Culture of Corruption: Obama and His Team of Tax Cheats, Crooks, and Cronies (30 page)

Supporters dubbed Geithner “too big to fail.” Try “too smart to care.”

In addition to his failure to pay four years’ worth of federal taxes—you try getting away with that without getting thrown behind bars!—Geithner also illegally employed an immigrant maid for three months after her work authorization papers had expired. But wait. That wasn’t all. Geithner’s employer at the time of his serial tax-dodging was the International Monetary Fund. The agency reimburses its employees for their self-employment taxes. The allowance was made to keep IMF and World Bank workers’ salaries on par with other foreign peers. IMF employees receive an Employee Tax Manual outlining their obligations. (Maybe if it were written in Japanese or Chinese, Geithner would have paid closer attention?)

Employees also file an Annual Tax Allowance Request promising to “pay the taxes for which I have received tax allowance payments.” The Senate Finance Committee released one of those forms signed by Geithner. A Senate source confirmed to
National Review
’s Byron York that Geithner pocketed the cash: “He was getting the money. He was being paid a tax allowance to pay him for tax payments that he should have made but had not.”
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IRS employment application packets notify potential workers that the Treasury Inspector General for Tax Administration vets all candidates and current employees “who have violated or are violating laws, rules, or regulations related to the performance of their duties.” Obama stood by his nominee who would oversee the IRS, but might not even qualify for a lesser job at the agency.

Obama spokesman Robert Gibbs calls Geithner’s transgressions “honest mistakes.” Media outlets like the Associated Press attempted to downplay his snubbing of the law as mere “tax goofs.” (When Democrats like Geithner, Al Franken, and Charlie Rangel fail to pay up what they legally owe, they’re just “goofs.” When you or I object to forking over more than what we’re already paying, Vice President Joe Biden calls us unpatriotic.) The condescension towards ordinary Americans incensed by Geithner’s tax evasion was bipartisan. “These are not the times to think in small political terms,” Senator Lindsey Graham, a South Carolina Republican, sniffed. “He has a great résumé.”
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No, Senator Graham, he does not.

Left out of the glowing endorsements: Geithner’s disastrous track record while working at the IMF in the 1990s. Former Australian prime minister and Labor Party leader Paul Keating blasted Geithner for botching Indonesia’s economic troubles: “Tim Geithner was the Treasury line officer who wrote the IMF [International Monetary Fund] program for Indonesia in 1997-98, which was to apply current account solutions to a capital account crisis.” The
Sydney Morning Herald
explained the debacle:

In other words, Geithner fundamentally misdiagnosed the problem. And his misdiagnosis led to a dreadfully wrong prescription.

Geithner thought Asia’s problem was the same as the ones that had shattered Latin America in the 1980s and Mexico in 1994, a classic current account crisis. In this kind of crisis, the central cause is that the government has run impossibly big debts.

The solution? The IMF, the Washington-based emergency lender of last resort, will make loans to keep the country solvent, but on condition the government hacks back its spending. The cure addresses the ailment.

But the Asian crisis was completely different. The Asian governments that went to the IMF for emergency loans—Thailand, South Korea and Indonesia—all had sound public finances.

The problem was not government debt. It was great tsunamis of hot money in the private capital markets. When the wave rushed out, it left a credit drought behind.

But Geithner, through his influence on the IMF, imposed the same cure the IMF had imposed on Latin America and Mexico. It was the wrong cure .
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Geithner fared no better as president of the Federal Reserve Bank of New York—a position he attained thanks to heavy lobbying by his Wall Street mentors Robert Rubin and Larry Summers, both of whom sat on the New York Fed’s selection committee. Their cronyism had multi-billion-dollar consequences for taxpayers. Rubin, you see, was also an executive at New York-based Citigroup, which Geithner regulated. Or was supposed to regulate. Instead, he helped foster Citi’s spending binge and engineered the teetering company’s $52 billion federal bailout.

