Treasury Secretary Timothy Geithner will tell Congress Wednesday that he knew nothing about the Fed's decision to keep secret the details of its plans to funnel $62 billion in taxpayers' money through American International Group (AIG) to foreign and domestic banks back in late 2008 when he headed up the New York Federal Reserve.Geithner's wording for his congressional testimony is very lawyerly -- but does it leave out important information? According to Dow Jones Newswires, Geithner will say, "I had no role in making decisions regarding what to disclose about the specific financial terms of Maiden Lane II and Maiden Lane III, and payments to AIGs counterparties."
As a quick reminder, AIG has received a total of $182.3 billion in government cash and guarantees against its losses. $62 billion of that went toward paying huge banks in Europe and the U.S. 100 cents on the dollar for their claims from bond insurance -- known as credit default swaps (CDSs).
As I have written about in previous articles, $12.9 billion worth of that cash went to Goldman Sachs Group (GS), but the government tried to keep Goldman's name away from the public, along with the identities of the other lucky winners of Washington's bailout lottery. Geithner's testimony can probably be backed up with memos from New York Fed General Counsel Thomas Baxter, who gave Geithner cover when he said that he had chosen not to inform Geithner about the disclosure discussions because it didn't warrant the then-New York Fed president's attention. Further, he defended the Fed's decision not to disclose who got the $62 billion as "routine," and testified that taking the time to negotiate better deals with the counterparties would have risked "catastrophic" consequences.
And unless incriminating emails emerge, Geithner will slither away from whatever share of the responsibility he may have had for the decision to hide this information from the public.
Nor is Baxter the only one citing the risk of the apocalypse as a defense for the indefensible. Hank Paulson, who was Treasury secretary when the deal occurred, also testified that he had no personal knowledge of the backdoor bailout, but even though he didn't know about the decision to pay the full $62 billion, he knew with certainty that it was necessary.
In prepared remarks, Pauslon said that "we would have seen a complete collapse of our financial system and unemployment easily could have risen to the 25% level reached in the Great Depression."
Lawyers, terror and billions in taxpayer money to bail out Wall Street -- it's all in a day's work for Tim Geithner and Hank Paulson.
Peter Cohan owns AIG shares, but has no financial interest in Goldman Sachs.
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