Given the pathetic inability of our government to investigate the financial bailouts, I have been germinating the idea that as a citizen of the United States I might actually have standing to sue Tim Geithner and Jamie Dimon for colluding in March of 2008 to misappropriate $29 billion of taxpayer funds. And I wonder what you might think (seriously and otherwise) of the idea of such a lawsuit, whether some legally savvy reader might be able to point to a law or statute that would give a citizen standing to sue, and even whether you yourself would be willing to join in as a citizen plaintiff in such an action. Here's my bill of particulars.
The collusion occurred in March, 2008 when Tim Geithner was president of the New York Federal Reserve Bank and Jamie Dimon was CEO of JPMorgan Chase. The stock of Bear Stearns, a legendary Wall Street firm, came under pressure. Over one weekend Geithner negotiated the sale of Bear to Dimon for $2 a share, with the Federal Reserve agreeing to guarantee the riskiest $30 billion in Bear assets with taxpayer money. What’s wrong with that? What’s wrong is that it’s the biggest case of insider trading in history.
First take a quick look at the deal through the eyes of a contemporary journalist writing in New York magazine on March 24, 2008, in an article entitled "The Heist." The Bear Stearns deal was termed a "shocking triumph" for Jamie Dimon, "the best deal ever." After all, Dimon had spent just $260.5 million for a company whose last reported net worth was $11.7 billion and whose headquarters building alone was worth more than $1 billion.
As for the taxpayer guarantee, that was the topping on the cake. As the article put it:
The Fed has guaranteed some $30 billion of Bear’s less-liquid assets, leaving JPMorgan free to feast on the attractive ones, such as the firm’s prime-brokerage desk (which provides trading and other services to hedge funds), a business that JPMorgan barely competes in. Bank of America is reportedly shopping its own prime-brokerage business for $1 billion. Dimon got Bear Stearns’—the third largest in the industry—for less than a quarter of that, and that’s if you ignore the rest of the business entirely
But hey, if it was good for the economy, if it helped stabilize the markets, then what was wrong with it? Here's my Exhibit A, never before revealed in any major media, or on any cable or network news (to the best of my knowledge): the secret is that at the time of the Bear Stearns deal, Jamie Dimon was actually Tim Geithner’s boss.
What’s that, you say? How could Jamie Dimon be Tim Geithner's boss? They NEGOTIATED a deal. You don't negotiate a deal with your boss. But how could Jamie Dimon, the CEO of JP Morgan, be the boss of Tim Geithner, who was president of the New York Federal Reserve Bank?
Here’s how. The Federal Reserve Bank of New York is a PRIVATE bank (if you don't believe this, you should rewrite both the Wiki article on the New York Federal Reserve Bank AND the Wiki article on the overall Federal Reserve System, both of which assert that the 14 Federal Reserve banks, and specifically the New York Federal Reserve, are PRIVATE). Like any private bank, the Federal Reserve Bank of New York has owners. The New York Fed is in fact owned by its 10 Group 1 members (which include inter alia JPMorgan, Deutsche Bank AG, and the Royal Bank of Scotland). These banks elect the Class A Directors of the Board which are primarily responsible for the governance of the organization. At the time of the Bear Stearns deal one of the Class A directors of the New York Federal Reserve Bank was Jamie Dimon.
But isn’t the head of the New York Fed a public servant? Can it be that such an official with such a vital function is actually entirely beholden to private banks? To answer this question we can consult one of the greatest living authorities on New York Fed, a man who himself has sued the institution, former Governor of New York Eliot Spitzer who recently wrote:
So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros.
My contention is twofold: (1) that in the Bear Stearns deal there was not an “arm’s length” relationship between Geithner and Dimon (because Dimon was actually Geithner’s boss) and hence it was an act of insider trading; and (2) that the failure to publicly acknowledge both Geithner and Dimon’s conflicts of interest (Geithner as Dimon’s “employee”, Dimon as CEO of the company receiving the benefit of the deal as well as the taxpayer largess) is evidence of a guilty mind.
Now I know from the research I have done as a non-lawyer that the concept of the arm’s length transaction (versus the so-called “arm-in-arm” transaction) is in fact a matter of legal substance. A typical definition of an arm’s length transaction is
A transaction in which the buyers and sellers of a product act independently and have no relationship to each other.
The concept arises frequently in tax law:
For example, if your mother is selling her two-year old car to you for $7,000 and the blue book wholesale value is $14,000, that is NOT an arms length transaction. Your mother is giving you a very good deal instead of attempting to get the fair market value of the car.
In an arms length transaction, the seller of a car attempts to get as much as possible for the car from an independent person who is striving to get the car for the lowest possible price. Both parties probably know the retail value and the wholesale value of the car and both want the best price: the seller is attempting to sell the car at a price that is close to the retail value and the buyer is attempting to buy the car for the wholesale value or less.
The arm’s length transaction is also an important concept in real estate law. In fact earlier this year HUD, FHA, VA, Fannie Mae, Freddie Mac & FDIC began auditing so-called “short sale” transactions “that may have been considered non-arm’s length transactions.” Mortgage companies are beginning to insert boilerplate such as the following the protect themselves against the charge:
Whereas, all parties relevant to this transaction are hereby indicating to XYZ Mortgage Corporation that no party to this contract is a family member or business associate or shares a business interest with the mortgagor(s) or mortgagee.
Now I would think that this concept of an arm’s length transaction would also apply when it comes to a private bank like the New York Fed somehow committing $30 billion in taxpayer money to secure a fabulous fire-sale deal to one of it’s own board members. But this is a question of law that I am not able to answer, and am hoping one of you might be able to.
The second charge, that of a “guilty conscience,” or the awareness of impropriety, comes largely from an action Tim Geithner took later in the same year, 2008, when it came time to deal with the Lehman crisis. We learn in the recent book, “Too Big to Fail,” that during the Lehman crisis, as the Federal Reserve Bank of New York was trying to find a way to avoid the firm's bankruptcy, Timothy Geithner himself asked Dick Fuld, then CEO of Lehman, to resign from his position as a Class C director of the New York Fed to avoid the appearance of impropriety. This shows that Geithner was well aware of the importance of maintaining the appearance of propriety when it came to the New York Fed dealing directly with one of its own board member's firm.
Yet when it came to the Bear Stearns deal Geithner did not ask Jamie Dimon to resign or so far as we know to even recuse himself. The two negotiated together directly. And yet neither one of them has ever discussed the apparent egregious conflict of interest between them. Furthermore, no media has yet reported it or discussed it. Therefore, I am left with no recourse but to sue. Do I have a case? Would you join me?