So, how do you screw up a multi-trillion dollar bailout and expect a pat on the back? That's a good question. Unfortunately, Tim Geithner and Team Obama aren't prepared to answer this one.
It appears that things aren't going to get any better for President Obama. Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program (TARP), is going to issue a report on Tuesday. The report will say that while the New York branch of the Federal Reserve was under Tim Geithner's leadership it “refused to use its considerable leverage” to extract concessions from the failed institutions as it handed out hundreds of billions in the form of U.S. taxpayer dollars and other guarantees.
The New York Fed did several other things wrong when it was under Geithner's stewardship.
* At the beginning of the first bailout the New York Fed saw itself a creditor of failed institutions like AIG, rather than a regulator.
* It treated foreign banks as if they were domestic banks because they didn't want to incur the retaliation of their host nations (anyone who continues to think "We're #1" and the "bad ass of the world" needs to let that one sink in).
* Because the New York Fed - again, then headed by Tim Geithner - was bailing out Wall Street, and refused to consider imposing bankruptcy terms on firms like AIG, other countries wouldn't consider intervening in the affairs of their banks. Nor would they ask their banks to consider reducing the amount owed to them by U.S. insititutions because of the legal implications.
The end result? In spite of all the stupidity that Wall Street concocted we ended up using bailout money to pay the failed financial institutions and their creditors 100 cents on the dollar. More succinctly, we rewarded stupidity, greed, and failure.
Worse, as Paul Krugman points out, both President Bush and President Obama ended up bungling the rescue of an economy by throwing a lifeline only to the idiots who did their level best to sink our economic ship.
This, in turn, has soured Americans on additional bailouts that are necessary for getting money into small and local community banks, and for the infrastructure projects necessary for creating much needed jobs. The highest ranking person who spans this incompetence is Tim Geithner (first as head of the NY Fed, and now as U.S. Treasury Secretary).
It should not come as a surprise that people are now calling for his head.