AIG collapsed last year in part because it had written insurance policies on billions of dollars in stupid bets made by Goldman, Merrill Lynch, Deutsche Bank and others. Since it was functionally bankrupt, last September AIG thought it would be able to convince those banks to accept significantly less than face value on the credit default swaps it had sold them. How much less?

[Elias] Habayeb, 37, was chief financial officer for the AIG division that oversaw AIG Financial Products, the unit that had sold the swaps to the banks. One of his goals was to persuade the banks to accept discounts of as much as 40 cents on the dollar, according to people familiar with the matter.

Then a funny thing happened: The New York Fed opened an $85 billion credit line for AIG, staving off bankruptcy with a massive influx of taxpayer dollars and effectively taking control of the insurer. Habayeb was pushed aside as chief negotiator with Goldman and the other banks on the issue of how much AIG owed for those swaps and replaced by Tim Geithner, then the chairman of the Federal Reserve Bank of New York. Geithner had a different opening position:

Geithner's team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps.... Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar.

We'll never know how much Goldman would have accepted in the end, or how much the other banks would have accepted, or if one or all of them would have forced AIG into bankruptcy. But we know this: AIG's target was 60 cents on the dollar, and after Geithner turned on the taxpayer-financed spigot the banks got everything.

The logic of the decision, according to an analyst quoted by Bloomberg, was driven by the fact that some banks claimed that they needed the full amount of what AIG owed them or they risked failure.

One reason par was paid was because some counterparties insisted on being paid in full and the New York Fed did not want to negotiate separate deals, says a person close to the transaction. "Some of those banks needed 100 cents on the dollar or they risked failure," Vickrey says.

Goldman Sachs was not one of those banks. In March, CFO David Viniar told analysts on a conference call that Goldman's exposure to AIG was hedged: "There would have been no credit losses if AIG had failed." So if Geithner had negotiated a separate peace with Goldman—perhaps using the same sort of bullying tactics and arm-twisting that the Treasury Department and Fed had shown toward Bank of America and other institutions while trying to keep the financial system alive—he may well have gotten them down to $7.8 billion, the 40-cents-on-the-dollar haircut AIG thought it could get, and saved taxpayers $5.2 billion.

Geithner made the decision in total secrecy. He tried for months to keep the list of counterparties to AIG secret, and Bloomberg reports that the New York Fed ordered AIG executives not to file SEC documents that would reveal details of how the swaps were being handled: "Don't you think your counterparties will be concerned?"

As long as the counterparties are happy, right? Another thing that makes Goldman happy is "dark pools." Matt Taibbi has flagged a white paper the firm is circulating in D.C.—and posted on its web site—arguing straight-faced that transparency and free flow of information are not good things when it comes to equities markets, and that billions of dollars in secret transactions to which only obscenely wealthy bankers are privy are healthy. Because real-time public disclosure of huge transactions could hurt Goldman's bottom line:

In traditional exchange trading, bids and offers are public, and this transparency helps buyers and sellers to achieve the best price.

For some market participants, however, the openness and transparency of the equity market actually mean they are unlikely to achieve the best price.

Instead, Goldman argues, regulators should allow "so-called dark pools" of "non-displayed liquidity" so that they can do whatever they want to, when they want to, so the schlubs don't find out about it until it's too late and they've already parted with their money. This is actually posted on Goldman Sachs' web site, publicly.

CORRECTION: We initially misread Bloomberg's report that AIG wanted banks to "accept discounts of as much as 40 cents on the dollar" as meaning they wanted to banks to accept as little as 40 cents on the dollar. In fact, AIG wanted banks to accept as little as 60 cents on the dollar—a 40 percent discount. We've adjusted the figures in the post to reflect that.

If you know how Goldman employees will be spending their taxpayer-financed bonuses this year, let me know: you can e-mail me at the address below or post to the #goldmanproject page.

