This story originally appeared at Truthdig. Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books). What was Timothy Geithner thinking back in 2008 when, as president of the New York Fed, he decided to give Goldman Sachs a $30 billion interest-free loan as part of an $80 billion secret float to favored banks? The sordid details of that program were finally made public this week in response to a court order for a Freedom of Information Act release, thanks to a Bloomberg News lawsuit. Sorry, my bad: It wasn’t an interest-free loan; make that .01 percent that Goldman paid to borrow taxpayer money when ordinary folks who missed a few credit card payments in order to finance their mortgages were being slapped with interest rates of more than 25 percent.
Perhaps the main value of Too Big to Fail is the instruction it provides on the limits of mainstream journalism in the decade that led up to the global financial meltdown.
The fix was in to let Wall Street off the hook once and for all... until last week when the attorney general of New York refused to go along.
One wonders if Barack Obama was fully aware of Geithner’s deceitful performance at the New York Fed when he appointed him treasury secretary in the incoming administration. The president was probably ignorant of this particular giveaway, as were key members of Congress. “I wasn’t aware of this program until now,” Barney Frank (D-MA), who at the time chaired the House Financial Services Committee, admitted in referring to Geithner’s “single-tranche open-market operations” program. And there was no language in the Dodd-Frank law supposedly reining in the banks that compelled the Fed to reveal the existence of this program.
It was merely one small part of that reckless policy of throwing mad money at the banks while ignoring the plight of homeowners whom the banks had swindled, a plan pursued by both the Bush and the Obama administrations that set the stage for the current slide into a double-dip recession. On Tuesday it was reported that home values have continued an eight-month decline back to their lowest point since the recession began. With housing in deep trouble there can be no rebound of consumer confidence or job creation, and the first-quarter growth rate was an anemic 1.8 percent even as Wall Street profits and bonuses flourished. Wages are stagnant, unemployment claims have recently risen and, as the Wall Street Journal headlined on Tuesday, “Economists Downgrade Prospects for Growth.” That same edition of the Journal reported that 44.6 million Americans now survive on food stamps, an 11 percent increase in that misery index over the past year, while Geithner’s friends at Goldman are doing quite well.
Actually, Goldman wasn’t even a bank and was therefore ineligible for those massive government handouts until Geithner helped gain approval for the instant conversion of Goldman from an investment house to a commercial bank. Goldman was granted that status, and with it access to the Fed’s lending, soon after the privilege had been denied to the fellow investment bank Lehman Brothers (the $30 billion mentioned above was in addition to the $43.5 billion Goldman borrowed from other Fed programs). Although Lehman was allowed to go belly up, Geithner engineered the massive bailout of AIG, a move that turned out to be a cover for passing money to AIG’s clients, including the aforementioned Goldman Sachs. The man’s intentions were clear, even if all the secret details were not, when Obama picked him to be his point man in salvaging an economy that Geithner had done much to wreck.
Geithner’s priorities were all too obvious from his days in the Clinton administration’s Treasury Department when he worked first under former Goldman honcho Robert Rubin and then Lawrence Summers, who took six-figure speaking fees from Goldman and other banks while he was an adviser to candidate Obama. It was the recommendation of Rubin and Summers that landed Geithner the job as president of the New York Fed, where he faithfully followed the policy lead of Goldman-CEO-turned-treasury-secretary Henry Paulson.
It was back then and is now accurate to speak, as a New York Times headline once put it, of US politics dominated by “The Guys From ‘Government Sachs’ ”—but on an international scale. From the crisis in Greece, where Goldman manufactured toxic tax-based derivatives with abandon, to its betting against the success of the mortgage-based derivatives that Goldman designed and sold to others, the company was nothing short of a massive wrecking ball in the international economy.
Oh yes, what did Goldman do with that taxpayer money it borrowed back in 2008? It needed the money to cover the lousy bets of its Fixed Income, Currencies and Commodities trading unit, which had lost $320 million. Typical of the Goldman dealings in that arena was the $1.3 billion solicited from Col. Moammar Gadhafi’s Libya sovereign wealth fund, which according to a report in Tuesday’s Wall Street Journal lost 98 percent of its value and almost cost some Goldman executives doing business in Tripoli their lives.
But they survived, as the guys from Goldman always do. With the general “no banker left behind” program pursued by Geithner under both George W. Bush and Obama, the theory was that saving the banks would save the country. The first part worked out brilliantly, but the second act never occurred.
Robert Scheer is the author of The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street (Nation Books).
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The Fed is unconstituitonal and corrupt. It did not take a degree from anywhere to understand that the appointment of Geithner was proof that "Change" was not what was being served. The streets are not surprised. The ruling elite continues to believe that just because they are affluent and refined that these qualities somehow separates them from low level criminals.
Drug testing should be be required for all executive level personnel of banks, investment houses, insurance giants, hedge fund operators, auto manufacturers, etc. prior to receiving any form of government welfare
Dr. Scheer, while I commend you for moving away from the ever-cautious pedantic academic language, that lacks the passion, the outrage and the bluntness that ordinary folks use when addressing these issues, your article is nothing new! One writer said that you are a few months behind, some would say several years.
People have wondered if all the guys who inserted or insinuated themselves into O'Bama's administration, with great charm, seduction, promises and pretentious support for the first Black President (or Muslim President or Agnostic President or non-Religious-but-Spiritual President or multicultural President...however you want to put it), were not something like "wolves guarding the hen house"?
Your article is not anything new.It might be new for academic boys who live in their own world (clueless beyond petty details that do not change the contextual or paradigmatic understanding of the larger issues), or they are trying to spit out the Kool-Aid they themselves drank. Which is it Dr. Scheer? At least you got a place in The Nation. How nice! Some of us have to contend with blogging! Best wishes!
Dr. MS
So, some solid Democratic politician should now put up a primary challenge?
Where's today's Ted Kennedy to challenge President Obama's Carter act?
Your report is months behind the times. Yes, Geithner and Goldman (and the Inter-alpha crooks behind Goldman Sachs) are thick as thieves, always have been. But the bail-out strategy of Geithner, Bernake and, until recently, their partner Strauss-Kahn is in complete disarray. The arrest of Strauss-Kahn is a sign that some factions of the global banking oligarchy are more than simply worried that the whole globalist free trade system is coming down and that they believe the bail-out strategy will not work this time to save the ever more corrupt "system". Instead of telling us what we knew many months ago about Geitner's affair with Government Sachs, try updating us on what the various banking factions are doing to mess up our future. More importantly, offer some idea that you know what is needed to save us from the perfidy and greed of the banksters (such as outlawing outsourcing by corporations, outlawing derivatives by financial services companies & reinstating Glass-Steagall protections and fixed-exchange rates among currencies).
We know Geitner is a bad guy. Now tell us how to fight him.
There is a docu-drama on HBO called Too Big To Fail, which covers that period. everybody might want to watch it!
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