Tim Geithner first drew criticism for not paying his taxes (he blamed TurboTax for being so darn confusing, remember?). Now Geithner is in more hot water for his actions (or lack thereof) back in 2007.
When Obama named him for Treasury, the banking industry hailed Geithner as a godsend. Shares shot up on his announcement, and CEOs called it a wise choice for a key job at a time of crisis.
But the dirty little secret on Wall Street is that the New York Fed is a horrible regulator: It sees its chief job as keeping the banking system intact. Since it needs its member banks to buy US government debt and to control the money supply, the last thing it wants to do is shed light on the banks’ shady practices.
Which is why the Wall Street power brokers loved Geithner so much: On his New York Fed watch, he basically let them get away with the financial equivalent of murder, letting them take on the astronomical amounts of risk that ultimately blew up the system in 2008.
And then, when they needed a bailout, he was there with a plan that made sure their banks and jobs were safe.
That’s why I’m saying Geithner is such an important witness as the Libor investigation expands to include the possibility that banking-industry cops like himself looked the other way.
The London Interbank Offered Rate, keep in mind, is one of the world’s most important financial benchmarks. Both Wall Street financiers and average consumers are charged interest based on Libor, which is set by a banking trade group that calculates an average of the big banks’ borrowing rates.
So the last thing you want is for the rate to be manipulated in any way. Yet that’s what the banks are accused of doing, as their borrowing rates started rising in the runup to the crisis.
The incentive for banks like Barclays to rig Libor by reporting falsely low borrowing costs is obvious: They could make money and disguise the extent of their distress.
We know that Barclays — so far the only firm charged in the matter — met with officials at the New York Fed to discuss the Libor mess back in 2007 and 2008, when it complained that banks might be manipulating the benchmark.
And we know that now-deposed Barclays CEO Bob Diamond met with Geithner during this time. Maybe they were only talking about the broader market upheaval; maybe they discussed the Libor rate-fixing, too.
Geithner has declined repeated requests for comment. The New York Fed stated that it “received occasional anecdotal reports from Barclays of problems with Libor . . . and we subsequently shared analysis and suggestions for reform” with regulators in the UK, where Libor is set.
Translation: We chose to do nothing.
When Obama next claims "we inherited this mess", keep in mind that his guy Geithner had a lot to do with the mess being created in the first place.
