I had been favorably disposed towards Treasury Secretary Geithner until I watched him answering questions from a Congressional Committee this morning on the AIG collapse. One Congressman asked him why the Government had to loan AIG enough money to pay the full face value of what AIG owed to counter parties on credit debt swap obligations and instead ask that they take only 90% of face value. Geithner's reply was "we had no legal authority to impose losses on the counter parties". But it then occurred to me that the U.S. Government also had no legal obligation to make the counter parties such as Goldman Sachs and the European banks whole either since their agreements were with AIG not the USG. No doubt Paulson wanted to make sure his friends at Goldman Sachs got paid in full with taxpayer money but I think Geithner was a little too willing to go along with Paulson's plan for the taxpayers rather than the counter parties to take a loss. Why could we have not informed the counter parties that we will loan AIG enough money to pay 75 cents on the dollar if the counter parties will agree to take that as payment in full? I believe the counter parties would have had no option but to accept that since their only recourse would have been to try and get their money from a bankrupt AIG. It would have saved the taxpayers billions of dollars. I now have doubts has to how good a steward Geithner will be for the taxpayers' money.
The real problem is that Obama stuck his neck out to get Geithner in as Treas Sec. Now there's no turning back no matter how badly a job Geithner does. If he fires Geithner at this point, Obama looks badly for sticking his neck out for this guy. Same goes with Geithner resigning. Can't happen because it looks bad.
Second thoughts on Geithner
