The Fed and the Treasury: Heads Should Roll

Krugman's “one cheer for Bernanke” notwithstanding, I think some heads have to roll here. Any favorites to replace him?

I've heard Blinder, Yellin, and Volcker mentioned.

And at Treasury, am I wrong to dream of a team featuring Brooksley Born, formerly of the CFTC, Elizabeth Warren of the TARP oversight office, and maybe Sheila Bair of FDIC? Make Born the Treasury Secretary, Bair the Comptroller of the Currency, and Warren the head of what should be a new Financial Product Safety Commission.

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Past time for Geithner to go

UPDATE: Cenk Uygur asks and answers a very good question: Why is Fox News leaving Geithner alone?

Let’s hope the latest scandalous revelation about Timothy Geithner will bring a rapid end to his service as Treasury secretary:

Jan. 7 (Bloomberg) — The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” […]

Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said the e-mail exchanges were “troubling” and that he supports holding congressional hearings to review them.

I’ve been hoping for the last year that President Obama would ditch Geithner sooner rather than later. President Obama didn’t react publicly to the November report from the Office of the Special Inspector General for the Troubled Asset Relief Program, which slammed Geithner’s conduct during the AIG bailout. But it’s clear that Geithner wasn’t looking out for the public interest in his last job and never should have been promoted to his current position.  

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Year in review: national politics in 2009 (part 1)

It took me a week longer than I anticipated, but I finally finished compiling links to Bleeding Heartland’s coverage from last year. This post and part 2, coming later today, include stories on national politics, mostly relating to Congress and Barack Obama’s administration. Diaries reviewing Iowa politics in 2009 will come soon.

One thing struck me while compiling this post: on all of the House bills I covered here during 2009, Democrats Leonard Boswell, Bruce Braley and Dave Loebsack voted the same way. That was a big change from 2007 and 2008, when Blue Dog Boswell voted with Republicans and against the majority of the Democratic caucus on many key bills.

No federal policy issue inspired more posts last year than health care reform. Rereading my earlier, guardedly hopeful pieces was depressing in light of the mess the health care reform bill has become. I was never optimistic about getting a strong public health insurance option through Congress, but I thought we had a chance to pass a very good bill. If I had anticipated the magnitude of the Democratic sellout on so many aspects of reform in addition to the public option, I wouldn’t have spent so many hours writing about this issue. I can’t say I wasn’t warned (and warned), though.

Links to stories from January through June 2009 are after the jump. Any thoughts about last year’s political events are welcome in this thread.

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Grassley and Harkin both vote no on Geithner

The U.S. Senate confirmed Timothy Geithner as Treasury Secretary today by a vote of 60 to 34, but as you can see from the roll call, both of Iowa’s senators voted no.

Grassley was joined by 29 other Republicans. He voted against Geithner in the Senate Finance Committee a few days ago, citing the nominee’s failure to fully meet his tax obligations during some previous years.

Harkin was one of only three Senate Democrats to vote against confirming Geithner. According to the Des Moines Register,

Harkin voiced concerns about Geithner’s failure to pay some income taxes several years ago, amounting to about $34,000. […]

Harkin also said Geithner was at fault for how some of the $700-billion financial rescue money, authorized by Congress in October, was spent. Harkin voted for the bailout, but said later he would have voted against it had he known the money would go to banks, rather than to buy bad loans.

Geithner was a key figure in the crafting and administering of the money as the president of the Federal Reserve Bank of New York. In the post, Geithner also was partly to blame for the financial meltdown, which stemmed from inadequate regulation, Harkin argued.

“Mr. Geithner made serious errors of judgment in failing to pay his taxes, and he made serious errors in his job as chief regulator of the financial institutions at the heart of the current financial crisis,” Harkin said in a statement released after the vote.

I am surprised that so many senators voted against Geithner. I stand by my opinion that if he were not a white male, the tax problems would have sunk his nomination.

