What is going on in this country? The government is about to take over GM in a plan that completely screws private bondholders and favors the unions.
Get this: The GM bondholders own $27 billion and they’re getting 10 percent of the common stock in an expected exchange. And the UAW owns $10 billion of the bonds and they’re getting 40 percent of the stock. Huh? Did I miss something here? And Uncle Sam will have a controlling share of the stock with something close to 50 percent ownership. And no bankruptcy judge. So this is a political restructuring run by the White House, not a rule-of-law bankruptcy-court reorganization.
Meanwhile, top Obama adviser Valerie Jarrett opened the door wide on CNN yesterday to bank nationalization and CEO firings. Unfortunately, my take that the economic stress testsare a political stalking horse for more government ownership, more government control of the banks, and more government disruption of shareholder rights and normal corporate governance looks to be coming true.
Then there’s today’s huge New York Times story about Tim Geithner. It starts on the front page and goes on and on for thousands of words. Yes, he missed early signs of the crisis. But he was altogether too cozy with the New York banks, especially Citibank — and Robert Rubin along with Sandy Weill. In fact, at one point Weill asked Geithner to be Citi’s new CEO. And Geithner joined the board of a Weill-run non-profit to help inner-city high-school students. There were numerous lunches and dinners with Rubin and Weill and other Wall Street luminaries.
With Geithner running the Treasury and the potentially criminal enterprise called TARP, is his incestuous relationship with Wall Street bigwigs a perfect example of the fox guarding the henhouse? Was he too cozy to keep a critical eye on the very institutions that blew up later?
By the way, Geithner sometimes worried about derivatives. But he also worked hard for a plan that would reduce the amount of capital banks were required to keep on hand.
You just have to wonder about this cozy relationship with a trillion dollars of TARP money at stake — essentially a second government budget for Bailout Nation run by a young guy who is in bed and under the covers with the leading bankers he’s supposed to regulate, all while the TARP inspector general is launching 20 criminal probes into how all this taxpayer money is going to be spent.
I don’t usually agree with Nobel economist Joe Stiglitz, but he talks about how mindsets can be shaped by people you associate with and that “you come to think that what’s good for Wall Street is good for America.” I know Stiglitz, Krugman, and the other lefties want to nationalize the banks, and allegedly Geithner does not. But frankly, backdoor nationalization is coming and Mr. Geithner’s independence is suspect.
No, the Times article doesn’t mention Geithner’s failure to pay back taxes until just before he was nominated for Treasury secretary. But it seems that at this point in history we need a strong, credible, and independent TARP and bank regulator.
The New York Times really makes me wonder all over again about Mr. Geithner.
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