Entering the House chamber last night on the way to the podium to give his second State of the Union address, President Obama drew his Treasury Secretary close for a pat on the back that I could only interpret as ‘thanks for taking the heat.’ Hours before, Secretary Geithner sat in the hot seat in a House hearing room, defiantly standing behind the $180 billion bailout of AIG that he began as head of the New York Fed, 100% of the payments with taxpayer money to AIG creditor banks including Goldman Sachs, and what looks like subsequent efforts by the Fed to keep information about those payments secret from regulators and the American public.
In a performance that was par for the Secretary’s appearances before Congress, Geithner smirked through a morning of grilling by Representatives from both sides of the aisle who alternately complained that his testimony “stretches credulity” (Rep. Burton) and that the actions on behalf of Goldman Sachs “stink… to the high heaven” (Rep. Lynch). (Thanks to Frank Ahrens at the Washington Post for posting some of the sharpest quotes.)
If there’s one thing Republicans and Democrats can agree on in a still-divided Washington it’s the public's continued outrage at the sum of the response to the economic crisis. Bailouts, nearly-free credit, and a host of extraordinary actions bolstered Wall Street banks into a year of shocking profitability a year after the fall, but have as yet done little to address the lack of oversight and culture of speculation that caused the crash, or to stem the tide of foreclosures, job losses and lack of access to credit that still has Main Street on its knees.
Near the top of the list of outrages is the billions in taxpayer bailout money that the New York Fed helped AIG funnel directly to Goldman Sachs and its other bank creditors, in dollar for dollar payments (Rep. Towns likened it to “looting the corpse”) that were stark departures from the concessions negotiated by so many other failing companies, Bear Stearns to General Motors, from their creditors, shareholders, and employees.
We should all be glad they did it, according to the remarkably similar testimony (everyone have the story straight?) of Geithner, former Secretary Paulson, and to a lesser extent the chief counsel for the New York Fed. Geithner argued that if AIG hadn't paid the banks every penny, the nation’s economy would have collapsed beyond retrieval. One member paraphrased Geithner’s defense to claim we might not all be sitting here today (In the halls of congress? In an American democracy?), if not for Geithner’s valiant acts in defense of the nation. All for freedom, apple pie and the American Way.
Their counterweight was Neil Barofsky, the special investigator delving into the secret messy details of how the TARP money was handled. It’s hard to swallow the argument that the New York Fed’s had no choice with AIG but pay the banks’ demands in full or let the company, and the economy, go under. As Barofsky made clear, they didn’t even try to get a better deal for taxpayers. Negotiations don’t mean asking politely then giving up on the first go-round. (Will you take less money? No? Darn, didn’t think so.) There were no meetings with top officials – in the government or at the banks. Not even an attempt to get the creditors in a room to suggest a deal. (More in Barofsky’s testimony here.)
And, since Geithner disclaims responsibility, we still don't know who at the NY Fed decided to quit negotiating before they started. Congress should unite in demands for full disclosure of every phone call, email and closed door meeting that led up to and followed the ongoing AIG debacle. And the whole mess should be Exhibit No. 1 for giving GAO full power to audit the Fed.