Business Times - 06 Feb 2010
Should Geithner start looking for a new job?
By LEON HADAR
WHEN "sources close to the White House" tell reporters that the US President remains "confident" about your "leadership" and "job performance", is it time for you to start looking for another job?
Indeed, for several weeks, the American media has been reporting that Treasury Secretary Tim Geithner retains the confidence of President Barack Obama as well as of leading Congressional Democrats even as lawmakers and journalists continue to raise questions about why the Federal Reserve Bank of New York held back information about the government's bailout operations at a time when Mr Geithner served as its president.
They have been asking whether Mr Geithner, who came to his current job from the New York Fed, was behind the decision by the New York Fed in December 2008 to request that American International Group (AIG) keep secret certain information about the government's US$182.3 billion bailout of the insurance giant, and in particular about the banks AIG was helping to bail out.
At the centre of the controversy is the allegation that after the government had pumped billions of US dollars into AIG, the insurer took the money and paid its customers in full for their debt-insurance contracts.
These AIG customers included big investment banks such as Goldman Sachs whose former and current chiefs and top investors have had close professional and even personal ties to Mr Geithner. So inquiring minds want to know whether Mr Geithner made sure that Congress and the public would not have access to information which implies that he was doing his best to assist his old pals at Goldman.
Some e-mail uncovered by investigators did show that the New York Fed asked AIG to keep mum on its payouts to the big Wall Street banks, even after AIG got its taxpayer bailouts. But Mr Geithner has denied the allegation that he delivered that request to AIG and insisted that he had recused himself from the discussions over AIG after President-elect Obama had chosen him as Treasury Secretary. And the White House has stated that Mr Geithner was not involved in any cover up.
But the problem is that in the eyes of populists on the political left and the political right, Mr Geithner, very much like Fed chairman Ben Bernanke, has come to symbolise what they perceive to be a corrupt Washington-Wall Street network.
Not only has Mr Geithner spent most of his professional career shuttling between the government and the investment industry, he was doing that at a time when Democratic and Republican administrations were deregulating the banks. In a way, the perception on Capitol Hill is that Mr Geithner has been doing his best to protect the interests of his old buddies on Wall Street rather than that of those living and working on Main Street. Hey, the guy even dresses like a banker, according to his many critics.
Indeed, bashing Mr Geithner has become almost a full-time job for some lawmakers in Washington who seem to be convinced that the Treasury Secretary is trying to cover-up a Watergate-style financial-political scandal.
Mr Geithner and his predecessor Henry Paulson were grilled by a House panel this week about what happened with the AIG bailout in September 2008. And the Congressional hearing quickly turned into a media spectacle as Democrat and Republican lawmakers tried to turn Mr Geithner into the leading villain in the derided bailout operation.
"We were changing the rules day by day, and we had the banks at a position where we could have exercised a lot of leverage, and you chose not to do it," Democratic Representative Stephen Lynch barked at Mr Geithner, attacking the decision by AIG to pay its trading partners in full.
"It makes me doubt your commitment to the American people," he told Mr Geithner.
"I disagree with you," responded the somewhat low-key Mr Geithner, who reiterated that the decision by the government not to reveal which banks got paid by AIG when it was bailed out was not part of a huge cover-up.
"We would not want to disclose information that would be bad for the taxpayer, make it harder for the taxpayer to recoup our investments," he explained. "In other words, if the world found out that Goldman was at risk of collapse if it didn't get paid, Goldman could have collapsed, making matters worse across the economy," he stressed.
Most non-political observers tend to agree with Mr Geithner and his colleagues, who had to make quick decisions at a time when Wall Street - and the entire American economy - seemed to be sliding towards another Great Depression. They were trying to do their best to save the large financial institutions and may have paid less attention to the need to ensure the transparency of the process.
While President Obama seems to agree with that analysis, it is not clear whether he will be able to resist the mounting pressure on Capitol Hill to fire Mr Geithner. So perhaps Mr Geithner is activating his account at the job-search site, Monster.com.
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