Timothy Geithner honed his spinelessness chops long before he got to the Treasury Dept., according to a new report.
Well, not that long before. It came a year ago, when Timmy headed the New York Fed and gave AIG's counterparties a $25 billion bailout. So says a report from the special inspector general for the Troubled Asset Relief Program, who works for none other than Tim Geithner.
It seems Tim doesn't have the stomach for hard-nosed negotiation. According to the report, his New York Fed gave the counterparties to AIG's credit-default swaps just about everything they wanted without much of a fight. When Goldman Sachs, Merrill Lynch and the French banking regulator--on behalf of Société Générale and Calyon--refused to even consider accepting a discount on the trades, Tim and friends raised the white flag and agreed to fund AIG's repurchase of the CDS--at par, despite the fact that many of the mortgages underlying the securities had gone into default.
The banks didn't lose a cent on the trades, keeping AIG's collateral to cover any losses. A Treasury-owned company wound up with $62 billion in AIG CDS, paid for in part with $24.3 billion in Treasury money.
Only $5 billion of that has been repaid.
The report blasts the New York Fed for failing "to use their considerable leverage" as the regulators of the banks giving it a hard time. But giving banks a hard time is hardly Timmy's game.
Audit Is Critical of N.Y. Fed in AIG Bailout [WSJ]