Friday, March 12, 2010

Geithner's Crime

If we are to believe the author of the blog Naked Capitalism the Secretary of the Treasury has broken the law in the failure of Lehman Brothers, the banking collapse that precipitated the crisis of 2008, which in turn trashed the world economic system. According to Naked Capitalism Lehman Brothers was engaged in some dicey fiddling of their books prior to the collapse and got help from the Federal Reserve Bank of New York which was run at the time by Timothy Geithner, seen below with President Obama.

Here's how it worked, more or less. Lehman Brothers was not in great shape with an estimated 130 billion in debt on a portfolio estimated around 660 billion, however what Lehman did seems to have been a deliberate attempt to cover it's losses, by fiddling with the books in the most blatant way. Quoting from the examiner's report as quoted in Naked Capitalism:

Lehman regularly increased its use of Repo 105 transactions in the days prior to reporting periods to reduce its publicly reported net leverage and balance sheet.2850 Lehman’s periodic reports did not disclose the cash borrowing from the Repo 105 transaction – i.e., although Lehman had in effect borrowed tens of billions of dollars in these transactions, Lehman did not disclose the known obligation to repay the debt.2851 Lehman used the cash from the Repo 105 transaction to pay down other liabilities, thereby reducing both the total liabilities and the total assets reported on its balance sheet and lowering its leverage ratios.

The repos are supposed to be transactions where the bank buys the assets back but Lehman was reporting them as sold, claiming therefore less debt and more cash on hand than was the case. what makes all this even worse, if that were possible, is that Lehman claimed to be in compliance with reporting regulations and that it held back nothing from regulators as these shenanigans were going on. So much so Naked Capitalism reports that Geithner ran several "stress tests" on Lehman Brothers to make sure the organization would be able to withstand a run on it's assets. Apparently Lehman failed two stress tests designed for Bear Sterns and Geithner made up an even more feeble test, dumbed down so that eventually Lehman could "pass."

All of which begs the question, what's the point of having regulators if they decline to regulate? This behavior tells me in no uncertain terms that if President Obama were ready to regulate banks he would be looking at Geithner with a jaundiced eye but he seems to be giving his Treasury Secretary a big fat "Great Job!" as President Bush was in the a bit of doing when his Cabinet members made a grand foul up. Dear Leader is exposing himself as a pawn of big business once again. I don't see much good coming out of the proposed new hard core banking regulations that we the people so desperately crave.


Jack Riepe said...

Dear Sir:

The nation stands by with its hands in its pockets as Kansas City closes schools to deal with a financial shortfall. Yet there was plenty of cash to cover bonuses at Goldman Sachs.

There will be a special place in electoral hell for the likes of Barack Obama and his stooge Timothy Geithner.

Fondest regards,
Jack • reep • Toad
Twisted Roads

Danette said...

30% of the schools in K.C.are closing if I understand correctly! Outrageous. Of course no one has reported how many schools closed here because of budget constraints -- of course Bennett (yes, now Senator Bennett, then Superintendent Bennett) did it a little a time and under the guise of closing schools that were failing. All very legit as we now measure schools like we do a business- by the bottom line.

As to Geithner-- The Progressive was reporting on some of this (don't know if they were looking into Lehman Brother's specifically) during the days leading up to the election but his relationship to this administration is the single biggest indication of what this administration is all about. As far as the Finance regulation is concerned? Paul Krugman said some weeks ago that if Dodd's plan was the one that went to the Senate, we were in big trouble. He said that it was so watered down that it would open the doors to huge problems, not the least of which was that we would feel some security were there really was none.

The mainstream Corporate press isn't about to tell us the truth about the so-called banking regulation bill and Liberals are trying too hard to give Obama some kudos wherever they can. It gets harder and harder to get the real story on what of value is being done. And as I recently commented on a Huff Post article- we're at a critical point, economically and environmentally. With nothing good coming from Washington right now it is may be beside the point whether people rise up. Most scientists feel we are probably too late to fix the environment (and let's not even get into the report on The Progressive last week that environmental groups are in the pocket of the worst polluters and aren't working to fix the problem at all!). Economically, we may be able to keep this Titanic afloat for a while longer but environmental problems will only make the financial end come faster-- especially with no radical fix from Washington. We don't often connect our environmental issues with say, earthquakes because earthquakes are not related to pollution and CO2 emissions. But we have huge populations living in relatively small areas on fault lines. And we have those huge cities because we have globalized the economy. Scientists are predicting more problems from natural disasters are imminent and will more likely resemble Haiti-- not Chile.

Anyone read the "Age of American Unreason"? I read it some time ago and the further down this road we get, Susan Jacoby looks positively brilliant! If anyone is interested, there is a godo article and petition on Reader Supported News by John Cory--

Danette said...

Sorry that was so long-- there is just so much wrong and mostly people don't seem to know or care.

Conchscooter said...

no problem. I hadn't seen it before so i shall reproduce it here.