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Archive for November 21st, 2009

Tim “Turbotax” Geithner is getting attacked on the Hill because of the weak economy, but he should be condemned for the corruption and favoritism he displayed while head of the New York Fed during the financial crisis. The New York Times recently reported how much of the money wasted on AIG actually was designed to go in the pockets of Geithner’s friends and cronies in the banking sector:

The Federal Reserve Bank of New York gave up much of its power in high-pressure negotiations with the American International Group’s trading partners last year, according to a government report made public on Monday. Just two days before the New York Fed paid AIG’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance. …Goldman Sachs and the top French bank regulator. They argued, with others, that it would be improper and perhaps even criminal to force AIG’s trading partners to bear losses outside of bankruptcy court. The banks and the regulator were confident that the New York Fed was not willing to push AIG into bankruptcy, because earlier in the fall the New York Fed had stepped in with $85 billion to prop up the insurer. …The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make AIG’s trading partners whole when people and businesses were taking painful losses in the financial markets. There have been suggestions that the Fed chose to negotiate weakly, Mr. Barofsky said, to give a “backdoor bailout” to AIG’s banks. He said Mr. Geithner and the Fed’s lawyers had denied this, but added that “irrespective of their stated intent,” there was no doubt about the result: “Tens of billions of dollars of government money was funneled inexorably and directly to AIG’s counterparties.”

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