Timothy Geithner

How Bad Is the Lehman Bankruptcy Report for Geithner?

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If you're looking for a reader's guide to attorney Anton R. Valukas' report [pdf] on the bankruptcy of Lehman Brothers in September 2008, Yves Smith at Naked Capitalism has a quirky, erudite take that calls the cops on Secretary of the Treasury (then president of the Federal Reserve Bank of New York) Tim Geithner.

And most important, it says that the NY Fed, and likely Geithner himself, undermined, perhaps even violated, laws designed to protect investors and markets. If so, he is not fit to be Treasury secretary or hold any office related to financial supervision and should resign immediately.

Couldn't you just kiss him?

So much depends upon a likely. Speaking as somebody who believes Geithner must not only be removed from office but be imprisoned like Magneto in a metals-free environment where there will be no conductivity for his brain waves of pure bamboozlement, I'm not sure the court report makes a very strong case against him. Smith calls for more evidence gathering, and huzzah to that.

But in his brief appearances in the 336-page report, Geithner's main concern seems to be with preventing a panic over the diseased state of Lehman. Geithner not only acknowledges his efforts at concealment, but seems to believe they were the right thing to do:

In addition to the losses Lehman would incur by selling "sticky" assets at firesale prices, deleveraging also raised the additional problems of market perception and valuation.3187 As Secretary Timothy Geithner explained to the Examiner, selling "sticky" assets at discounts could hurt Lehman by revealing to the market that Lehman "had a lot of air in [its] marks" and thereby further draining confidence in the valuation of the assets that remained on Lehman's balance sheet.3188

The first sentence is drawn from a November interview between Geithner and Valukas, the second from "Reducing Systemic Risk In A Dynamic Financial System," a speech Geithner delivered in June 2008. To say dressing up Lehman's bleeding sores was wrong, you need to acknowledge that a central bank should not engage in the suppression of information, and I'm pretty sure we lost that argument a long time ago.

Smith suspects (not without reason) that this mission to regulate the market's feelings toward Lehman led Geithner to connive at what certainly looks to have been a fraud: the erroneous counting of "501 Repos"—assets Lehman sold with an agreement to repurchase — as straightforward sales. That is, the outside world thought these toxic assets were gone from Lehman's books, when in fact they were merely festering. Smith has some interesting words about whether, and why, Lehman counterparties went along with this charade. (Likeliest answer: They were all betting on the come like the rest of America.) Geithner, typically, says he would have caught the problem if only we'd given him more power:

From 2003 to 2009, Treasury Secretary Timothy Geithner served as President of the Federal Reserve Bank of New York ("FRBNY"). The Examiner described to Secretary Geithner how Lehman used Repo 105 transactions to remove approximately $50 billion of liquid assets from the balance sheet at quarter?end in 2008 and explained that this practice reduced Lehman's net leverage. Secretary Geithner "did not recall being aware of" Lehman's Repo 105 program, but stated: "If this had been a bank we were supervising, that [i.e., Lehman's Repo 105 program] would have been a huge issue for the New York Fed."3489

"That's somebody else's department" being the first order of government, I suspect this will be enough to get the catlike Treasury Secretary off the hook. But we live in interesting times.

NEXT: Mass. Hysteria

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  1. If the CFO of a company hides the true financial state of that company in order to avoid stock prices going down, it is called securities fraud. Indeed, isn’t that what the guys at World Com and Enron were guilty of? Geitner does the exact same thing here as President of the New York Fed. What about all of those investors who kept or worse yet bough Lehman stock in the summer and fall of 2008 who had no idea, thanks to Timmy, that the company was so sick? The guy is just a criminal.

    1. Too bad AG Eric Holder won’t be around long enough to prosecute this guy.

      1. If Holder was AG for a thousand years, he’d never get around to prosecuting Geithner.

        1. It was sarcasm, counselor.

    2. I agree, and I’m not defending him. The administration of justice has a lot to do with perception, and Geithner can apparently put off the reckoning forever just by talking about the Chaos and Armageddon and Meltdown and Great Depression On Steroids he and his council of cooler heads prevented.

      1. What does “betting on the come like the rest of America” mean?

        1. i think “come” might be “outcome”.

          Otoh, Tim ‘tax cheat’ Geithner is teflon coated; so this report – however bad it may be – won’t really matter.

