It causes a real human toll for our President to pick someone as unqualified and corrupt as Tim Geithner to be one of the most important regulators in our entire financial system. Pseudo “experts” on the so called merits of fraudulent finance for fixed markets should probably study this. You know who you are.
The NY Fed failed to take any significant action under Tim Geithner’s leadership once they all found out about Barclays, Citigroup, JP Morgan Chase, Bank of America and multiple other banks’ LIBOR manipulation of the benchmark interest rate on 800 trillion of all loans including mortgages, corporate bonds, municipal bonds, and derivative contracts way back in 2008 to now. It's clear that the suggestions in that email Geithner sent to British regulators at the Bank of England do not cut it or amount to any real action.
Tim Geithner's Libor Recommendations Came Straight From Banks, Documents Show
But the Fed, along with its statement, also released the staff work that led to the recommendations. Those documents reveal that the recommendations Geithner sent to London did not come from staff, but rather were proposed by major banks and more or less forwarded on verbatim.
The policy recommendations Geithner forwarded in an attachment on June 1 first appear in a staff memo dated May 20 that reads: "A variety of changes aimed at enhancing LIBOR's credibility has been proposed by market participants, and seem to be under consideration by the BBA. These proposed changes include, but are not limited to..."
A comparison between Geithner's recommendations and those put forward by "market participants" -- shorthand for banks -- makes it clear that Fed staff asked banks how to fix the problem, then presented those answers as their own. (Most of the banks consulted were likely U.S.-based institutions, as several of the recommendations are aimed at giving more power, not surprisingly, to U.S. banks.)
It’s also stupid to think you can get rid of an incentive during the bust of a massive housing bubble for bankers to cover their ass (why LIBOR was manipulated a lot of the time) by suggestions about better private market “incentives” instead of real regulation of these vampire squid financial blood suckers. It's even dumber to suggest that certain banks not identify themselves if they set lower rates to somehow curb these twisted incentives, because we all know it's about suggesting the right private incentives without regulatory oversight. Yeah, in La La Land!
Luckily we have a knowledgeable regulator like Sheila Bair who actually knows she is a regulator at the FDIC, to set him straight.
Sheila Bair On New York Fed's Role In Libor Scandal: 'I Don't Understand Why They Didn't Investigate'
"Looking at those e-mails, it looks like they had pretty explicit notification of some very bad behavior, and I don't understand why they didn't investigate," Bair, former chair of the Federal Deposit Insurance Corporation, said of Geithner's New York Fed on CNBC Friday. "They did have authority to do that."
Bair added that Geithner and the New York Fed "deserve credit for trying to suggest some reforms, but again, even then those reforms did not tackle the core problem, which was that it wasn't a transaction-based survey; it was a judgment survey."
LIBOR is based on transactions, not any judgement about what it takes to tweak magical market incentives in the private sector. Sheila Bair is right once again. This is the biggest in a long string of failures from our corrupt Wall St Treasury Secretary.
We know now particularly just how corrupt he is in comparison to people who actually care about the victims of this economic and financial crisis. One of those people is TARP Inspector General Neil Barofsky. His new book explains Timmy's disdain for working people and how they came to blows.
Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street
It's shocking to see how a handful of powerful banks really do control our economy. So, Tim Geithner and the other officials I was dealing with down there, they would view these incidents through Wall Street colored glasses... If you find out something in April of 2008 and more than four years later nothing has happened about it -- I mean, that tells you everything you need to know about what's wrong with Washington.
"Over 10000 criminal referrals and over 1000 felony convictions of financial Oligarchs during the S&L crisis" former regulator Bill Black dives deep into this whole dynamic.
Reinventing Crony Capitalism: the Context of Geithner’s Obscene Rant against Barofsky
My column, however, expands on the article’s last paragraph:
“[T]he more-damning allegations of the book [are] that Geithner’s Treasury Department repeatedly tried to undermine Barofsky’s authority, ignoring his warnings about the risk of fraud in TARP programs and generally carrying water for the banking industry.”
I do not detail Geithner’s actions against Barofsky in this article. I write to situate Geithner’s rage against Barofsky in the broader context of how the “reinventing government” movement helped destroy effective financial regulation and was particularly blind to the essential role that regulators must play to restrain the epidemics of fraud that drive our recurrent, intensifying financial crises. The reinventing government movement’s embrace of the three “de’s” – deregulation, desupervision, and de facto decriminalization, its embrace of modern compensation, and its trivialization of the risks of control fraud contributed greatly to the maximization of the perverse incentives that produce epidemics of accounting control fraud. The reinventing government’s ideological embrace of neoliberal dogma created an intensely criminogenic environment. The irony is that it became dominant at the federal level in the same year that its dogmas were confirmed to be false and criminogenic in the savings and loan context. Indeed, reinventing government did not simply become dominant – in 1983 it became the exclusive acceptable (anti) regulatory philosophy of the Clinton administration.
Ideologically, the reinvention dogma was an application of the “Washington Consensus.” The Washington Consensus embraced an anti-regulatory, anti-governmental dogma that promised to transform Latin America – the primary test bed for the consensus. If readers have ever wondered why so many Latin American leaders have been elected on platforms that call for a major governmental role in the economy the shortest answer is that the Consensus failed to deliver on its promise of rapid growth and many aspects of the Consensus enraged a majority of the electorates.
