U.S. Treasury Secretary Timothy Geithner has trouble understanding that the core responsibility of any federal official is to be thrifty with taxpayer dollars. This has been confirmed with new revelations from Bloomberg [3] about Geithner's role in the secret AIG-Goldman bailout. We know that in September 2008, AIG [4] was running out of cash to cover all the credit default swaps it had issued and the Federal Reserve Bank of New York, headed then by Geithner, stepped in with an $85 billion dollar line of credit (a government commitment that would later balloon to $182 billion.) Six months later it was revealed that AIG [4] promptly took this money and handed it out to about 10 customers or counterparties, mostly foreign, without forcing the firms to take a discount on the payments. These counterparties included Goldman Sachs [5], which received $12.9 billion, Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion, Barclays of Britain ($8.5 billion), Merrill Lynch [6] ($6.8 billion), Bank of America [7] ($5.2 billion), UBS of Switzerland ($5 billion), Citigroup [8] ($2.3 billion) and Wachovia ($1.5 billion). At this point, AIG was bankrupt and effectively owned by the U.S. taxpayers. The counterparties were lucky to get a dime, but to the surprise of many, they received 100 cents on the dollar. These payments were so out-sized that speculation swirled and New York Attorney General Andrew Cuomo [9] opened an investigation. “Our investigation into corporate bonuses has led us to an investigation of the credit default swap contracts at AIG,” Mr. Cuomo said in a statement. “CDS contracts were at the heart of AIG’s meltdown. The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayers dollars to capitalize banks all over the world.” What we didn’t know until Bloomberg [3] news reported it, was that in the months leading up to the September 2008 collapse of AIG, the AIG chief financial officer of the credit default swap unit had been in negotiations with these counterparties and had already arranged for steep discounts to AIG’s obligations, as much as 40 cents to the dollar. So why did the American taxpayer end up paying 100 cents to the dollar after AIG had already negotiated a drastic haircut? Because New York Fed Chair Timothy Geithner intervened to negotiate a new deal. Yup, that’s right. The American people’s top regulator of the New York banks intervened to make sure that domestic and foreign firms were made whole in a deal that cost American taxpayers an extra $13 billion or more. Experts told Bloomberg that the federal government squandered billions on the AIG deal, “There is no way they should have paid par, AIG was basically bankrupt, ” said Janet Tavakoli of Tavakoli Structured Finance Inc. But at least one taxpayer did well. Steve Friedman [10], then head of the New York Fed Board, resigned earlier this year when questions were raised about whether or not he used knowledge of the secret AIG-Goldman Sachs [5] bailout to profit from subsequent Goldman buys. This is not the first time that Geithner’s judgment with regard to AIG has been called into question. In March 2009, the Obama administration faced a wall of public outrage when it allowed AIG to pay $165 million in retention bonuses. Geithner stretched credulity when he said that he did not know about the AIG bonuses until days before the news hit the papers.

Geithner has long been confused about his job description. As the leader of the New York Fed, he stood idly by for years as Wall Street banks ballooned the housing bubble to dangerous proportions, prompting some to label him a “failed regulator.” [11] He later told Congress that too much regulation rather than too little contributed to the crisis and admitted: “I have never been a regulator, for better or worse.” Unfortunately for the taxpayers, Geithner's recent performance appears to be "for worse." Most recently, the Chicago Tribune reports [12] that on Friday, Geithner was in Chicago to give $50 million in taxpayer funds to Park National Bank for community investment programs, but apparently forgot to ask the Federal Deposit Insurance Corporation (FDIC) how the bank was doing. The FDIC moved in on the same day to shut the bank down.