US Treasury Secretary Timothy Geithner and Federal Reserve Vice Chairman Donald Kohn will travel to India April 6-7 and are slated to meet Prime Minister Manmohan Singh in New Delhi. The ostensible reason for this visit of this the duo is to participate in economic and financial partnership discussions - in particular, infrastructure investments. And provide New Delhi some “insights” on how to generate “money” out of paper.
New Delhi must note that no matter what Geithner’s media campaign promotes his visit as, he does not know economics. He knows finance—more precisely, the kind of frauds that were perpetuated by Goldman Sachs, AIG, Citigroup, and other luminaries of Wall Street who are now surviving using taxpayers’ interest-free money handed out to them by President Bush and President Obama under the guidance of Geithner, Federal Reserve Chairman Ben “Helicopter” Bernanke - and which passes under the banner as “finance”.
This policy has made the United States by far the most indebted nation in the world. Notwithstanding what Montek Singh Ahluwalia, a bird of the same flock, may have to say about Geithner’s “financial wizardry”, only thing that Geithner is capable of is selling toxic assets and securities packaged in gift-wraps to fool the unsuspecting.
Federal Reserve: A private institution, not a Central Bank
Geithner will be accompanied by Donald Kohn of Federal Reserve, a privately-owned institution that presides over America’s financial system as the country’s central bank. In reality, the Fed, as it is widely identified as, prints money and works as the high-power agent of Wall Street. In 1913, President Woodrow Wilson signed the US Congress legislation to make into law the Federal Reserve Act. The objective at that point in time was apparently to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. But over the years, Fed’s reach into US economic affairs has been systematically enhanced. Given half a chance, Geithner and his ilk will put the entire US Treasury under Fed’s control. The East India Company approach, eh?
Federal Reserve would like to promote through its website that it is not a private corporation, is not operated for profit, and is not funded by Congress. However, the facts like all “facts” about high finance associated with Wall Street, are entirely different from what the uninitiated are being told. The Fed is owned fully by private banks and 100 percent of its shareholders are private banks. The Fed claims it does not make profit, but it does from the interest, shown as operating expenses plus a guaranteed 6% return to its banker shareholders, it collects from the Treasury bonds it buys with newly-issued Federal Reserve Notes.
Geithner belongs to this milieu. This is what Wall Street is all about. The unfortunate fact is that Wall Street now owns not only Main Street but the White House as well. Therefore, do not judge Geithner by what he says, but try to fathom what he is implying by knowing his background and who and what he really represents. Then, one can figure out what he is aiming for.
The TARP scandal and Geithner
Last April, economic columnist Glenn Greenwald in his www.salon.comcolumn, Larry Summers, Tim Geithner and Wall Street's ownership of government, reported an interview of former Reagan-era Savings & Loan (S&L) regulator and current University of Missouri Professor Bill Black with Bill Moyers.
In that interview, Black “detailed the magnitude of what he called the on-going massive fraud, the role Tim Geithner played in it before being promoted to Treasury Secretary (where he continues to abet it), and - most amazingly of all - the crusade led by Alan Greenspan, former Goldman CEO Robert Rubin (Geithner's mentor) and Larry Summers in the late 1990s to block the efforts of top regulators (especially Brooksley Born, head of the Commodities Futures Trading Commission) to regulate the exact financial derivatives market that became the principal cause of the global financial crisis.”
Greenwald pointed out that it was Obama, in the wake of various scandals over profligate spending by TARP (Troubled Asset Relief Program) firms, who pretended to ride the wave of populist anger and to lead the way in demanding limits on compensation. And ever since his flamboyant announcement, Obama - adopting the same approach that seems to drive him in most other areas - has taken one step after the next to gut and render irrelevant the very compensation limits he publicly pretended to champion And the winners - as always - are the same Wall St. firms that caused the crisis in the first place while enriching and otherwise co-opting the very individuals Obama chose to be his top financial officials.
Here is an excerpt of Black and Moyers’ interaction:
Black: Geithner is charging, is covering up. Just like Paulson (Bush’s secretary of treasury also collected from Wall Street: author) did before him. Geithner is publicly saying that it's going to take $2 trillion - a trillion is a thousand billion - $2 trillion taxpayer dollars to deal with this problem. But they're allowing all the banks to report that they're not only solvent, but fully capitalized. Both statements can't be true. It can't be that they need $2 trillion, because they have massive losses, and that they're fine. These are all people who have failed. Paulson failed, Geithner failed. They were all promoted because they failed, not because...
Moyers: What do you mean?
Black: Well, Geithner has, was one of our nation's top regulators, during the entire sub-prime scandal, that I just described. He took absolutely no effective action. He gave no warning. He did nothing in response to the FBI warning that there was an epidemic of fraud. All this pig in the poke stuff happened under him. So in his phrase about legacy assets. Well he's a failed legacy regulator.
