Washington Rep. Doc Hastings, ranking Republican on the House Natural Resources Committee, is circulating a document that downplays the impact of the amendment, which was authored by Rep. Charlie Melancon (D-La.).

Hastings’ document notes that Melancon’s amendment leaves the final say on whether a company can bypass the drilling moratorium to the Secretary of the Interior. “In addition, the Melancon amendment would write into law dangerous new language explicating granting authority to the Interior Secretary to impose further moratoria,” Hastings argues. Hastings also says that the amendment was changed from its original form, which did not include the language giving the final decision to the Interior Department.

This change, Hastings says, raises questions: “Why was the amendment changed? Did Rep. Melancon independently rewrite his amendment and add this language?  Did Secretary Salazar or the Obama Administration ask for the change?  Did Speaker Pelosi and House Democrat leaders suggest or direct that the amendment be changed?  Why was this harmful rewrite made at the last minute?”

But unless you’re well-versed in the modern minutiae of the financial market, it probably didn’t help explain anything about why Treasury Secretary Tim Geithner is facing an investigation into his role in the affair.To recap Morgenson and Story:

• The people at Goldman Sachs invested in mortgage-backed securities they expected to decline in value in order to make money off the insurance claims.
• Due to a long-standing relationship, they went to AIG for a kind of insurance — credit default swaps — which were not regulated.
• They then used other companies, including Société Générale, to purchase more of the unregulated insurance that AIG might not have otherwise underwritten in order to manage its own risk.
• When Goldman’s investments declined, they submitted insurance claims for the losses, but insisted on determining the amount of their damages on their own, without any input from AIG, any auditor or the market.
• After Goldman got as much money out of AIG as they thought they could, their stock analysts issued a report about how AIG was bleeding cash and their creditors wouldn’t negotiate, without mentioning that AIG was bleeding cash because of them and that Goldman was the creditor that wouldn’t negotiate. AIG’s stock tanked.
• The government stepped in, took an 80 percent share in AIG and then paid Goldman and the other creditors all the money they’d asked AIG for at the start of the negotiations in 2007, without using their power to force AIG’s creditors to negotiate.

When the federal government, including then-Treasury Secretary Hank Paulson (who once served as chairman and CEO of Goldman Sachs), directed AIG to pay Goldman exactly what it wanted, it overrode significant and long-standing misgivings by AIG’s lawyers and accountants that Goldman’s estimates of its losses were correct. Morgenson and Story note that the prices on the very securities for which Goldman demanded insurance payments have since rebounded — but under the terms of the deal struck by the federal government, Goldman doesn’t have to pay a cent of its insurance settlement back to either AIG or the taxpayers. That’s quite the sweetheart deal for Goldman Sachs, if not taxpayers.

Now-Treasury Secretary Tim Geithner’s role in the November payouts is under investigation; his spokesperson said last month that then-New York Fed Chair Geithner officially recused himself from participating in the AIG bailout after Nov. 24, 2008 — the date of his nomination to Treasury — and had begun to insulate himself from such decisions “weeks earlier in anticipation of his nomination.” The Presidential election was held Nov. 4, 2008, and the plan to give Goldman everything it wanted was made official 6 days later, on Nov. 10. Either Geithner was insulating himself from his own job weeks before the election, or he was as involved in the negotiations as his detractors have charged.

Documents have recently emerged showing that the N.Y. Fed, starting as early as Geithner’s Treasury nomination announcement, worked with AIG to prevent full disclosure of how the bailout money it received in November went straight to companies like Goldman Sachs, Société Générale and Deutsche Bank, among others. The order to AIG from the government not to negotiate with its creditors may have cost U.S. taxpayers $13 billion; it was only under pressure from the SEC that AIG made public in March 2009 (after Geithner’s confirmation) the banks to which it had transferred its bailout funds.

As the N.Y. Fed staffers — who, despite his recusal, still worked for Geithner — were pressuring AIG to refrain from disclosing the government’s demands on behalf of Goldman and the secondhand amount Goldman received from the bailout, Geithner was amending his tax returns and paying back taxes in order to survive his confirmation process. Revelations that he’d also used his position at the N.Y. Fed to preserve the financial interests of Goldman Sachs over taxpayers or the company in which the government had taken a majority stake might have scuttled his nomination entirely. These days, many Democrats seemingly think that perhaps it should have.