President Clinton and Al Gore were Southern politicians who rose to power as “New Democrats.” The New Democrats created the Democratic Leadership Council (DLC) to move the Democratic Party to the right. The DLC was explicitly pro-business and allied with many of the largest corporations. The DLC was anti-regulatory and shared the neo-liberal dogma that government was frequently a bloated failure while the private sector was a raving success.
This article focuses on one aspect of the reinventing movement’s dogma – the hostility to taking the vigorous regulatory, supervisory and enforcement actions that were essential to prevent control fraud and the destruction of the regulatory support essential to prosecute elite corporate criminals. The reinvention dogma held that the federal officials who most obviously fought to prevent and punish fraud were the central problem. The greatest villains were the inspector generals. Geithner’s visceral attacks on Barofsky did not arise randomly – they exemplify the core dogma of the reinvention movement.
“Federal managers complain bitterly about the inspectors general, for example. Part of the auditing system, each IG’s office has hundreds of auditors and inspectors—many of them former law enforcement people—who comb through the organization looking for wrongdoing. Created by Congress in the late 1970s, they are a legacy of the Watergate era. Unfortunately, they operate as an enormous barrier to innovation, because when reinventors try new things they often have to bend a few rules. The IGs typically slap their wrists, regardless of how petty the infraction or how silly the rule.
This was a long piece, but it's well worth the read. It's illuminating because I always wondered how even the regulation agencies we still have(that have always worked particularly well) suddenly seems useless. Well the Inspector Generals in charge of making sure they operate correctly were cajoled by the Washington Consensus and former President Clinton and Vice president Al Gore's reinvention of the regulatory apparatus. Since the Watergate era they have always maintained their independence and were not captured themselves but not anymore.
As seen in the well documented piece, IGs were the number one complaint by business friendly agencies and lobbyists for deregulation because they didn't have to be business friendly. An apparatus that puts regulators at the behest of capture by the business they are supposed to be regulating through a false sense of getting rid of red tape and making things more efficient by cutting down agencies's staff was the norm after the former VP's plan. William K. Black worked for the Federal Home Loan Bank Board from 1984 to 1986, deputy director of the Federal Savings and Loan Insurance Corporation in 1987, and Senior VP and the General Counsel of the Federal Home Loan Bank of San Francisco from 1987 to 1989, which regulated some of the largest thrift banks in the U.S.
These agencies functioned in a way where Black could root out the control fraud that pervades all of our banking institutions of this day. No reinvention was necessary except to rid regulators of the tools they need to do their jobs well for the people and not business interests according to third way corporatist-a-crats. It's why the UMKC is adopting his and George Akerlof's and Paul Romer's papers on accounting control fraud into Modern Monetary Theory. This is the right diagnosis of our corrupt financial system, and those making excuses for it have nowhere to stand when they deny the history of the S&L crisis and Black's successes.
SIGTARP Neil Barofsky is one of the few besides Black that still represents this era and the Washington Neoliberal consensus that exists within this President's treasury hates him for it. They don't like to be called out for their poorly designed HAMP programs that rip working people off through a bait-and-switch process for the benefit of the banks while they lose their homes.
As you might know, I've met Neil Barofksy and saw him at NN12 during David Dayen's foreclosure fraud panel. Marcy Wheeler has an excellent live blog of that panel.
It was one of the few panels not filmed perhaps because it's the most dangerous panel in the world for the Washington consensus. Maybe because it was too real in an election year, but it doesn't help victims of the foreclosure crisis from this economic and ponzi financial crisis to ignore them. You're really not laying groundwork for the future of the Democratic Party by falling completely in line during an election year and letting this kind of behavior go by the wayside.
It makes it look like Democrats don't stand for anything and validates criticism from people who claim that voters in both parties are so politically polarized that they are incapable of nuance or critical thinking and just represent their chosen party most of the time for better or worse like a marriage. When we represent our party and defend everyone in the party for better or worse, we are not forming a sacred union, we are upholding a sacrilege in a government wholly owned by the banking elites and the .01%
No we should be allowed to say Tim Geithner is a failure, a shill for the banks, and that he should be fired. We should be allowed to say that Eric Holder's DOJ is a failure going by the numbers of convictions and even referrals of financial crime and he should be fired. I hate to break it to you, but if some out there claiming to be in the progressive blog-o-sphere think insulting me and others who are informed on these issues(and worked to elect the President and Democrats in Congress in 2008) will somehow energize the base, they are sadly mistaken.
"At least we're better than the Republicans" didn't work in 2010 either. We are the base whether you like it or not; the purist, pony loving, reality acknowledging, antiwar, pro union, issue voting, personality politics avoiding, New Deal defending, Social Security preserving base some of you know and love and love to hate.
Maybe firing some of the wholly banker owned officials in each department of the executive branch would help motivate the more populist factions that agree with us on these issues? Then we could stop wondering where the Democratic Party we read about in our history books went.