Moyers: Yeah. Are you saying that Timothy Geithner, the Secretary of the Treasury, and others in the administration, with the banks, are engaged in a cover up to keep us from knowing what went wrong?
Black: Absolutely.
Moyers: You are.
Black: Absolutely, because they are scared to death… What we're doing with - no, Treasury and both administrations. The Bush administration and now the Obama administration kept secret from us what was being done with AIG. AIG was being used secretly to bail out favoured banks like UBS and like Goldman Sachs, Secretary Paulson's firm, that he had come from being CEO. It got the largest amount of money. $12.9 billion. And they didn't want us to know that. And it was only Congressional pressure, and not Congressional pressure, by the way, on Geithner, but Congressional pressure on AIG.
Geithner’s benefactors
- Goldman Sachs, which paid Sperling the $887,727 for advice on its charitable giving;
- The Philadelphia Stock Exchange, which funneled him $480,051 as a director;
- Two hedge funds - Brevan Howard Asset Management LLP and Sterling Stamos Capital Management - which delivered $250,000 to him for quarterly economic briefings;
- The Council on Foreign Relations, which forked over $116,653 for work related to education in developing countries;
- The Stanford Group Co., which paid him undisclosed speaking fees in November 2008 - three months before the SEC sued its chairman, Alan Stanford, for allegedly stealing $7 billion from investors;
- And Citigroup, the recipient of up to $306 billion from taxpayers, which paid Sperling to speak at an event.
- Another Geithner advisor, Lee Sachs, pulled in $3 million in salary and partnership income from hedge fund Mariner Investment Group.
Recently on March 11, London Financial Times reported Timothy F. Geithner, has written to the European Commission warning that plans to regulate hedge funds and private equity firms could cause tensions with Washington. Citing a letter but not quoting from it directly, The Financial Times said Geithner wrote to Michel Barnier, the European commissioner in charge of market regulation, on March 1 saying the EU was headed for a clash with the United States and Britain if the planned rules proved overly protectionist.
At an event organized by the Times Group in Chennai recently, a spokesman for Michel Barnier, the new EU internal market commissioner who is responsible for financial services regulation and to whom Geithner addressed his concerns, said that the EU decision to act on hedge funds was in line with a G20 decision to reinforce transparency in the financial system.
European officials were drafting new regulations on the hedge fund and private equity industries that proponents say are aimed at limiting their perceived role in aggravating the 2008-9 financial crisis, Reuters said. In his one-page letter, Geithner stressed a need for the United States and Europe to work together on regulation of the financial services industry, The Financial Times said. In other words, Geithner was worried that such financial regulation, however limited it were to prevent financial institutions’ stealing of public money, would undercut profit of his benefactors – the Wall Street.
What Geithner is really after
One of the reasons why the Indian banks did not go into a tailspin when the world financial system collapsed is because of the monitoring by Reserve Bank of India (RBI) and the prudence it continues to exhibit. In October 2008, then-Indian Finance Minister P. Chidambaram had pointed out that most of the banks in US were facing closure due to the crisis, adding Indian banks, however, were well protected. "The farsightedness of late Indira Gandhi, who nationalized banks, is paying now. While the US administration is plowing money to save banks in that country, our banks are well protected due to the nationalization”, he said on that occasion. The private sector banks were also on a sound footing, he added.
Because of this control that RBI exercises, when banks and financial institutions around the world were massively lured into investing in assets, hedge funds and derivatives backed by US sub-prime mortgages, banks and financial institutions in India were largely kept out of them. Under the watchful eye of the RBI, only about $1 billion out of India's total banking assets of more than $500 billion slipped into toxic assets or related investments. When the crisis came and the financial institutions around the world found themselves writing off almost $1 trillion in assets from their books, Indian banks had at most a few hiccups. That is not to say that the Indian economy remained immune to the global financial collapse. What it encountered however is the withdrawal of investments by US firms abroad and the sharp decline in US demand for foreign goods and assets.
Brookings Institute of Washington pointed out in 2008 that the drying up of liquidity within the United States led US investors to withdraw their investments in the Indian economy at lightning speed. These withdrawals also indirectly caused a precipitous fall in equity prices, adding to the liquidity crunch. Finally, Indian corporations, which had been able to borrow at attractive rates in the United States and other markets in the past, could no longer do so and returned to borrow in the domestic market. The Indian government has acted to unfreeze liquidity by aggressively cutting interest rates, the cash reserve ratio, and the statutory liquidity ratio. It has also announced fiscal stimulus in two stages, though on a much smaller scale than in many other countries.
India’s economic growth, however, requires infusion of more capital and Geithner will hone in on that. He will urge India to raise money for the next phase of growth. This is the trap he is trying to lay out for the Indians to step into. He will try to dilute Government ownership by enticing New Delhi to raise money by investing in toxic assets and securities. This is where New Delhi must tell Geithner to get off.
The author is South Asian Analyst at Executive Intelligence Review News Services Inc.
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