Did Geithner Blow the AIG Negotiations?

A Treasury watchdog holds Geithner over the flames

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A new report by Treasury watchdog Neil Barofsky accuses Timothy Geithner of squandering taxpayer dollars while negotiating the bailout of AIG in 2008. At issue is the Fed's failure to win concessions from AIG's creditors, who were paid 100 cents on the dollar. Barofsky said bailing out AIG "led directly to a negotiating strategy with the counterparties that even then-New York Fed President Geithner acknowledged had little likelihood of success." AIG's trading partners included Merrill Lynch, Goldman Sachs, Bank of America and UBS. Only UBS agreed to a "haircut" of two percent on the condition that the other partners accepted concessions, which they didn't. The Fed caved and shelled out tens of billions of dollars for securities. Does this amount to a betrayal of the American taxpayer? Or are criticisms of Geithner in his role as President of the New York Fed unfair? Financial experts weigh in:

  • Geithner Betrayed Us, writes Jill Schlesinger at CBS News: "[Geithner] shafted the US taxpayer in the AIG debacle and in the process, enriched the counterparties who dragged us into this mess... Barofsky seems to be one of the few officials that has to tell us what we already know: TARP is 'almost certainly going to be a loss' for taxpayers and Geithner rolled over for Wall Street in the AIG negotiations."
  • Reflects Poorly on Obama, writes Chris in Paris at Americablog: "Not that it's going to have any impact on Geithner at this point, but it again shows how poorly he implemented the bailouts during his time at the Fed. It also makes you wonder how Obama even chose Geithner... As far as the criticism of Geithner may be, it's difficult to see how this doesn't reflect poorly on Obama. How is it possible to have any faith in Geithner?"
  • On the Contrary, This Vindicates Geithner, writes Economics of Contempt, the pseudonym of an influential finance lawyer: "That's right, vindicated. Read the whole report. It makes clear that the NY Fed did try to negotiate haircuts with AIG's counterparties, but not at all surprisingly, the counterparties (and the French regulators) refused, and the NY Fed was left with no choice but to pay par value. Geithner, contrary to popular belief, didn't have the powers of a bankruptcy court. It's funny how quickly the Immaculate Negotiation argument breaks down in the real world."
  • Hindsight is 20/20, writes Brian Wingfield at Forbes: "Everything was up in the air, and no one knew what was going to happen if regulators didn't act quickly. In November 2008, the Fed's primary responsibility was triage. (And if you think the government gets criticized too much for stepping into the private sector now, imagine the howls from the financial sector if Uncle Sam had forced banks to take less than 100%.) Was it ideal? No. Is it maddening? Sure. But the one thing that seems to become increasingly clear as the crisis of last fall recedes further into the past is that regulators, for good or bad, were indeed making up their response to the free fall as they went along."
  • Heads or Tails, Taxpayers Lose, writes Douglas A. McIntyre at Daily Finance: "During that extraordinary time when credit markets were collapsing, it is hard to accept that the government stepped outside the boundaries of 'appropriate' action in some cases, and did not do so in others. What is very clear is that the actions of the New York Fed cost taxpayers billions of dollars, much of which they may never get back."
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