Something Wicked This Way Comes

In light of renewed calls to give the Federal Reserve more regulatory powers, a new report by Neil M. Barofsky, special inspector general for the Troubled Asset Relief Program (TARP, or the taxpayer-financed financial bailout) lays out some startling, if not altogether unsurprising, curiosities. From the Times:

The Fed, under Mr. Geithner’s direction, caved in to A.I.G.’s counterparties, giving them 100 cents on the dollar for positions that would have been worth far less if A.I.G. had defaulted. Goldman Sachs, Merrill Lynch, Société Générale and other banks were in the group that got full value for their contracts when many others were accepting fire-sale prices. On the question of whether this payout was what the report describes as a “backdoor bailout” of A.I.G.’s counterparties, Mr. Barofsky concluded: “The very design of the federal assistance to A.I.G. was that tens of billions of dollars of government money was funneled inexorably and directly to A.I.G.’s counterparties.” The report noted that this was money the banks might not otherwise have received had A.I.G. gone belly-up.

Goldman Sachs, we all should know, was led from 1998 to 2006 by none other than the Bush administration’s Secretary of the Treasury, Henry Paulson, who had actually worked for the company in some capacity since 1974. Now, you don’t devote over thirty years to a company and then forget who your friends are. Especially when your compensation package in 2005 was upwards of $37 million. Noting the above, what Barofsky terms a “backdoor bailout,” I am more inclined to call a multi-billion dollar “reach around.”

I have not yet read the entirety of the report, but I plan to (as you should too). It can be found here.