Not Just Geithner, They're All In Bed Together

There have been two very informative and revealing articles on Treasury Secretary Tim Geithner recently: this one from Gary Weiss in Portfolio (which is apparently going out of business), which is a sot profile, and this much harder-edged piece in the New York Times, suggesting that Geithner is part and parcel of the old-boys club on Wall Street.

Even as banks complain that the government has attached too many intrusive strings to its financial assistance, a range of critics — lawmakers, economists and even former Federal Reserve colleagues — say that the bailout Mr. Geithner has played such a central role in fashioning is overly generous to the financial industry at taxpayer expense.

An examination of Mr. Geithner’s five years as president of the New York Fed, an era of unbridled and ultimately disastrous risk-taking by the financial industry, shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.

Wow. That's a bit of a bombshell. And it's backed up with a fair bit of knowable facts. You can draw conclusions from who Geithner met with and where he ate dinner, but you can draw far more lasting conclusions from the fact that stress tests appeared to look tougher on regional banks than the large Wall Street players. You can build a narrative out of friends and associates, or you can just take a look at the hundreds of billions flowing to the biggest banks, while consumer lending programs fail utterly to deliver for regular people. While the banks whine about the constraints put on them by the government and feel reluctant to participate in government programs designed to boost the economy, I think you can make a compelling case that the banks have been coddled while the people continue to struggle.

I agree with Joseph Stiglitz here:

To Joseph E. Stiglitz, a Nobel-winning economist at Columbia and a critic of the bailout, Mr. Geithner’s actions suggest that he came to share Wall Street’s regulatory philosophy and world view.

“I don’t think that Tim Geithner was motivated by anything other than concern to get the financial system working again,” Mr. Stiglitz said. “But I think that mindsets can be shaped by people you associate with, and you come to think that what’s good for Wall Street is good for America.”

In this case, he added, that “led to a bailout that was designed to try to get a lot of money to Wall Street, to share the largesse with other market participants, but that had deeply obvious flaws in that it put at risk the American taxpayer unnecessarily.”

And the facts in the marketplace reflect that instance of snap-psychology. However, I would add that Geithner is one person. In fact, the revolving door between Washington and Wall Street is much bigger than the Treasury Secretary. The argument that the oligarchs have essentially taken control of government does not depend on him. So I wouldn't make so much of this. I would say that the coziness between these two seats of power represents a real threat to getting us out of this economic crisis.

The Gang That Couldn't Shoot Straight

The politicians in the Republican Party know they have a winning issue. John Boehner put Tim Geithner on notice today, saying "What happens over the next 24 to 48 hours will determine his future." Connie Mack (R-FL) called for his resignation. Chuck Grassley wants an Inspector General review into Treasury's contacts with AIG. Sure, they're being inconsistent, but that never bothered the GOP before.

What's more, they're right. Geithner and the Treasury Department struck the limit on compensation caps because he needed vonutary private partners to pull off his "TALF" plan.

Officials at the Federal Reserve and the Treasury Department are increasingly worried that the controversy could discourage investors from joining a new government effort to revive consumer lending as well as a separate plan that relies on private money to buy toxic assets from banks, sources familiar with the matter said.(...)

A senior executive at one of the nation's largest banks said he had heard from several hedge funds that they would not partner with the government for fear that lawmakers would impose retroactive conditions on their participation, such as limits on compensation or disclosure requirements.

There are differing arguments about the potential of the TALF plan (personally, I see it as the government putting up most of the risk and outsourcing the profits to hedge funds), but the debate has kind of been rendered moot by the Fed's announcement that they're just going to go ahead and buy up a ton more mortgage-backed securities on their own (along with long-term Treasury securities) without getting approval from Congress. This pushes the bailout numbers up by at least another trillion dollars. So the cunning Geithner plan to make the bailout slightly less costly has not only been made inoperable, but it facilitated these bonus payouts which just directly prove that the banks are bad-faith operators. And this is only going to get worse.

• Item 1: Citibank CEO lied to Congress about his own compensation package, which members of Congress are pursuing.

• Item 2: Generous retention bonuses at Fannie Mae and Freddie Mac will continue to cement the impression that the banks are taking advantage of the bailout money.

The Administration is becoming susceptible to the argument that they overly trusted banksters who are interested in personal self-aggrandizement and not fixing the economy. And the GOP knows it, and they're sticking the knife in.

Except their spiritual leaders are not being helpful.

GOP Congressional leaders have roundly condemned AIG and its executives, as part of a strategy to position themselves as heroic defenders of the taxpayers and to paint the Obama administration as weak and ineffectual. Mitch McConnell recently blasted AIG’s bonuses as an “outrage.” John Boehner said that the “American people are rightly outraged.” And Eric Cantor bemoaned the “stunning lack of accountability” on AIG’s part.

But increasingly, leading conservative media figures are moving in a different direction: Defending AIG.

Rush Limbaugh recently said: “I am all for the AIG bonuses” and attacked the Obama administration for trying to undo them. He also blasted Dem efforts to get the names of the AIG bonus recipients as “McCarthyism.”

Fox News followed suit, also comparing Dems to “Joe McCarthy.” And Sean Hannity has now derided efforts to tax the execs by saying: “In other words, we’re going to just steal their money.”

Hilarious. The White House tosses a softball right over the plate, and half the GOP wants to swing at it and the other half wants to take it.