Obama's Treasury Secretary Gets Blasted in Watchdog Report

The government’s watchdog over the bank bailout program is criticizing Treasury Secretary Timothy Geithner’s handling of one of the most sensitive moments of last year’s financial meltdown, questioning decisions he made while heading up the New York Federal Reserve Bank.
The new report criticizes the New York Fed’s decision in the fall of 2008 to bail out insurance giant AIG by covering its clients’ losses, sending tens of billions in taxpayer dollars to overseas banks.

“The decision to acquire a controlling interest in one of the world’s most complex and most troubled corporations was done with almost no independent consideration of the terms of the transaction or the impact that those terms might have on the future of AIG,” reads the report, which is signed by special inspector general Neil Barofsky.

The decision to cut the counterparty deal has come under fire because it effectively passed money along to financial companies that had signed intricate contracts with AIG, and sent tens of billions in U.S. taxpayer funds to major Wall Street players such as Goldman Sachs as well as foreign banks including Société Générale and Deutsche Bank.

“Questions have been raised as to whether the Federal Reserve intentionally structured the AIG counterparty payments to benefit AIG’s counterparties — in other words that the AIG assistance was in effect a “backdoor bailout” of AIG’s counterparties,” said the report. “Then-FRBNY President Geithner and FRBNY’s general counsel deny that this was a relevant consideration for the AIG transactions.

“Irrespective of their stated intent, however, there is no question that the effect of FRBNY’s decisions — indeed, the very design of the federal assistance to AIG — was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG’s counterparties.” - Politico Story