The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. Wednesday�s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.Most know I am not a big believer in conspiracies. I regularly dismiss them. However, this one was clear from the beginning and like all massive conspiracies, it is now in the light of day.
We�re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG�s bailout -- deserves further congressional scrutiny.
Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed�s subsequent attempt to cover up buyout details and who benefited.
By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn�t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.
This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed�s bailout programs. It�s as though the New York Fed was a black-ops outfit for the nation�s central bank.
As Representative Marcy Kaptur told Geithner at the hearing: �A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.�
Let�s take Geithner at his word that a failure to resolve the insurer�s default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn�t in the loop.
�I had no involvement at all, in the payment to the counterparties, no involvement whatsoever,� Paulson said.
Fed Chairman Bernanke also wasn�t involved. In a written response to questions from Representative Darrell Issa, Bernanke said he �was not directly involved in the negotiations� with AIG�s counterparty banks.
Geither said he recused himself from the bank�s day-to-day activities, even though he never actually signed a formal letter of recusal.
New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.
That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.
Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: �I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information.�
Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.
I have talked about conspiracies involving Geithner, Paulson, Bernanke, and former Bank of America Lewis on many occasions. I am more than happy to add another post to the list.
April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis
June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl"
July 17, 2009: Paulson Admits Coercion; Where are the Indictments?
October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation
January 07, 2010: Time To Indict Geithner For Securities Fraud
January 26, 2010: Questions Geithner Cannot Escape
I am quite sure there will be more opportunities to add to the list.
Strange Conspiracy Involving No One
- Geithner recused himself although there is no record of it.
- Paulson knows nothing about it and was not in the loop
- Bernanke either does not remember and/or was not involved.
Amazingly this conspiracy involves no one. It is a historic event. Hundred billion dollar bailout decisions just happened. No one made them, no one was responsible for them, and no one was in the loop, yet all those not involved agree the process must be kept secret.
David Reilly: "Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark."
In the wake of these happenings, David Andolfatto at the St. Louis Fed just happened to step out of the blue right on time making a mathematical plea defending secrecy: In Defense Of Secrecy; Three Prong Attack On The Fed; Selective Myopia .
Steve Keen, a real economist, disputes the thesis as did others. Please see Steve Keen on Banking Secrets and Fed Transparency for a detailed rebuttal of the thesis.
Just the other day, I received an email from David Andolfatto, the author "On the Social Cost of Transparency in Monetary Economies", the article praising secrecy, offering to explain the thesis in plain English. I will take him up on it.
However, I think anyone with any common sense has had more than enough of secret backroom deals, especially those that somehow no one makes.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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