Treasury secretary Timothy Geithner was president of the New York Federal Reserve when the government nationalized insurance giant AIG and paid counter-parties to the company's credit default swaps 100 cents on the dollar. That was in 2008. In January 2010, taxpayers have poured $180 billion into AIG (so far!) and Congress has uncovered evidence that the Fed did not disclose the full details of its interactions with AIG counter-parties such as Goldman Sachs. Here's GOP congressman Darrell Issa of California in the Washington Examiner:

Many financial experts expected AIG to negotiate with the counterparties for a discounted rate, thus achieving the best possible deal for U.S. taxpayers. Instead, the New York Fed arranged to pay full price in what amounted to a backdoor bailout of large financial companies. Aware that the bailout details would anger taxpayers, the Fed applied pressure on AIG to keep the details quiet and out of all SEC filings

Evidence obtained by the House Oversight and Government Reform Committee now demonstrates that officials at the New York Fed ordered AIG officials not to disclose details about the decision to pay the counterparties the full price.

To facilitate the cover up, the Fed instructed the Special Investigator General for the Troubled Asset Relief Program (SIGTARP), Neil Barofsky, not to release documents to the Committee that would aid an ongoing investigation.

Geithner went to the Hill this morning to answer questions about AIG. Needless to say, the meeting wasn't amicable. Geithner is a lot more comfortable around rich bankers than he is around the people's representatives.

When asked if he knew what was going on with AIG, Geithner said he was out of the loop: "I withdrew from monetary policy decisions." Nevertheless, Geithner says, the AIG bailout was necessary to forestall a complete collapse of the global financial system. No one wanted to take that risk. But would the financial system really have disappeared if AIG's counter-parties only got 10-, 50-, 80-cents on the dollar? Dennis Kucinich wants to know:

Representative Dennis J. Kucinich, Democrat of Ohio, excoriated the New York Fed’s decision to pay 100 cents on the dollar to A.I.G.’s counterparties, including $2.5 billion to Goldman Sachs.

“Isn’t it true that the New York Fed gave Goldman Sachs a better deal than it could have ever expected from A.I.G. or any other market player?” Mr. Kucinich asked.

Mr. Geithner replied: “Under the laws of the land, we did not have the ability. So we faced a very simple choice: Let A.I.G. default, or prevent it. And there was no way — financial, legal or otherwise — we could have imposed haircuts, selectively default on any of those institutions, without the risk of downgrade and default.”

Mr. Kucinich scoffed at the answer. “If that doesn’t illustrate what the New York Fed was working for — or who it was working for — I don’t know what it does,” he retorted.

That's from the Times's account, incidentally. The whole encounter was ugly. Rep. John Mica, the Republican of Florida, gets credit for bringing up Geithner's tax evasion.

Why does Geithner remain Secretary of the Treasury? He lives under a Pig-Pen-like ethical cloud. Obama sided with Volcker over Geithner in the debate over what to do about proprietary trading. Now Geithner says he was clueless to what his own agency was doing with AIG. Not exactly the steadiest hand on the wheel.

Obama named Geithner to the cabinet for reasons of institutional continuity and personal reputation. Both of those qualities have become liabilities in recent months, however. What's left are Geithner's personal ties to the banking titans the president has decided to turn against. That's a bad position to be in. Thus it is only a matter of time before our Treasury Secretary decides what he'd really like to do is spend more time with the family.

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