Geithner in this interview here said a number of things that are just incredible to my eyes. You have to read and watch it to soak in what he was saying:
1) He was not personally involved in the NY Fed's directive to AIG not to disclose relevant information so as not to upset market sentiments.
2) He was deeply offended by the fact that the Fed had to save AIG.
3) Paying 100% on the dollar by AIG for its payables was the correct thing to do
4) US government had no legal means to prevent AIG from doing so anyway.
Why do I find his remarks "offensive"? For one thing, he was saying he, as the head of NY Fed was not really responsible for what his underlings did. So, does that mean no one is accountable anymore?
Second, if AIG was going down with plenty of worthless assets, why should the taxpayers be forced to make good on all those payables? the only immediate beneficiaries were the shareholders of AIG and not the nation.
No legal means? In the real world of liquidation, it is an impossibility for the payables to be made good 100%. Why should this case be different?
I know, I know. Geithner and company thought allowing AIG to go under was a NO NO.
That's why the government had to step in first to "nationalize" AIG and then reorganize its balance sheets. In that case, no payables had to be so financed 100%. Paul Volcker among others urged the government to do so -- falling on deaf ears because Summers/Geithner who got Obama's ears were against that. Had the government done so, a lot less tax payers money would have to be spent. And many Wall Street honchos might have to lose their jobs. And these honchos had a direct line to Summers/Geithner/Paulson/Bernanke who talk to Obama.
Oh, the interviewer didn't offer the obvious explanation. AIG had a big payable to Goldman Sachs. If Goldman Sach's receivable was not made good 100%, GS would fold. Guess who was the Treasury Secretary then writing checks to bail out AIG? Hank Paulson, former Goldman Sachs chairman.
Geithner famously dismissed the suggestion that USA should learn from the Swedish model saying "USA is not Sweden". Sweden nationalized a number of failing banks in a financial crisis in the early 90's in order to instill confidence in the market since after nationalization the financial system became "sovereign". Sweden then went on to reorganize the banks's balance sheets. AFter that the banks were re-privatized.
USA is not of course Sweden. It is more like Thailand in the Asia financial crisis when the government acted to help out its cronies in the private sector. The proper rebuttal to Geithner was this: "Yes, USA is not Sweden. It is Thailand." See my article I wrote back in April 2009 here.