Geithner Wistful for Goldman Sachs
posted by Lawrence Cunningham
Treasury Secretary Tim Geithner is eyeing the exits from his wonky Washington post. Rumors about what he’ll do next swirl on Wall Street.
Heavy betting is on Goldman Sachs, though taking a job there would cut very close to the bone of revolving door piracy in the Washington-New York corridor. After all, Goldman owes its existence to Geithner.
In late 2008, when Geithner was President of the New York Federal Reserve Bank, he co-engineered, along with his Treasury predecessor and former Goldman CEO, Henry Paulson, the clandestine bailout of Goldman that rescued the investment bank from oblivion.
Earlier that year, Paulson and Geithner provided billions of government money to rescue Goldman’s peer, Bear Stearns, but took enormous heat for doing so; late in that year, the duo capitulated to the pressure by allowing Lehman Brothers, another Goldman peer, to disintegrate in bankruptcy. They promptly took heat for that too.
To avoid both fates in the case of Goldman Sachs, Paulson and Geithner decided to nationalize American International General. They bought 80% of that company with $85 billion in government money.
They then furtively transferred nearly $20 billion of that money to Goldman, and other banks, to prop them up. The transfers settled financial contracts between AIG and Goldman the two companies had been renegotiating for months.
Rather than complete those negotiations, in which both sides would have taken losses, the government-appointed leadership at AIG paid them out one-hundred cents on the dollar. That injected badly-needed liquidity into Goldman in a way that did not hurt its balance sheet. Of course, it killed AIG.
Geithner and Paulson hid these details from the public for months, until the press and Congressional committees unearthed the truth.
Geithner might love to land a job at Goldman, and senior folks there may welcome this chance to repay their man in Washington. But given this background, it may be too shocking even for a man who did such things to take such a job.