Correction: So we got this totally wrong. The price listed above was the last sale price when Geithner bought the house. He bought it in 2004 for... $1,601,700. But this is the best part, that The Daily Show didn't mention: Geithner bought the house, at the height of the bubble, from Goldman Sachs Vice President Michael Millette.

Millette might have not put the house on the market when he sold it to Geithner, which would maybe explain why the 2004 sale price wasn't mentioned on the property report we saw.

Additionally, the day Geithner bought the house, he took out a $250k home equity line of credit.

After hosing Geithner, Millette bought a $1.3 million home in New Rochelle. Then he donated $2,300 to John McCain.

We were wrong, obviously, about all of this, and we apologize for accusing anyone of lying. Also we apologize for thinking Geithner was canny about real estate.

Original story:

According to John Oliver, Geithner bought this Westchester house for $1.6 million in 2004. Once he got the new gig in DC, he put it on the market, asking $1.635 million. So the joke is that he bought at the height of the (Fed-approved) bubble and is now, in this shitty marker, asking for even more money. Even the realtor, Ms. Debbie Meiliken, says he's asking way too much!

But! According to the public records, Geither and his wife bought the Larchmont, NY house in 1998. For $705,000.

So someone just made up the $1.6 million in 2004 thing. And Geithner is maybe not as clueless about this real estate thing as it seemed!

According to another Westchester real estate broker, who contacted us, Geither's renting out the house for $7,500 a month. So, you know, the house can stay on the market for a while, as he's making 9.7% on his initial investment. Or more!

Since he also holds a $515,000 mortgage on the property, he is likely netting much more than that, because the lending rate at the time was no greater than 5.5%. Assuming he took a 30 year mortgage, Mr. Geithner is now making 17.89% on his initial investment of $190,000. This does not include amortization.

So don't worry: you can totally trust Geithner to fix the housing crisis now. And if you're facing foreclosure, rent your house out and move to Washington.

So sure, he was a lacky for financial institutions and his intimacy with the big names at the firms the government should be seizing is coloring his response to the economic crisis, but he can clearly still relate to the common man: look how boring his life is!

And as we all know, when someone promises that they "would never put myself in a position where my actions were influenced by a personal relationship," even though it's impossible for a person to truly objectively assess how their bubble of privilege and social circle affects their decision-making, we should just believe them, because they totally mean well.

Up until now, each one of these precious op-eds has offered only damning criticism of Treasury Secretary Geithner. But today, Roubini, a cheerful person with a few close friends and eclectic group of friends, sounds positively glowing on the subject of Geithner's new bank plan thing that no one understands (besides Nouriel Roubini):

Secretary Timothy Geithner's new toxic asset plan is a serious step in the right direction in that it creates a public-private partnership to buy the troubled assets of financial firms - in other words, to do the necessary cleansing. Up until now, with all the government bailouts, the financial system has been barely treading water. With this plan, it will still be a hard swim, but, at least, there is a path to shore.

We're saved! Crisis over! That's what this means, right?

What happens if removing toxic assets from a bank's balance sheet at near-market prices shows it is effectively insolvent? Then we will have to face the elephant in the room. We may then have to start asking, "Why keep insolvent banks afloat?" And having asked that, we will have to search for ways to manage the ensuing systemic risk.

This plan is marginally better than nothing and perhaps the best that could be hoped for given the current political situation and the rank idiocy of everyone in congress, Nouriel Roubini totally <3's Tim Geithner!

Yes, taxes are a pain and everyone hates the paperwork. And paying taxes is absurdly complicated for employees of the International Monetary Fund, where Geithner worked at the time of his tax problems, because the IMF does not withhold payroll taxes but its employees must still pay them. And the IMF pays them an additional allowance so they can make those payments. On which they also owe taxes. That's totally confusing, right? Anyone might screw it up.