The controversy in recent weeks has centered not on the money that went to AIG, but the money that went through AIG to some of the other Wall Street giants to which AIG owed cash. In the process, AIG paid those firms, including Goldman Sachs, 100 cents on the dollar — an arrangement that some Fed officials lobbied (unsuccessfully) to conceal from the public. Geithner on Wednesday reiterated his earlier statement that although he was head of the New York Fed at the time, he took no part in the decisions surrounding disclosure of those payments. He also defended the decision to allow AIG to pay back Goldman and the others on par, arguing that the only legal way to ask those firms to accept less would be to allow AIG to default — a scenario, he said, that would have devastated the financial sector and the economy as a whole.

The counterparties held insurance entitling them to full or par value of the contract. We could not credibly threaten not to pay. That meant putting AIG into bankruptcy. At the time, we were working desperately to rebuild confidence in the financial system. Any suggestion that we might let AIG fail would have worked against that vital aim. We could not risk a protracted negotiation.

Lawmakers, for their part, were having none of it. Rep. Marcy Kaptur (D-Ohio) implied that finance officials put the interests of Goldman above those of taxpayers. Rep. Dan Burton (R-Ind.) said “it stretches credibility” that Geithner, as head of the New York Fed, wouldn’t have been involved in the disclosure discussions. Rep. Stephan Lynch (D-Mass.) wondered why officials “scalped” the shareholders of Bear Stearns, but made sure to pay off Goldman in full. Rep. John Mica (R-Fla.) simply asked Geithner to resign.

The hearing, called by Democrats, highlights the pickle facing the White House in a tough election year. In short, the Obama team chose Geithner because, as a friendly face to Wall Street, he could step into the Treasury spot without scaring the hell out of the banks. (Indeed, the markets soared when the country learned of Obama’s choice.) But he hardly fits the populist image that the administration is hoping to resurrect after the special Senate election in Massachusetts last week — a wake-up call to Democratic leaders who are scrambling to reframe their message before November.

Two questions for the White House: (1) Can you keep Geithner in place and still create the impression among disgruntled voters that you’re serious about taking on Wall Street? And (2) if you choose to replace Geithner, who could fill the office and be the face of populism without causing the markets to tank?

Yet, according to Reuters, that’s precisely what has happened.

Geithner, Reuters says, “has expressed some skepticism behind closed doors about the broad bank limits proposed on Thursday by his boss, President Barack Obama, according to financial industry sources.”

The sources, speaking anonymously because Geithner has not spoken publicly about his reservations, said the Treasury chief is concerned the proposed limits on big banks’ trading and size could impact U.S. firms’ global competitiveness.

Some economists are already doubting the effectiveness of the proposed reforms to prevent the types of lending that led to the economic collapse. That failure is all but guaranteed if even the administration’s own finance officials aren’t on board.

]]> http://washingtonindependent.com/74537/report-geithner-already-grumbling-about-obamas-proposed-bank-reforms/feed 5 http://washingtonindependent.com/74047/geithner-backdoor-bailout-was-absolutely-the-right-thing-to-do http://washingtonindependent.com/74047/geithner-backdoor-bailout-was-absolutely-the-right-thing-to-do#comments Fri, 15 Jan 2010 15:42:43 +0000 Mike Lillis http://washingtonindependent.com/?p=74047 Two messages worth noting from Treasury Secretary Tim Geithner’s interview with CNBC yesterday: (1) Although he was the head of the New York Federal Reserve in late 2008, he had nothing to do with the decision to pay $62 billion to Goldman Sachs and others through More...

Secretary Geithner was not involved in any of these e-mails. These decisions did not rise to his level at the Fed. These are e-mails and decisions made by officials at a independent regulatory agency.

To which the most relevant response is: huh? The federal government had recently bailed out AIG to the tune of $180 billion; AIG was funneling that cash to other (already bailed out) Wall Street giants; the New York Fed was telling AIG not to disclose those payments; and that decision didn’t rise to the level of the Fed chairman?

Looking forward to Congress’ response if Geithner himself chooses that line of argument later this month. (Assuming, of course, that he doesn’t duck today’s request to testify before the House.)

“More than one year after the first Federal bailout of AIG, the American people continue to question where their tax dollars were really sent when the government rescued this company,” Towns said Friday in a statement.

Geithner was head of the New York Fed when that agency advised AIG not to disclose tens of billions of dollars in payments to Goldman Sachs and other Wall Street giants in late 2008, even after the government had stepped in with $180 billion for AIG. The saga has caused some lawmakers to accuse Fed officials of staging a “backdoor bailout” to Wall Street’s major players through AIG.

The hearing is tentatively scheduled for the week of Jan. 18. As we mentioned earlier, there are others who should get an invite to testify as well.

