Streetwise Professor

January 7, 2010

Timmy! Does Transparency

Filed under: Commodities,Derivatives,Economics,Exchanges,Financial crisis,Politics — The Professor @ 9:52 pm

Timmy! Geithner has been keeping a low profile lately–but maybe it’s just the anti-terror FUBAR that has drawn attention away from him.  But today he gets a banner headline on Bloomberg:

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

R asks if this could be the last straw for Timmy!  You’d think, but if Janet Napolitano and John Brennan are still among the employed (I wouldn’t say “gainfully employed”), it’s pretty clear that you can get away with a lot these days.  A whole helluva lot, in fact.

The Bloomberg article is very short on reasons why the FRBNY was so adamant on keeping the details of the AIG deals quiet.  Any GueSses?

No doubt this was of a piece with the Paulson-Bernanke insistence that all big banks take TARP funds, in order to pool the true weaklings with those not in desperate shape, so as to stem potential runs on the weaker institutions.  No doubt revelation of the details would have raised questions as to why it was so, so important to pay off Goldman, DB, etc., and ASAP.

I would love to hear an explanation as to how this could possibly be consistent with Geithner’s insisting to the Special Inspector General that the financial condition of the AIG counterparties was (I quote from memory) “not a relevant consideration” in the government’s decision make said counterparties whole.

Again: he was either lying when he said that, or everything else he has said or done in regards to the AIG intervention is a lie.

This raises another issue.  Geithner, along with others in the administration (notably Gensler at CFTC) has been preaching The Gospel of Transparency when flacking for clearing and exchange trading mandates.  Sunshine and transparency have magical powers, they intone, that will protect us against systemic risk.  Those who oppose transparency are merely greedy special interests protecting their turf.

But the FRBNY’s actions with AIG, and Treasury and Fed actions more generally, make it clear that the powers that be clearly believe that transparency can be damaging under some circumstances.

I’m perfectly willing to stipulate that, and then debate what is the right amount of transparency, and more importantly, what is the appropriate process to determine the level of transparency in various settings.

What I can’t abide is highhanded lectures about the virtues of transparency and the need to force it on individuals and firms, delivered by the likes of Timmy! Geithner, who is more than willing to do big deals away from prying eyes when it suits him.

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1 Comment »

  1. Why is it that we dont hear about Hank Paulson anymore?

    Comment by Surya — January 9, 2010 @ 10:59 pm

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