Market Talk

The latest revelation surrounding Tim Geithner has generated a spirited debate among your humble Market Talk editors: if and/or when will the Treasury Secretary get the boot?

Before we answer that question, here are the details. The NY Fed, when under Geithner’s leadership, reportedly told AIG to limit disclosures on CDS payments made to banks during the height of the financial crisis. Bloomberg has the scoop, citing emails between the NY Fed and AIG:

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.”

Bloggers have been all over this story, ripping Geithner for his cagey, often-times evasive manuevering.

“This latest revelation confirms the Fed’s commitment to secrecy and, although troubling, at this point should come as no surprise,” Yves Smith writes at naked capitalism. “The clear intent was to hide the extent of the subsidies that flowed from the Fed and Treasury to the recipient banks. Charming.”

It all makes you wonder, at least a little, about Geithner’s job security. When one of today’s top stories is yet another damaging account of his actions, or those of the NY Fed during the crisis, it can’t bode well for his future as Treasury Secretary, the Kid Dynamite blogger says.

“The attempt to cover up the disclosures will result in another tidal wave of (deserved) scrutiny on Geithner and the Treasury/Fed’s handling of the crisis,” blog says.

Credit Writedowns blogger Edward Harrison is more blunt: “Tim Geithner must go.”

The Market Talk trio is a bit divided on this issue.

Shipman thinks Geither’s already fumbled enough times — from his pre-confirmation tax problems, to lame PPIP effort, poorly implemented mortgage mods plan and pusillanimous rationalization for paying 100 cents on the dollar to AIG’s CDS counterparties — to warrant dismissal, months ago. Now, he simply represents a growing liabilty for the Obama Administration.

Paul and I aren’t as extreme. Paul thinks Geithner isn’t likely to lose his job unless the recovery falters, in which case he’s an obvious fall guy. As long as the labor market starts generating positive job growth in the near future and there isn’t a significant stock market correction, there won’t be additional pressure on Obama to make a change. I also believe Geithner won’t get replaced anytime soon. Why would Obama risk creating public uncertainty by removing such a high-level official if the economy truly is on the road to recovery?

Readers? What say you? Is Geithner doomed? Speak freely in the comments section below.