They [Geithner's advisers] decided to “let Tim be Tim” and accepted the fact that his strength wasn’t giving a speech in front of a bunch of flags. Rather, they let reporters see him in off-camera, pen-and-pad settings, where he fielded questions with the confidence that his staff saw behind the scenes. He aced an interview with PBS’s Charlie Rose, thriving in a relaxed setting where he could explain issues at length.

Perhaps most important, the staff realized the importance of making sure other parts of the government knew all the nuances of what was being decided. Treasury officials now meet with White House chief of staff Rahm Emanuel three or four times a week, so top officials can coordinate and trade notes about views on Capitol Hill.

Although Obama never lost confidence in one of his earliest Cabinet picks, a turning point for Geithner came during a seven-hour marathon meeting at the White House on March 15. The president’s top aides could see that he had thought through all the options and had thoughtful, authoritative answers to all their questions.

Management of the secretary has no doubt improved, to positive effect. He’s gotten used to the job, he has more help at Treasury, and the initial bungles and miscommunications that characterized his disastrous first weeks have faded as the White House has understood the need for better Treasury PR. If I had to guess, I’d say that these factors account for maybe 15 percent of the recovery in Geithner’s reputation.

The balance? Economic conditions mostly outside of his control. In the first month of his tenure, as crucial policy decisions were being rolled out one after another, the economy was getting worse at an increasing rate. Worst of all, it was doing it in a very visible fashion; no public appearance went without the inclusion of a stock ticker in a bottom corner of the television screen, and in those weeks stocks were always down (usually by a lot). No longer. Certainly, administration actions — including management of Geithner — have contributed to confidence. But with stimulus only beginning to trickle out and the secretary’s toxic asset program still on the drawing board, one has to attribute most of the appearance of green shoots to aggressive monetary policy and the natural progression of the recession. Both of which have redounded considerably, to Geithner’s benefit.

Should markets once more take a nosedive, attention will once again focus on the failures, real and perceived, of the Treasury secretary. Better communication strategies won’t keep the knives from coming out.

Today, The Washington Post today lends a nice glimpse into the reasons why that plan was so vague, reporting that Geithner & Co., after spending weeks crafting one plan, changed course at the last moment after deciding their initial strategy was too expensive and too risky. “There was one problem,” The Post reported. “They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled.”

The sharp course change was one of the key reasons why Geithner’s plan — his first major policy initiative as Treasury secretary — landed with such a thud last Tuesday. Lawmakers, investors and analysts expressed dismay over the lack of specifics. Markets tanked, and fresh doubts arose about the hand now steering the country’s financial policy.

Under the revamped Geithner plan, the Troubled Asset Relief Program would once again merit its name, combining public funds with private investments to rid the banks of their toxic assets and get them lending again. But, according to The Post, there remained too many unknowns last week to unveil their strategy in any detail. For example, federal officials were unsure how much federal funding the plan would require; where the cash would come from; and how the government would lure private investment into toxic securities, many of which are backed by fraudulent mortgages of questionable value.

In the end, Geithner and his colleagues decided that it would be better to take flak for being vague than publicly offer half-formed details that might later have to be revised.

That might prove a prudent course. But it still doesn’t explain why Geithner — who had been been the lead regulator of New York’s banks for the last five years, not to mention one of the central architects of the Bush administration’s Wall Street bailout — didn’t have a clearer idea of a solution, even as recently as last week.

From ABC:

Patterson first began lobbying for Goldman Sachs in 2005, after working as policy director for then-Senate majority leader Tom Daschle. According to publicly filed lobbying disclosure records, he worked on issues related to the banking committee, climate change and carbon trading and immigration reform, among others.

Patterson’s lobbying was first noted by the National Journal magazine.

Patterson is one of over a dozen recent lobbyists in line for important posts in the Obama administration, despite a presidential order severely restricting the role of lobbyists in his administration, the magazine reported.

Steve Ellis, president of Taxpayers for Common Sense, isn’t happy:

“Considering that Goldman was an early and large recipient of our TARP funding, being pulled out of that really does effect his ability to be an effective chief of staff for the treasury secretary.”

If this keeps up, plenty of others aren’t going to be too happy, either. Those new lobbying rules seems well on its way to becoming a distant memory. Where’s the justification for all this? Aren’t there qualified people out there who don’t happen to be former lobbyists?

I guess we’ll probably find out in late-Friday-afternoon press releases, like the one last week that announced an exemption for former Raytheon lobbyist Bill Lynn from the lobbying rule, thereby making his nomination as deputy defense secretary more likely.

As Spencer put it, “change we can believe in!”