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The New York Times‘ Louise Story and Gretchen Morgenson, whose work on Goldman Sachs will likely net them a Pulitzer next year, published another bombshell yesterday on how federal regulators orchestrated A.I.G.’s $182 billion bailout on terms even more overwhelmingly favorable to Goldman Sachs and other investment banks than simply recouping their contracts at 100 cents on the dollar. A.I.G. was forced to sign a legal waiver, abandoning its right to sue over the toxic mortgage securities it insured.
Buried in the story are some nuggets that are not to be missed. Consider the case of Dan H. Jester, Treasury’s “point man” on A.I.G.:
Mr. Jester had worked at Goldman with Henry M. Paulson Jr., the Treasury secretary during the A.I.G. bailout. Mr. Paulson previously served as Goldman’s chief executive before joining the government.
Mr. Jester, according to several people with knowledge of his financial holdings, still owned Goldman stock while overseeing Treasury’s response to the A.I.G. crisis. According to the documents, Mr. Jester opposed bailout structures that required the banks to return cash to A.I.G. Nothing in the documents indicates that Mr. Jester advocated forcing Goldman and the other banks to accept a discount on the deals.
Although the value of Goldman’s shares could have been affected by the terms of the A.I.G. bailout, Mr. Jester was not required to publicly disclose his stock holdings because he was hired as an outside contractor, a job title at Treasury that allowed him to forgo disclosure rules applying to appointed officials.
That certainly gives new meaning to the term “independent contractor.”
Or consider Tim Geithner’s plea that he had no choice on the A.I.G. bailout when he was head of the Federal Reserve Bank of New York:
But two entirely different solutions to A.I.G.’s problems were presented to Fed officials by three of its outside advisers, according to the documents. Under those plans, the banks would have had to accept what the advisers described as “deep concessions” of as much as about 10 percent on their contracts or they might have had to return about $30 billion that A.I.G. had paid them before the bailout.
Had either of these plans been implemented, A.I.G. may have been left in a far better financial position than it is today, with taxpayers at less risk and banks forced to swallow bigger losses.
Do you understand now why people like Tim Geithner get promoted despite massive incompetence and shady dealing? He is incredibly valuable to a certain politically well-connected group of people.
