Timothy Geithner and AIG Have History
The Treasury Secretary’s Long Relationship With The Insurance Giant
Apr 26, 2009
On January 26, 2009 the Senate overlooked Timothy Geithner’s failure to pay four years worth of self-employment tax for work done with the International Monetary Fund, and confirmed him as Secretary of Treasury, giving him a central role in constructing the Obama administration’s rescue plan for the economy. The position is Geithner’s latest high profile role in administering the bailout of the faltering financial sector. In 2003, Geithner was appointed President of the Federal Reserve Bank of New York where he was responsible for supervising and regulating financial institutions in his jurisdiction.
In March 2008, Geithner secured JP Morgan Chase’s buy out of Bear Stearns by providing $30 billion from the Federal Reserve Bank of New York to back Bear Stearns mortgage securities. Geithner, also, took the lead in negotiating the initial bailout of AIG. In 2008, AIG lost $26.2 billion, due to credit default swaps made by its financial products group. On September 16 2008, the Federal Reserve Board announced that AIG would receive an $85 billion loan from the Federal Reserve Bank of New York. AIG sparked its first round of public outrage soon after by sponsoring a week long paid vacation to its top salesman at the St. Regis Resort in Monarch Beach, CA, which cost $440,000.
The Federal Government responded in November 2008 with the announcement that it was restructuring its financial assistance to AIG; the U.S. Treasury and Federal Reserve Bank of New York would extend its line of credit to $150 billion, and revise the terms and conditions of its loans. According to AIG CEO Edward Libby, the revised deal was, “a quantum improvement over the old one…the old one has some terms associated with the loan that were almost punitive in nature. This new one is an equity investment, a loan that’s much more advantageous to us.” In March 2009, AIG again sparked national outrage over its payout of $165 million in bonuses to employees of its financial products group, and a chorus of bipartisan condemnation was heard on Capitol Hill.
Geithner joined in the popular outcry, and claimed in an interview with CNN that he was at fault for not knowing about the full scale of the bonuses until March 10 2009. However, according to an AIG bailout timeline on businessinsurance.com, the retention bonuses for employees of its financial products group was established in March 2008. They were disclosed in a filing with the Securities and Exchange Commission in September 2008, and according to a Federal Reserve spokesman, the Treasury Department, and Federal Reserve Bank were fully briefed on the bonuses in November 2008. Geithner has vowed to recoup the bonuses paid out by AIG, and has publicly pursued legal means to facilitate this. Ironically, a loophole crafted by Geithner in Obama’s economic stimulus bill prevents federal intervention in executive compensation packages established before federal aid was received.
Apart from recent negative interactions, Timothy Geithner and AIG have a long history together with a shared social and professional network. Geithner’s first job after receiving his master’s degree was with Kissinger Associates, an international consulting firm, founded by Henry Kissinger, which provides advisory and advocacy services to multinational corporations. Kissinger Associates refuses to reveal the identity of its clients, however, Henry Kissinger has served on AIG’s International Advisory Board since 1987, and, in 2000, Kissinger Associates and AIG announced a joint venture. Geithner was employed by Kissinger Associates from 1985-1988 when he left to join the Treasury Department.
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