        2. Come line bet that you see in Craps?

  2. Smith has some interesting words about whether, and why, Lehman counterparties went along with this charade. (Likeliest answer: They were all betting on the come like the rest of America.) Geithner, typically, says he would have caught the problem if only we’d given him more power:

    Shorter Timmy:

    If you guys taught me how to hold my ass with both hands, I would have known what each was doing while I was fellating you with my eyes closed! Was it good for you?

    1. I’m still wondering what “betting on the come” means….

      1. I believe Mr. Cavanaugh meant “betting on the outcome”.

        Tim?

        1. What, no poker players here?
          Come
          1) Come Hand: A hand that needs to improve to win
          2) Come Betting / Betting on the Come: Betting while playing a hand that you are drawing to, rather than a hand that is the best current hand
          3) On the Come: Drawing to make a hand

        2. Vernacular translation:

          Betting on the come means you are hoping to luck into a good result.

      2. Betting on the come is betting with a drawing hand in poker.

        1. The correct spelling is “Baitin’ on the Cum”.

      3. Okay, the poker definitions given below are wrong, as used above.

        Betting on the come is a craps term. A come bet is like a pass line bet only its made on the points that “come” as you roll after setting the “point”.

        It accelerates the amount of bets dramatically if you continue to do it, so betting on the come is betting that the roller will not crap out, that the boom will continue.

        Its a great way to make a lot of money in a hurry. Or to lose it.

        1. By “below” I mean “above”.

        2. “Betting on the come” is a poker term. You can bet on the come in craps, but normally people just say they’re betting the come (sans “on”) just as you bet the pass, horn, etc. And the come bet is a relatively low action (can’t press every roll), conservative, smart bet. Even if you have have the rare opportunity to make the maximum 7 bets, that’s one more bet than pass + 6 or 8 and pays the same(7).

  3. Congratulations Tim. “Brain waves of pure bamboozlement” is now the phrase of the day.

    1. I say we make “pure banboozlement” the national motto, and put it on our currency. Might as well fess up to how economy runs and our society functions.
      C’mon – e pluribus unum is sooo 18th century.

    2. “Geithner’s “brainwaves of pure bamboozlement” do not need metallic conductance; they can move in vacuum!

  4. “Speaking as somebody who believes Geithner must not only be removed from office but be imprisoned like Magneto in a metals-free environment where the will be no conductivity for his brain waves of pure bamboozlement..”
    Thats pretty good! We need to use the word bamboozlement more often!!!

    But I think Geithner thinks of himself as the Captin of the Titannic, who must not frighten the riff raff and orphans, lest they flee to the lifeboats, taking up space best reserved for banksters and Fed regulators

    1. He is really just a common criminal who managed to attain a lot of power.

  5. “”Indeed, isn’t that what the guys at World Com and Enron were guilty of?””

    How many of them have had sentences overturned?

    1. I don’t know. How many?

      1. If I knew I would have to ask.

        1. If I knew I wouldn’t have to ask.

        2. I thought it was a rhetorical question. But I honestly don’t think any of them were. Geitner defrauded the stock holders as far as I am concerned.

          1. Not really, I know some of the guys at Merril Lynch, and Ken Lay’s was. I’m thinking Skillings may be the only one still standing and he wants to take his to SCOTUS. But I am curious how many were overturned. Or better yet, how many still stand. I may try to look it up later.

            1. Ken Lay’s conviction wasn’t overturned; it was vacated as he died before sentencing could occur.

            2. Ebbers of WorldCom is serving his 25 year sentence currently.

          2. A lot of big corporate convictions get overturned. Which is why I’m curious.

            1. But he’s got something in mind for you. Aren’t you curious about that? I’m curious. I’m very curious. Are you curious? There’s something happening out here, man. You know something, man? I know something you that you don’t know. That’s right, Jack. The man is clear in his mind, but his soul is mad. Oh, yeah.

    2. Steal a million dollars, you go to jail.

      Steal a billion dollars, you get hired.

      Steal a trillion dollars, you get to be in charge.

  6. The New Yorker loves Turbo Tax Timmeh.

    Tim Geithner: Greatest Human Ever

  7. Well, if Martha Stewart served time for, well, not very much, certainly Geithner’s actions were worse.

  8. As Secretary Timothy Geithner explained to the Examiner, selling “sticky” assets at discounts could hurt Lehman by revealing to the market that Lehman “had a lot of air in [its] marks”

    And the people responsible for the “air” in Lehman’s balance sheets are awaiting trial, right?

