Treasury Secretary Geithner Kills More Confidence In Financial Markets in House Testimony

By Pam Martens: July 26, 2012 

U.S. Treasury Secretary, Timothy Geithner

The House Financial Services Committee’s web site needs to add a Surgeon General warning: Watching Our Hearings May Be Hazardous To Your Health and Are Not Recommended for Those Suffering From High Blood Pressure or Anger Management Issues. 

The financial absurdities that continue to spill out of these hearings, four long years after the collapse of Wall Street, are the stuff of Greek tragedies.  One can witness the attendant public outrage on message boards around the web with calls for doing all manner of decidedly unpleasant violence to the one percent crowd. 

At yesterday’s hearing, ostensibly scheduled to hear from U.S. Treasury Secretary Timothy Geithner on the “Annual Report of the Financial Stability Oversight Council,” we learned stunning new details about the Libor rate rigging, the oversight of AIG, and where the regulator of the largest banks in America turns when he becomes aware of a criminal matter. 

Members of the Committee prodded Geithner several times to explain to whom he reported his awareness that Libor was being rigged.  Geithner said he reported it to the President’s Working Group on Financial Markets.  That was in 2008, under the administration of George W. Bush, and included the SEC, Commodity Futures Trading Commission (CFTC), Federal Reserve and Treasury.  It did not include the U.S. Department of Justice (DOJ), the body with the power to bring a criminal investigation and Geithner never saw fit to advise the DOJ.  

Representative Randy Neugebauer of Texas told Geithner that as a regulator he had a duty to bring any criminal action he became aware of to the attention of authorities with the power to criminally prosecute.  Geithner clung to a well scripted and long winded recitation of writing his memo to Mervyn King, Governor of the Bank of England and passing the buck to the President’s Working Group. 

Geithner was further questioned as to what he did after he became aware that neither the Bank of England or the British Bankers Association (BBA), the sponsoring organization for Libor, took any meaningful action to stop the rate rigging.  Geithner did nothing to press the case on the rate rigging issue but, instead, used the Libor rate as a benchmark for the bailout of AIG and at least one lending facility at the Federal Reserve Bank of New York, knowing full well it was rigged. 

There was a visible undercurrent in the chambers of seething outrage toward Geithner that he would willfully use an interest rate that he knew was rigged lower to bailout Wall Street with taxpayer money. Geithner said: “We were in the position of investors around the world.  You have to choose a rate, and we did what everybody did – use the best rate available at the time.”  Geithner was asked if there was going to be court action on behalf of the Federal government to obtain defrauded funds.  Geithner said he would leave that to the lawyers.

A question was raised about which regulator had been put in charge of the still globally sprawling AIG.  The answer is no Federal regulator has yet been put in charge of its non-insurance operations despite AIG still holding $168 billion in credit default swaps, the instruments that blew it up.

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