The Mortgage Insider

The Fox is in the Hen House 

Once again I find myself writing you, from the front lines of the economic crisis. I keep hoping there will be something to report that will cheer you up, but instead I find something that makes me shake my head in disgust. Since the start of this, I have consistently maintained this Great Recession we are in the middle of, is really a “credibility” crisis of epic proportions. Not only do we need to get rid of the whole notion of “too big too fail”, but we still need to clear the toxic assets off of the big bank’s balance sheets. We likewise need to see the systemic fraud that brought us all here prosecuted, in order to restore this lost credibility. So my question is this. How can we do any of that, if the guy running the Treasury Department is part of the problem?

That’s right. Treasury Secretary Timothy Geithner testified yesterday, before the House Oversight & Government Reform Committee. “So this is big news why?” you ask. Well it turns out Mr. Geithner has more problems than his well publicized lack of Turbo Tax skills. “Timmy”, as he prefers to be called, was the head of the Federal Reserve Bank of NY (FRBNY) before accepting his current post at the Treasury. In that role, he worked directly under Fed Chairman Ben Bernanke, and in conjunction with then Treasury Secretary Hank Paulson. Hank Paulson was of course coincidentally, the former CEO of Goldman Sachs. So when the first bailouts were being handed out by Paulson, it turns out Goldman Sachs received 100 cents on the dollar, for its book of toxic assets. You may recall they were the only bank to get this sweetheart deal from the government. But don’t let that get your blood pressure up. You need to keep in mind the fact that according to Goldman’s current CEO, Lloyd Blankfein, Goldman Sachs does do God’s work here on earth.[1] So that’s got to make you feel a lot better knowing…right?

 But here’s where our story gets fun. You see, Goldman Sachs was also the counterparty to AIG on about $13 billion dollars worth of “credit default swaps” (CDS). That’s a fancy way of saying Goldman had insurance policies with AIG, which AIG obviously couldn’t pay out on. Now wait…I know what you’re thinking. You should never mind that issuing insurance policies without the capital to make good on them, is in fact the very definition of fraud. And never mind that Paulson as CEO of Goldman Sachs made all of these bets with AIG’s financial products unit, and then ended up in the Treasury Department guaranteeing those same bets back to Goldman. That just “sounds” like a colossal conflict of interest. You really shouldn’t be so cynical. “Well just don’t tell me they got 100 cents on the dollar again for these worthless swaps”, I hear you say. Well OK, you got me there…maybe your cynicism is warranted after all.

 So I guess by now, I don’t have to tell you which bank Paulson sent our money through, to achieve this noble affect. Yep. It was none other than the FRBNY, under then NY Fed governor Timmy Geithner. However in his testimony, Timmy swears up and down that he didn’t really know what was happening at the FRBNY. And more importantly he claims he didn’t have any hand in these AIG bailout funds, or their immediate transfer to Goldman and several other foreign banks. And finally, Timmy claims no hand in the subsequent cover up of these transfers, documented in a series of emails between AIG and the FRBNY. Those emails of course, direct AIG specifically not to release any information to the SEC, this committee, or any other Federal investigation for that matter. So that makes perfect sense right? As head of the Federal Reserve Bank, in the epicenter of the meltdown, why would he have any interest in this sort of thing? It was just the largest financial collapse in US history, next to the Great Depression after all.

 Well with leaders like this in charge of “fixing” this mess, I am sure you are as confident as I am that nothing more could possibly go wrong. But just in case you need to get a home loan, to purchase a place or consolidate your debt, you might want to get that done sooner rather than later. I’m just saying…