Treasury Secretary Tim Geithner is in trouble again, and this time he may not be able to save his job. You'll recall that his confirmation was threatened by revelations of cheating on his income taxes. Now he's accused of paying billions too much for the bailout of AIG and allowing the insurance firm's Wall Street creditors -- Goldman Sachs, Merrill Lynch, Wachovia -- to be paid in full for their derivative contracts with $27.1 billion in taxpayers' money.
The accusation comes from Neil Barofsky, the inspector general for the Troubled Asset Relief Program (TARP) in a report issued yesterday. At the time of the bailout in September 2008, Geithner was president of the Federal Reserve Bank of New York.
Rather than bargain with AIG and its creditors for a reasonable bailout, Geithner agreed to pay "an amount far above the market value at the time," the report said. The bailouts for the big creditors was agreed to by Geithner "even though senior policy makers contend that assistance to AIG's counterparties was not a relevant consideration in fashioning the assistance to AIG."
In extending $85 billion in credit to AIG, Barofsky said, the New York Fed "did not craft its own terms and instead simply adopted in substantial part the economic terms of a draft term sheet under consideration by a consortium of private banks, which included a high interest rate." The banks, which had declined to help AIG, "believed AIG's liquidity needs exceeded the value of the company's assets."
The shorthand of what the inspector general concluded is this: Geithner bailed out AIG and its investment bank creditors without negotiating for tougher terms that would have saved the taxpayers billions. And he did this though one of the "counterparties" was willing to agree to concession. In Geithner's defense, Barofsky noted that Fed officials "believe they will recoup the loan made to AIG to pay off the big creditors.
The private report, first disclosed by Huffington Post, is officially titled "Factors Affecting Efforts to Limit Payments to AIG Counterparties."
The Republican to call for Geithner's resignation as treasury secretary was Rob Simmons, a former House member who is running for the Republican nomination for the Senate seat in Connecticut held by Chris Dodd. Polls show Simmons running ahead of Dodd.
In a statement, Simmons said: "The cozy relationships between the bailed out financial companies and powerful politicians like Tim Geithner and Chris Dodd are exactly why Americans have lost trust in Washington, D.C., and why we need new leadership with the skills and integrity to clean up the mess and get our economy back on track."
As the Barofsky report circulates on Capitol Hill, more Republicans are likely to raise the matter of Geithner's conduct in the AIG case. "There were already serious doubts about Secretary Geithner's credibility, stemming from his failure to pay taxes and subsequent poor performance," Simmons said.