Geithner Played For a Sap By The French In 2008

This morning's Wall Street Journal contains perhaps the most damning evidence yet of how badly current Treasury Secretary Tim (tax scofflaw) Geithner bungled the AIG situation back in 2008.

We now learn, courtesy of the Journal piece, that the two french banks owed significant amounts of money on AIG swaps claimed that their executive would be imprisoned if they took less than the contractually-obligated full payment due.

Amazingly, Geithner, played by a sap by bankers not even domiciled in his own country, collapsed and acceded to their demands. Then, to complete the travesty, decided that, since all AIG creditors must be treated equally, everybody else would get full payment, too.

Guess who footed that bill? Yep, you and me, if you are an American reading this.

Of course, this whole mess is why we have bankruptcy law. It prevents ill-equipped, inexperienced officials from making bad policy decisions. In this case, atrociously bad monetary policy.

As I, and others, have argued for over a year, were AIG to simply have been put into bankruptcy, if not aided, like the other major US financial institutions, then none of this would have happened. Instead, a bankruptcy court would almost certainly have proportionally allocated assets available to the financial products group among its creditors. Period.

This sort of uncertainty is what erodes the confidence of business people. Geithner's actions, both as NY Fed president and Treasury Secretary, have been nothing, if not erratic and inexplicable.

I suspect that, with continued mis-leadership like this in the financial sector, it will be some time before a genuine, non-government-money-stoked recovery takes hold in the US.