US Treasury Secretary Timothy Geithner appears this week before lawmakers angry over his part in the bailout of insurance giant AIG, with concerns mounting over his role as the US administration’s top economic official.
Some analysts say Geithner, who was conspicuously absent during President Barack Obama’s unveiling of tough proposals to regulate the banking system, may now be marginalized and could even be on his way out.
“The first casualty of the president’s political debacle will likely be Timothy Geithner, the severely overconfident Treasury secretary well-known as a lapdog of Wall Street,” wrote the left-leaning journal The Nation.
“Geithner was effectively repudiated by the president last week when Barack Obama abruptly announced a new, more aggressive approach to financial reform.
But the immediate threat to Geithner is the scandal of collusion and possibly illegal behavior gathering around the Federal Reserve Bank of New York for its mega-billion-dollar takeover of insurance giant AIG.”
On Wednesday, Geithner must answer questions before the House of Representatives Government Oversight Committee on his role — when he was president of the New York Federal Reserve — in the controversial AIG bailout.
The congressional panel noted that internal AIG emails obtained by the committee to date “indicate that the (New York Fed) may have urged AIG to keep secret the details of the counterparty payments, despite the fact that taxpayer dollars made the payments possible.”
The Fed provided a loan of 85 billion dollars to AIG in September 2008 in what would be the first portion of a staggering bailout worth some 180 billion dollars.
Because AIG used the funds to reimburse banks holding the distressed mortgage securities, some have called the move a “backdoor bailout” of those firms including Goldman Sachs and a number of foreign banks.
The details of the counterparty payments were initially kept secret but the recipients were disclosed in March 2009.
The 22.4 billion dollars in payments were made to a number of firms.
France’s Societe Generale, Germany’s Deutsche Bank and New York-based investment bank Goldman Sachs were the top three recipients.
Fed chairman Ben Bernanke, who has also taken heat over AIG and his economic stewardship, has welcomed congressional efforts to look into the AIG bailout.
The New York Fed has delivered 250,000 pages of records that were requested by the House committee.
But with the political landscape shifting after a key Republican victory in a special Senate election last week, Geithner and Bernanke are now in the crosshairs of critics.
John Hussman of Hussman Funds said it is time to replace both Bernanke and Geithner.
“Since the beginning of the credit crisis, both of these bureaucrats have proven themselves to be ardent defenders of bank bondholders but a danger to the interests of the public,” Hussman wrote in a weekly commentary.