Speaking of Senate confirmations, some Republican has reportedly put an anonymous hold on the nomination of Hilda Solis as Labor Secretary. I called Grassley’s office today, and a staffer told me it wasn’t him.

Will President Barack Obama go to the mat to get Solis confirmed? Will the Republicans filibuster this strong supporter of workers’ rights and the Employee Free Choice Act?

I had assumed that Attorney-General designee Eric Holder would be the cabinet appointment most fiercely opposed by Republicans, but perhaps it will be Solis.

UPDATE: Geithner’s actions during his first day on the job are not encouraging. I believe he will turn out to be one of Obama’s worst appointments.

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Open thread on Obama's economic team

Apologies for not getting this thread posted yesterday, when President-elect Barack Obama unveiled his economic team.

On the plus side, there are no incompetent hacks in this group. I’ve heard particularly good things about Peter Orszag’s work at the Congressional Budget Office, and he will produce reliable numbers at the Office of Management and Budget.

People I respect speak quite highly of Melody Barnes, who will run Obama’s Domestic Policy Council.

Also, it’s encouraging that Obama is committed to a major stimulus bill that will focus on infrastructure investments. I’ll reserve further judgment until we see more specifics about Obama’s plans, because spending $350 billion on stuff worth doing is a lot better than spending $350 billion on boondoggles.

I also agree with Matthew Yglesias that if you’re going to throw tens of billions of dollars at the economy, high-speed rail in the Midwest would be an excellent place to start. (UPDATE: Senator John Kerry has introduced a major bill that would promote high-speed rail development across the country.)

On the down side, since I opposed the series of Wall Street bailouts we’ve been seeing this fall, I’m not thrilled to see Timothy Geithner as Treasury Secretary and Larry Summers as chief of the National Economic Council. During Bill Clinton’s presidency, I wanted economic policy to be more in the direction that Labor Secretary Robert Reich was proposing, but Clinton and now Obama are clearly favoring the approach of Clinton’s Treasury Secreatry, Robert Rubin. Almost everyone on Obama economic team has close ties to Rubin.

I think Bill Richardson will do fine at the Commerce Department, but I would have preferred to see him in a different cabinet position.

If you were one of those Obama supporters who claimed during the primaries that he would govern in a much more progressive way than Hillary Clinton, now would be a good time to rethink your views.

Meanwhile, George W. Bush’s team is taking care of one troubled financial firm after another. The latest bailout plan, for Citigroup, is a particularly bad deal for taxpayers, according to Paul Krugman (who reluctantly supported the $700 billion bailout package approved before the election).

What do you think about the team Obama is assembling to handle the economy?

UPDATE: The members of the New York Times editorial board are not wild about putting Geithner and Summers in charge:

As treasury secretary in 2000, Mr. Summers championed the law that deregulated derivatives, the financial instruments – a k a toxic assets – that have spread the financial losses from reckless lending around the globe. He refused to heed the critics who warned of dangers to come.

That law, still on the books, reinforced the false belief that markets would self-regulate. And it gave the Bush administration cover to ignore the ever-spiraling risks posed by derivatives and inadequate supervision.

Mr. Summers now will advise a president who has promised to impose rational and essential regulations on chaotic financial markets. What has he learned?

At the New York Fed, Mr. Geithner has been one of the ringmasters of this year’s serial bailouts. His involvement includes the as-yet-unexplained flip-flop in September when a read-my-lips, no-new-bailouts policy allowed Lehman Brothers to go under – only to be followed less than two days later by the even costlier bailout of the American International Group and last weekend by the bailout of Citigroup.

It is still unclear what Mr. Geithner and other policy makers knew or did not know – or what they thought they knew but didn’t – in arriving at those decisions, including who exactly is on the receiving end of the billions of dollars of taxpayer money now flooding the system.

Confidence in the system will not be restored as long as top officials fail or refuse to fully explain their actions.

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