    Right?

  9. so many of the statements rationalizing the actions of our financial supervisors seem to leverage the word ‘confidence’. If that is the end, then what means would ever be off limits?

    1. National security, confidence, what’s the difference?

  10. “Timmy and the Lords of the Financial World”

    1. Or “Timmy and the Lords of the BlameBush.”

      1. Sorry, make that just “Lords of BlameBush.”

  11. Top men.

    Top

    confidence

    men.

  12. Geithner must not only be removed from office but be imprisoned like Magneto in a metals-free environment where there will be no conductivity for his brain waves of pure bamboozlement,

    Goddamn, Tim, that’s got so much win in it, there are hardly words to describe the level of win.

  13. I read the executive summary (30-something pages IIRC) and got the impression that what Lehman did was fraud and criminal and that they should be punished, but all they did was to delay the inevitable. And not to excuse it, but it’s not so surprising to see guys in this position panic.

    What Ernst and Young did is shocking and they come out of this with the most dirt on them. They knew that Lehman was using fraudulent techniques to hide assets and they did nothing.

    1. The FRBNY had its people inside Lehman beginning in early March, 2008. They were monitoring the positions and trades each DAY. IF the FRB says the positions and marks are proper, then EY is supposed to believe . . . . ? Lehman had a whole lot of assets that were nearly impossible to value on a daily basis in a declining market. Particularly the property investments.

  14. “That is, the outside world thought these toxic assets were gone from Lehman’s books, when in fact they were merely festering.”

    Not a completely accurate statement based on the information that has been coming out. Lehman’s goal wasn’t to hide crappy assets (which everyone knew they were holding), but to mask its ginormous ratio of leverage. The way they did this was by temporarily taking assets of their books and parking them in hedge funds. But none of these funds were willing to play ball unless Lehman parked the GOOD assets – leaving a lot of the shit behind. So, no, they were not hiding the shit, they were hiding the good stuff so it wasn’t obvious that they were leveraged up to their eyeballs.

    Ironically enough, because the shit is what was left behind, this may have hasn’t their decline. The shit on the balance sheet that was visible convinced short sellers that Lehman was toxic, but NOT (ironically enough) because of over leverage (which was their real problem) but because their strategy painted an overly gloomy picture of the quality of their asset portfolio.

    It’s always the cover up, never the crime.

    1. God, I think I broke a new record for spelling mistakes in that post.

  15. Did you really read all of the Geithner material in the report?

    What did you think of the bits of volume 4 that discuss how Geithner and the FRBNY knew that Lehman was fraudulently reporting its liquidity but did nothing, not even informing the SEC, ** despite their memo of understanding to collaborate and share info**?

    I haven’t seen it mentioned anywhere but it certainly raises questions.

    More here: http://www.contrarianpundit.com/?p=374

  16. A lot of big corporate convictions get overturned. Which is why I’m curious. TrickyVic

    And yet you’re incapable of citing one. Not curious enough I guess.

  17. Client #9 (Eliot Spizter) forced Hank Greenberg out of AIG (his own company btw) on bogus charges that he was dipping into the till. Come to find out now, that most of the “Walks On Water” bunch were up to their eyeballs in major schemes to defraud the United States Government. Talk about your blatant hypocrisy. Will they be investigated? Nope. Not even when the Congress has been turned over to the Republicans.

  18. what do we expect? Geithner is a creature of the political establishment, where power is partly defined by knowledge, who knows what and what knowledge is hidden. this is perfectly logical behavior from someone working in an administration where up is down, expanding entitlements reduces their cost, and being tough on Iran involves bashing Israel.

  19. FALSE foreclosure proceedings filed under Lehman Brothers’ name, additional way to COOK the BOOKS, see:

    http://www.lawgrace.org/2008/09/14/lehman-brothers‘-mortgage-troubles-nationally-evidence-of-foreclosure-fraud-deception-and-conspiracy-with-wells-fargo-deceptive-judicial-filings/

    http://www.lawgrace.org/2008/0…..ional-app/

  20. That is, the outside world thought these toxic assets were gone from Lehman’s books, when in fact they were merely festering. Smith has some interesting words about whether
    http://destinationsoftwareinc.com

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