An investigation by ProPublica found that the New York Fed under Geithner “had lifted some restrictions on Citigroup, allowing it to engage in risky ventures with insufficient capital.”
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In response to questions from the Senate Finance Committee about his failure to police Citigroup, Geithner acknowledged: “Citigroup’s supervisors, including the Federal Reserve, failed to identify a number of their risk management shortcomings and to induce appropriate changes in behavior.” He called his own initiatives to strengthen the financial system ahead of the crisis “inadequate.”
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Geithner had a hand in the $30 billion Bear Stearns bailout and the multi-level AIG bailouts ($85 billion and $38 billion under President Bush and another $30 billion in March 2009 under Obama). Handsome sums of that taxpayer money went to major financial institutions that had employed Obama’s money men and their closest confidants. Goldman Sachs, for example, raked in nearly $13 billion in December 2009 from AIG in federal TARP funds. It is money the company’s chief financial officer said he did not need or expect.
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Those who saw Geithner work up close provided the most damning criticisms. Aaron Ross Sorkin reported in the
New York Times
’s Dealbook page that, “Behind the scenes, Mr. Geithner was the point person for weeks of sleep-deprived Bailout Weekends. It was Mr. Geithner, not Mr. Paulson, for example, who put together the original rescue plan for the American International Group.” Said one executive who attended several confidential meetings on the bailouts: “He was in the room at every turn of the crisis. You can look at that both ways.”
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In other words, Geithner’s intellectual DNA is embedded in these failed financial rescues. “Failed” and “inadequate” in his own words. Superfluous and harmful in the eyes of many on Wall Street. And yet, senators on both sides of the political aisle lavished praise on his “great resumé” before installing him as the next bank-beholden bureaucrat to steer Barack Obama’s savior-based economy.

By March 2009, Geithner had become a running national joke—eliciting scorn in the conservative blogosphere after announcing he would be chasing after international tax deadbeats while he was a tax deadbeat himself, and evoking snickers from Capitol Hill over his inability to fill top slots at the Treasury. The conservative
New York Post
editorial board remarked on the irony of tax cheat Geithner testifying before the House Ways and Means Committee of tax cheat Charlie Rangel, Democrat Congressman from New York, on how “to reduce . . . tax evasion and avoidance.”
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Meanwhile, the liberal
Huffington Post
reported that lawmakers and congressional staff on both sides of the aisle laughed in disbelief at a briefing on Geithner’s latest financial rescue plan: “The laughter was at its height when Obama officials explained that the White House planned to guarantee a wide swath of toxic assets—which they referred to as ‘legacy assets’—but wouldn’t be asking Congress for money,” the site noted. “Rep. Brad Sherman (D-CA), a bailout opponent in the fall, asked the officials to give Congress the total dollar figure for which they were on the hook. The officials said that they couldn’t provide a number, a response met by chuckling that was bipartisan, but tilted toward the GOP side.”
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Soon after, the Grand Kabuki Theater of Outrage erupted over AIG bonuses that Geithner had approved. Geithner claimed he didn’t find out about the AIG bonus issue until March 10, 2009. This was contradicted by AIG president Edward Liddy’s testimony a week earlier. Liddy was right. Geithner was wrong. A House hearing broadcast on C-SPAN on March 3 showed Geithner being questioned directly about the bonuses—a full week before Geithner claims he was made aware of the impending controversy.
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Geithner probably wished he had lost his appointment book on February 10, 2009, when he unveiled his vaunted, vague financial stability “plan” on Capitol Hill. In stark contrast to the lovefest at his confirmation hearing, Senators openly mocked the not-so-golden boy. “So you have no clue,” retorted Senator Lindsey Graham—who only a few months ago chastised Geithner’s critics for “playing gotcha”
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and engaging in “small” politics. The Dow dropped 382 points after Geithner’s big fail.
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A month later, Geithner caused the dollar to decline in international trade after he suggested at a major forum that the United States was “quite open” to a suggestion from Chinese officials to move to a new global currency.
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Former Clinton Treasury colleague Roger Altman tried to rescue Geithner from his blunder with painful prompting (“I’d like to ask one final question, in effect,
on behalf of the market
[emphasis added]. It might be useful if you tried to clarify your earlier comment on the reaction to the central bank governor of China’s idea . . .”). But by the time Geithner took the hint, it was too late.
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It was actually the second time Geithner had roiled the markets with public comments about China; in January 2009, during his confirmation hearings, his suggestion that China was manipulating its currency resulted in a sharp sell-off of U.S. bonds (in which China has a large stake).
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“He came right out and said Obama believes China is manipulating their currency,” Maryann Hurley, a bond market strategist, told the
Wall Street Journal
. “It’s very easy to pick another country to be your whipping boy. In an era where we’re looking at deficits as far as the eye can see . . . [what] we don’t need is somebody starting to dump our debt.” The
Wall Street Journal
’s “MarketBeat” reporter David Gaffen pleaded with Geithner: “Will you please be quiet, please?”
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By May 2009, the whiz kid was the nation’s whipping boy. Geithner had the “eyes of a shoplifter,” a cable TV talking head cracked. “Think Bambi looking into the headlights on an 18-wheeler,” quipped veteran risk analyst Christopher Whalen to
Portfolio.com
reporter Gary Weiss.
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Treasury Department vacancies and key policy decisions piled up as a result of what the
Washington Post
called “Treasury’s ad-hoc management,” ruled by Geithner’s unofficial advisors.
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“In over his head” was the new conventional wisdom. White House chief of staff Rahm Emanuel swooped in at President Obama’s urging, according to the
Wall Street Journal
, to bail out the Bailout King. Emanuel “has been so involved in the workings of the Treasury that ‘Rahm wants it’ has become an unofficial mantra among some at the Treasury, according to government officials,” the paper reported.
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But well before he set foot in office, clear-eyed critics had pegged Geithner for a career bureaucrat buoyed by the Wall Street old boys’ network with a track record of misreading financial crises, pandering to failing banks, and playing fast and loose with his taxes.

