Streetwise Professor

July 26, 2012

Now This Is Offensive

Filed under: Derivatives,Financial crisis,Financial Crisis II,Politics,Regulation — The Professor @ 6:19 pm

Timmy! is deeply offended by SIGTARP Barofsky’s assertion that he was too close to Wall Street while he was head of FRBNY. In related news, Geithner defended himself against allegations that he had not been sufficiently aggressive in his handling of the LIBOR situation:

“We, at least I, first learned about those concerns in the early parts of spring of 2008 and we acted very quickly at that stage. At that time, this is in the spring of 2008, we took a very careful look at these concerns, we thought those concerns were justified,” Geithner said.

“And we took the initiative to bring those concerns to the attention of the broader U.S. regulatory community, including all the agencies that have responsibility for market manipulation and abuse,” he said, citing a specific meeting of the president’s working group on financial markets.

Note this:

The first trove of documents from the New York Fed showed that Barclays had flagged concerns as early as 2007 and Geithner sent the email to Bank of England Governor Mervyn King in June 2008 with the Libor recommendations.

So let’s review the timeline:

  • In August, 2007 Barclays admits to FRBNY personnel that it submitted misleading LIBOR quotes, and claims that this practice is widespread.
  • In April 2008 the WSJ runs an article providing evidence that banks were systematically underreporting LIBOR rates.
  • In June 2008-AFTER the WSJ article-FRBNY sends a letter to the BOE suggesting procedural and governance changes to LIBOR in order to reduce the incentive to misreport.  This letter says nothing about Barclay’s admission that it had in fact misreported LIBOR 10 months earlier.
  • BOE does nothing.  FRBNY does nothing.  FRBNY does not follow up when BOE does nothing.

So I guess we now now what “all I could” means in Timmyspeak.

I would have more respect for Geithner had he said: “Given the state of the banking system it would have been catastrophic to pursue aggressively misreporting of LIBOR.” The weaseling-not so much.  That is truly offensive.  (The “We, at least I, first learned” weaseling is particularly offensive.  Just where did the buck stop at FRBNY?)

Incidentally, the NYT has turned on Geithner for his role-or lack thereof-in cracking down on the misreporting.  Moreover, it has come out in support of Gary Gensler as a replacement for Geithner, in the event of a 2d Obama term:

And when the time comes to choose a new Treasury secretary — Mr. Geithner has said he does not expect to remain if President Obama is re-elected — the next president would do well to look for candidates among the regulators who have distinguished themselves by their willingness to confront the banking system’s manifest problems. One such person is Gary Gensler, the chairman of the Commodity Futures Trading Commission, which pursued the rate-rigging allegations against Barclays, securing a record fine and referring the matter to the Justice Department for criminal investigation.

A couple of things.  First, the CFTC acted almost five years after the initial information came to light: that’s confrontation?  Second, has the NYT maybe like heard of MF Global?  Peregrine?

Admittedly, a Gensler Treasury would probably be well down on the list of debacles in the event of Obama’s reelection.  But a debacle it would be, and the LIBOR case-in which the CFTC worked with DOJ and the BOE-is hardly sufficient grounds to justify Genlser’s elevation, especially in light of the two confidence-shattering, and unprecedented, breaches of customer fund segregation that occurred on his watch.

But then again, DC has always been a living, breathing, pulsating embodiment of the Peter Principle, so it just might happen.

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  1. Gensler?!?! Why don’t Obama just appoint Corzine and be done with it.

    Comment by Highgamma — July 26, 2012 @ 8:27 pm

  2. If I could, I’d change “don’t” into “doesn’t”. Well, I guess I don’t buy ink by the barrel.

    Comment by Highgamma — July 26, 2012 @ 8:28 pm

  3. @highgamma-I think Gensler has panted after the SecTreas job since day one. Re Corzine-you’re right. Why have merely the enabler when you could have the real deal?

    The ProfessorComment by The Professor — July 27, 2012 @ 8:40 am

  4. The timmster (no capitals for him!) is an example of a corollary to Mark Twain’s adage: “The great thing about telling the truth is that you don’t have to remember so much”. Timtim, being a practiced player of the “bureaucratic arts”, is not so much weaseling as trying to cut down on the memory load – you can be damn sure that a review of all e mails were made, and those that were inconvenient were missing, as I am sure the record retention rules the SEC and FED inflict on others are not applied to them.
    As to jonjon, Corzine is a gift that keeps on giving. Please let him not get indicted before the election. Any issue relating to the prudence, honesty, parentage, etc. of any opponent of the current pseudo meritocratic fail upwards frauds in power can be answered with a picture of the illustrious Senator/Governor. To void that stench a clothespin won’t do – one needs a full hazmat suit

    Comment by Sotos — July 27, 2012 @ 9:55 am

  5. In response to a previous response by Sotos and your mention of the Peter Principle i believethat things are not as they always have been. I believe in many cases the Peter Principle has been transcended and that the days when this Principle held were the halcyon days of US business. In the case of a given individual the Principle assumes that this person accomplished something at lower levels of an organization. This process continued until such time that this fellow was wholly incompetent to fill his last promotion. My view is that this reasonable process has been transcended to the point that no objective accomplishment is required for promotion. The management theorists must have thought that the old process was just too darn slow and should be streamlined to get incompetence to the top as quickly as possible (similar to current POTUS).

    The adage used to be 20% of the people do 80% of the work. The great academic organizational theorists determined this was an unenlightened.non inclusive and non progressive view. Actually, they suggested, the 20% were reducing the effectiveness of the organization and that optimum performance was only possible through true collectivist hive effort.

    Ah yes I remember the good old Peter Principle days quite fondly. The new enlightened Progressive Principle organizations are ineffective horrors.

    Comment by pahoben — July 27, 2012 @ 10:16 pm

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