements that "executive compensation above a specified threshold amount be paid in restricted stock or similar form that cannot be liquidated or sold until the government has been repaid." The Senate promptly releases the second $350 billion of TARP money later that same day.
7. January 16th, 2009: Senator Banking Chair Chris Dodd informs this website that, based on assurances received from Larry Summers, he will not introduce legislation in the Senate that will mirror HR 384, the TARP Reform and Accountability Act. Even though HR 384 eventually passes the House, and includes extensive requirements on executive compensation, Dodd's decision ends any chance of the bill passing into law.
8. March 2nd, 2009: AIG posts a record quarterly loss of over $60 billion. In response, the Treasury Department, now led by Timothy Geithner, promises another $30 billion bailout with relaxed loan conditions:
American International Group Inc. (AIG) will receive as much as $30 billion government aid after posting a $61.7 billion fourth-quarter loss, the largest loss ever by a public company. In addition to receiving $30 billion in government capital, AIG will benefit because the U.S. Treasury Department will relax the terms on loans it provided the insurer last year.9. March 13th, 2009: AIG announces additional employee bonuses valued at $165 million, "as part of a larger total payout reportedly valued at $450 million." Apparently, none of the three AIG bailouts to this point, all of which were engineered under Timothy Geithner's watch, contained restrictions on such bonuses.
10. March 15th, 2009: In response to a public outcry and media furor over the bonuses, Larry Summers and Timothy Geithner both state that there is no way to get the money back:
Even as Mr. Summers was denouncing A.I.G. for the bonuses, he suggested that there was little if anything the government could do to stop them, seconding the conclusion of Treasury Secretary Timothy F. Geithner.11. March 16th, 2009: President Obama directs Timothy Geithner to find some way to get the money back. The basic plan is to write new conditions into the latest bailout contract, so that this doesn't happen again:
Instead, officials said the White House will focus on ensuring taxpayers recoup the cost of the bonuses and, going forward, executive compensation at AIG would be on a much tighter leash. As leverage, the government said it would apply new rules to the next round of AIG bailout funds, a $30 billion infusion pledged earlier this month.Apparently, despite promises from Larry Summers that blocked legislation mandating executive compensation, and despite Timothy Geithner being in charge of all AIG bailout contracts to date, no such rules were written into any of the contracts until there was yet another public outcry. Exactly why someone would trust Geithner to actually write these rules into the new contract in a way that will actually block future bonuses in unexplained.
12. March 17th, 2009: Numerous lawmakers, including Chuck Schumer, Brad Sherman, Steve Israel, and Carolyn Maloney press for legislation that would impose a 100% surtax on AIG employee bonuses. Why these lawmakers were able to think of a solution that would force AIG executives to pay back the bonuses, even though Timothy Geithner and Larry Summers claimed there was no way to get back the bonuses, is unexplained.
Some say the bonuses are a side issue. I completely disagree. While the bonuses are only a small percentage of the overall amount of public money paid to AIG -- less than 1%, in fact. However, the people taking the bonuses are the same people who will be managing the other 99.9% of the money. There is simply no reason to believe that they will handle that money wisely if they are using public money to dole out huge bonuses to themselves for destroying the world economy. Anyone taking these bonuses simply cannot be trusted with our money. Not only is it time to fire Geithner, it is time to fire them, too.
Unbelievable.
Citi Losing Economist to Treasury | Wall Street Journal
Citigroup Inc.'s chief economist is leaving the company for a job at the Treasury Department, according to an internal Citigroup memo.Lewis Alexander, who has been at Citigroup since 1999 and before that worked at the Federal Reserve, will head to the Treasury "to work on domestic financial issues," said the Citigroup memo, which was sent Tuesday. ...
... Mr. Alexander's role as Citigroup's chief economist didn't entail significant management responsibilities. But his optimistic economic forecasts colored executives' views that the U.S. was unlikely to face a prolonged slump.
"I think that's not going to spill over more broadly into the economy, and so I think we're going to have a normal kind of housing cycle that's going to last through the middle of this year," Mr. Alexander said in a 2007 interview on PBS.
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