But Geithener, who has now paid his past-due tax bill, is not just anyone. We would be completely sympathetic to Geithner's claim that this was a goof because of the IMF's Byzantine payroll-tax status. Except that Geithner, when he worked at the Treasury Department in 1998, testified before Congress to explain the IMF's Byzantine payroll-tax status:

Most countries in the world impose tax on the worldwide income of individuals on a residence, rather than citizenship, basis. Thus, non-U.S. nationals employed by the Fund outside of their home countries generally do not pay home country income tax on their Fund incomes. However, the United States taxes its citizens regardless of where they are resident; U.S. staff of the Fund are taxed by the United States on their Fund income regardless of where they are located. Arrangements have been made to reimburse employees for income taxes paid to their home countries to put them on an equal footing with staff who do not have to pay home country tax. Of IMF tax reimbursements, 99.5% go to U.S. staff. These reimbursements represent a transfer from the IMF to the U.S. Treasury. In the absence of tax reimbursement, the actual after-tax Fund income of U.S. staff would fall well below both the pay of other IMF staff (that is not taxed) and the after-tax pay of employees in the U.S. public and private sectors. In such circumstances, it would be very difficult, if not impossible, for the Fund to recruit or retain well qualified U.S. staff.

Got all that? The main possibilities this leaves:

• Geithner did not understand the testimony he was delivering to Congress, and thus was innocent but ignorant.
• Geithner understood it at the time, but suffered severe but temporary memory problems when he joined the IMF a few years later.
• Geithner knew exactly what he was doing when he cheated on his taxes, and lied about it.

(Photo by AP)

Tim Geithner, Barack Obama's pick for Treasury Secretary, suffered a lengthy questioning today regarding his failure to pay taxes, like ever. Breaking: TurboTax sucks!

Geithner as admitted to more than $40,000 worth of mistakes on his tax returns — returns he prepared himself using TurboTax — from his years of employment by the International Monetary Fund (IMF).

"IMF officials said hiccups in tax filings are not unusual among their U.S. staff, who must calculate and pay their own taxes quarterly because the international agency does not collect taxes for any government." Most permalancers can probably relate!

Anyway Jim Bunning and John Kyl were soooo upset with Tim for not paying into two programs they probably want to abolish, Social Security and Medicare. Citigroup? Eh! (To be fair they did talk about Lehman for like 20 minutes of the four-hour hearing.)

Your contestants:

Melody Barnes, domestic policy council director, is not only attractive but was also Ted Kennedy's lawyer, so you know she's good. (OK, technically, she was his chief counsel at the Senate Judiciary Committee for eight years.)
Tim Geithner, Treasury Secretary-designate, who is far too handsome to worry about his tax problems.

Deputy chief of staff Mona Sutphen has an exotic foreign-service background. Diplomat = sexy!

Reggie Love, Obama's personal assistant of hotness.

Susan Rice, future ambassador to the United Nations, will restore America's image — and our faith in the power of metallic colors.
Jon Favreau, the speechwriter who makes every college coed say "Yes, we can".

Desirée Rogers, a social secretary on everyone's calendar.

Peter Orszag, the budget master who's going to have to protect more than just his pockets.

Ellen Moran, the communications director who's a dead ringer for Dana Scully from the X Files.

Rahm "Rahmbo" Emanuel, and really, do we need to say more than "chief of staff" here?

Eugene Kang, 24, is special assistant to the president. Sure, he looks like kinda dorky, but he mounted a near-successful campaign for Ann Arbor city council.

Pulitzer-winning Harvard professor Samantha Power is an advisor to Obama — and married fellow staffer Cass Sunstein, 16 years her senior, in July.

Eric Holder, Obama's attorney-general designate, looks like he can deliver more than justice. Okay, he's a lawyer, but don't hold that against him.

Patrick Gaspard, the new White House political director, favors fall colors — election season!

Now vote! The polls are open through the end of Barack Obama's first day in office. Write-ins are allowed in the poll or in the comments.

