According to an audit report from Office of the Special Inspector General of the Troubled Assets Relief Program (SIGTARP), the New York Federal Reserve Bank bungled its negotiations with various New York banks and the insurance companies A. I. G. in fall of last year:
The banks and the regulator were confident that the New York Fed was not willing to push A.I.G. into bankruptcy, because earlier in the fall the New York Fed had stepped in with $85 billion to prop up the insurer.
The New York Fed, led then by Timothy F. Geithner, who is now the Treasury secretary, therefore had little leverage in the negotiations, according to a post-mortem of what has emerged as the most inflammatory episode in the rescue of A.I.G.
The Fed “refused to use its considerable leverage,” Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, wrote in a report to be officially released on Tuesday, examining the much-criticized decision to make A.I.G.’s trading partners whole when people and businesses were taking painful losses in the financial markets.
As I have been maintaining for some time Tim Geithner may be a very good man but he is a very bad wizard.
In all honesty Secretary Geithner is far too clubby with those he was supposed to be regulating for my taste. If his approach to date had been effective it would be one thing but it hasn’t. The troubled assets remain on the books of the banks and they’re as toxic as ever. I’m afraid he has conflated the good of the bankers with the good of the banking system which are manifestly different things. Perhaps we need a stress test for Federal Reserve Board presidents. And for Secretaries of the Treasury.