It’s not like Washington hadn’t been warned.

IN CAHOOTS WITH CITICORP

By late November 2008, taxpayers came to expect midnight bailouts from feckless feds “in cahoots”—to borrow our president’s words—with Big Business. At 1:00 a.m. Eastern on November 24, 2008, Citicorp got its share of the bailout pie: $306 billion in government backing and $20 billion from the TARP banking bailout rammed through Congress a month earlier. The Citi “rescue” was the result of intense collaboration between Citigroup board member and former Clinton Treasury Secretary Robert Rubin; then Bush Treasury Secretary Henry M. Paulson Jr.; and then president of the Federal Reserve Bank of New York/Paulson-Rubin protégé/soon-to-be Obama Treasury Secretary Tim Geithner.
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“[I]s it too much to ask Washington to develop a policy that isn’t crafted in a scramble of private phone calls?” an exasperated
Wall Street Journal
editorial board wondered the next day.
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In January 2009, the Obama administration flexed its faux populist muscle in demanding that Citigroup drop its plans to spend $50 million for a luxury French jet. The same month Rubin resigned from the company—walking away from the wreckage with $150 million after ten years at the company. Behind the scenes, more Citi men were sitting in the catbird’s seat. They included Jacob Lew, former chief financial officer of Citigroup Alternative Investments, who was appointed Obama’s number two at the Department of State and will oversee interagency economic policy matters, and Michael Froman, another former CFO in the same division, who is now deputy assistant to the president and deputy national security adviser for international economic affairs. Obama and the bonus-bashers refrained from demagoguing Lew’s $1.1 million-plus salary and bonus and Froman’s $7.4 million-plus salary and 2008 year-end bonus of $2.25 million.

Both Lew and Froman now work closely with Wall Street crony and former Robert Rubin co-worker Larry Summers at the National Economic Council. National Journal connected more Rubin/Citi dots: “Director of the Office of Management and Budget Peter Orszag, and Summers’s deputy, Jason Furman, both served as directors of the Hamilton Project, a Brookings Institution initiative the [
sic
] produces research and policy positions on economic issues, where Rubin was a founding member of the advisory council. If that isn’t enough, Froman served as Rubin’s chief of staff during Rubin’s stint as Secretary of Treasury.”
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Three months after the Bush-Obama team engineered the first Citi bailout in November 2008, the Obama administration announced it was raising its stake in the failing company from 8 percent to 38 percent.