(Photos by Nadav Kander/New York Times)

Remember when Bernard Kerik was going to head the Department of Homeland Security? Oh, he had an illegal immigrant nanny, sure, but that was just the tip of the vast mobbed-up criminal iceberg! Conspiracy, mail fraud, wire fraud, lying to the IRS, accepting gifts from the mob, sleeping with Judith Regan in his free Ground Zero apartment—that's how you screw up a cabinet nomination. Geithner just owes a couple bucks in back taxes!

According to Maureen Dowd the Treasury secretary-in-waiting's tax thing is of course directly related to the terrible Clintons and how wicked they are. This is how she manages that connection:

Geithner’s transgressions may seem petty given the kind of transgressions that have taken place in the Bush administration, and given the dire warnings of Obama’s choice for budget director, Peter Orszag, that the end may be nigh if the U.S. continues to spend beyond its means.

But Obama has proselytized about a shiny new kind of politics, and it’s déjà vu all over again with the smart being dumb, the rich being greedy, the powerful being sketchy.

This brings us to the Clintons.

Hillary aced her Senate hearing on Tuesday, performing as the A-student she is. As one of her former campaign aides said, whatever else you say about her, she is always prepared.

See? Geithner was supposed to be good but he did something bad, the US is screwed, this "new politics" still involves people doing bad things, hey look at the Clintons I bet they're eating Big Macs and being bitches. That's how you make the big column bucks.

In entirely unrelated news Geithner shouldn't be opposed because of tax dodging. He should be opposed for all the wonderful work he did not policing Citigroup.

[Photo: AP]

A background on the science: Men typically have longer ring fingers than index fingers, while women's fingers are even. But excess testosterone in utero has been found to lengthen ring fingers (and turn women lesbian). The ring-finger characteristic, in turn, has been linked to traits like success in hypercompetitive fields like Wall Street and professional sports. As you study the finger length of Washington's moneymen, new and old, the question to ask: Having gotten into this mess by people taking outsized risks, do we really want a bunch of damn-the-torpedoes macho men fixing it?

The old team:

Bush Treasury Secretary Hank Paulson's ring finger is freakishly long, which could explain his impulsive behavior with the government's bailout money.

Federal Reserve chair Ben Bernanke's ring finger is cocked here, but extended, he seems to fit the profile.

Neel Kashkari, the Ferrari-loving head of the Treasury bailout program, has a relatively normal hand.

The new team:
President-elect Barack Obama's index finger is almost as long as his ring finger, which fits with his reputation as a cool cat, but not his reputation as a studmuffin.

Paulson's replacement at Treasury, Tim Geithner, is an eerie match for his spidery fingers.

As Harvard's president, Obama economic advisor Larry Summers got in trouble for suggesting women were no good at science. But did his critics take into consideration his womanly hands?

The villain:
Called to account for the collapse of his firm, Lehman Brothers CEO Dick Fuld could invoke a novel defense: With that stubby ring finger, how could he possibly be a wild and crazy type who'd risk his entire company on bad mortgage-bond bets?

Bair was appointed by George W. Bush to run the FDIC, and her term ends in 2011. She's a Republican, but she's well-respected and liked by everyone on both sides of the aisle. She's been running the efforts to rework mortgages and keep people in their homes, and she's all for "helping Main Street in addition to Wall Street," and lots of liberals had hoped to see her maybe get a bigger role in an Obama administration. Here is what Barney Frank said about her:

“I think part of the problem now, to be honest, is Sheila Bair has annoyed the ‘old boys’ club,’” Frank said today. “To some extent, bank regulation and mortgage foreclosure have made a situation where we have several regulators up in the tree house with a ‘no girls allowed’ sign — and it’s aimed at Sheila Bair - - who’s been really good.”

Wait a minute—Republican who took on her own party and the 'old boys club'? Sheila Bair is an actual maverick. A real-life one, not the kind that is Mavericky based only on superficial identity-based personality traits! Why does Geithner want her gone?

Apparently Geithner "clashed" with Bair over aid to Citigroup, a position she was goddamn right to clash with him over because that particular bailout was a mess. But it means she's "not a team player" and it also means we're worried about the Obama economic team again.

A number of Wall Street types—speaking to Times DealBook columnist Andrew Ross Sorkin on the condition of anonymity because the recession is actually their fault—say Geithner is baaaaad. Banking industry experts agree!

“We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers,” said Christopher Whalen of Institutional Risk Analytics. “Throw in the Bear Stearns/Maiden Lane fiasco for good measure,” he said.

“All of these ‘rescues’ are a disaster for the taxpayer, for the financial markets and also for the Federal Reserve System as an organization. Geithner, in our view, deserves retirement, not promotion.”

Well yes it but seems like Hank Paulsen was the one who invented some reason for being either unwilling or unable to "rescue" Lehman (or both? he seems to have switched from "we let them fail on purpose" to "we couldn't have saved them" because he's a bad, bad Treasury Secretary). In fact it seems like the New York Fed Position is one of limited powers! What's more worrying is that Geithner is another damned Rubinite, trained by evil Robert Rubin.

But American Prospect co-editor Robert Kuttner, no fan of Rubin, is cautiously optimistic about the many Rubinites who'll soon be in charge of the money.

In fairness, adults are not merely tools of their patrons. In recent months, Larry Summers has disagreed with Rubin on the scale of the needed stimulus. Tim Geithner is for far more regulation than Rubin. Jason Furman, though suggested by Rubin for his campaign post of economic policy director, actually spent more of his career working for Joseph Stiglitz than for Robert Rubin. Peter Orszag has done a fine job as director of the Congressional Budget Office, and is not averse to large scale public spending.

He, too, would also like to maybe see a Joseph Stiglitz in the White House, but as we all know, the cratering ecnomy has turned even the moderates into crazy radical New Dealers.

And Berkeley Economist/blogger Brad DeLong seems pleased with this Christina D. Romer appointment, as she is an expert on Great Depressions and how to not have more of them.

Of course basically no one knows what is going on, except that January 20 can't come soon enough.

What did Rubin do in the Clinton White House? He and Alan Greenspan joined forces to swing the Democratic Party's economic policies so far to the right that the terms of the debate never recovered. Now, economic leftism is Eisenhower Republicanism and the right-wing's economic policy is basically to hand over as much Treasury money and tax cuts as possible to the wealthy and occasionally force some underfunded mandates through congress because why not? Rubin encouraged Clinton to pass NAFTA before tackling health care, to this day he shudders at the idea of demanding worker protection before passing more free trade pacts, and then, for his final act before returning to the private sector, he resisted calls for the regulation of derivatives and strongly encouraged the repeal the Glass-Stengall act, thus leading directly to our current economic crisis. Of course he is still the Democratic party's most respected and powerful economic thinker.

Then he left to join Citigroup, and we all know how well that went. So Barack Obama's economic policy team is probably made up of long-time free-market critics like James K. Galbraith and Joseph Stiglitz, right? Hah.

The president-elect’s choices for his top economic advisers — Timothy F. Geithner as Treasury secretary, Lawrence H. Summers as senior White House economics adviser and Peter R. Orszag as budget director — are past protégés of Mr. Rubin, who held two of those jobs under President Bill Clinton.

Of course they're all really really sorry that they killed the nation.

Of course, the only prominent Democrats to run away from the Rubin style of Economic Eisenhower Republicanism were John Edwards, who fucked his way out of elected office forever, and Virginia Senator Jim Webb, who rather quickly recused himself from VP talk, because in addition to being concerned about economic disparity he's also an angry gun-toting lunatic.

If there is any silver lining, it's that the size and scope of the disaster have turned even Al Greenspan into a non-believer in the magic free market fairie, but the current American Habit of letting those who fuck up the most be named the only people qualified to the fix the mess is a bit disheartening. At least Geithner isn't from a goddamn bank.

Friendly Takeover [TAP]
Rubinomics Recalculated [NYT]