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01.01.2009 0

Give Geithner the Hook

  • On: 01/22/2009 10:03:21
  • In: Taxes
  • By Isaac MacMillen

    “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.”Christopher Whalen, senior vice president at Institutional Risk Analytics.

    As President Barack Obama lines up his cabinet team and marches them up to the Senate, many onlookers have praised the group of “experts” he has assembled. But all is not as it seems. Under the guise of fresh faces and new looks come failed policies and worn retreads.

    President Obama’s nominee for Treasury Secretary, Timothy Geithner, should cause particular concern for his long history of supporting questionable policies—including his propensity for being a spendthrift with tax dollars. Combined with his now-revealed personal ethics lapses (and they are legion), his flaws are more than the country can afford at this critical juncture.

    There is no denying Mr. Geithner has had a long career in government and finance. He will be leaving a post at the Federal Reserve in New York, which he took after being the “Director of Public Policy and Review Department” for the International Monetary Fund. Prior to that, he worked in the Treasury Department under Clinton Secretaries Rubin and Summers.

    And in all of those positions, Mr. Geithner supported the same types of big-spending, bailout-happy policies that are currently saddling the country with trillions of dollars of debt. Whether it was supporting the IMF plan to pump $117 billion into Asian economies in 1998, or overseeing the $29 billion Bear Stearns bailout, Mr. Geithner has made his mark.

    It seems that in his august opinion no problem is too big for money to solve. Even if his solution exacerbates the problem. And so, during the past year when the national debt has exceeded $10.7 Trillion, Mr. Geithner contributed significantly to it.

    For example, Mr. Geithner has attempted to distance himself from some of his actions in the ongoing economic crisis, by claiming now that he opposed the government’s decision to let Lehman Brothers fail. In other words, he thought that even more of the American taxpayer’s money was necessary to prop up yet another failed financial institution.

    But of course, that, if anything, only deepens his culpability—since it was he, as reported by Bob Novak, who opened up the Fed’s discount window to investment firms in the first place. And, as a Fed Governor, he supported the very monetary easing that contributed greatly to the housing bubble that inflated to catastrophic proportions under his watchful eye.

    Perhaps Mr. Geithner’s affinity for bailouts is actually a way for him—and other equally responsible bureaucrats—to somehow ameliorate his own involvement by appearing to solve the crisis that he personally helped to create (at taxpayers’ expense, of course).

    Equally concerning, however, is the fact that Mr. Geithner, who, if confirmed, would oversee the IRS, has repeatedly failed to pay significant portions of his taxes between 2001-2004, when he worked for the IMF.

    While the initial explanations may have at first seemed plausible—many self-employed persons make the same mistake—further examination shows that he not only received IMF tax notices, but also had to certify that he had paid his taxes on the IMF’s tax reimbursement form. In short, he lied.

    The truth is, he must have known what he was doing was wrong. And he may, in fact, have been intentionally duplicitous. Some background on his family’s financial situation at that point reveals that he may have been financially stretched at that point in time. And that may explain why, when confronted by the IRS for his 2003 and 2004 underpayments, he corrected only them, and did not touch his 2001 and 2002 underpayments until nearly two years later, when they were discovered by an Obama transition vetting team.

    Geithner defenders claim that he did not realize his mistake, but the evidence—the notices, the certification, the refunds, the audits—show that he knew, indeed. Add to that his employing alien workers, and at best, the tax fiasco paints him as incompetent and careless. At worst, as an intentional fraud. Either way, they disqualify him as Treasury Secretary.

    But, believe it or not, it gets even worse. As reported by Pajamas Media, mass media outlets may be propagandizing for Mr. Geithner because they are owned by firms that are recipients of billions of dollars of government bailouts. The Senate may be holding him to a different standard than prior female nominees. And President Obama’s reaction to his nominee’s tax scandal as an “embarrassment” shows an indifference to criminality that borders on chilling. Here’s how PJM summed it up in part:

    “Possible press conflicts of interest
    [14] Cliff Kincaid at Accuracy in Media points out that some press outlets are parts of larger firms with financial stakes in the financial bailout. Example: General Electric, which owns NBC, also owns bailout recipient GE Capital. GE CEO Jeffrey Inmelt is also on the New York Fed’s board.

    “Disparate treatment of previously pulled nominees
    Zoe Baird (Clinton, 1993), Kimba Wood (Clinton, 1993), and Linda Chavez (Bush, 2001) all had relatively minor or potential issues with self-employment taxes on household help. Geithner’s unpaid amounts were exponentially larger. Is there a whiff of male chauvinism in the air?

    “Barack Obama’s reaction
    No president in my lifetime would have dared to nominate Geithner. But “44? Obama calls Geithner’s problems a mere ‘embarrassment.’… It leaves you wondering if anyone in Washington knows or cares about the difference between right and wrong. We’re expected to overlook Geithner’s problems because he is supposedly the only person in a nation of 200 million adults who can do the job. Give me a break.

    “If he really knows the pertinent facts, Barack Obama’s ringing defense of Geithner should cause the American people to question his fundamental ‘15] judgment to lead.’”

    And to make matters almost absurd, McClatchy’s Greg Gordon reports that Mr. Geithner has had trouble managing his own personal finances in the past—calling into question whether he is capable of managing the nation’s finances:

    “Geithner earned $398,200 as president of the New York Fed, and the taxes might seem to be a minor issue for the couple. If their home purchases in earlier years are an indication, however, finances were more challenging earlier in the decade when the unpaid taxes may have been an issue.

    “The couple bought a home in the Washington suburb of Bethesda, Md., in 1992 for $275,000, taking a mortgage of $202,300. Through a series of refinancings and the sale of two properties, they climbed the economic ladder until they bought a house for $1.6 million in Larchmont, N.Y., in 2004.

    “All of the Geithners’ mortgages — from big banks including Nationsbanc, which is now Bank of America; Chase Manhattan, which is now J.P. Morgan Chase; and Wells Fargo — carried adjustable-rate mortgages with the risk that annual rate increases could raise their interest payments to as much as 11.25 percent, though the couple tended to refinance or sell their homes before ever they faced a rate adjustment.”

    Most of the foreclosures that led to the housing, mortgage, and thus financial crisis, as reported by the Independent Institute, were adjustable rate mortgages, exactly the same type of mortgages Mr. Geithner took out on his homes. If he was willing to take these sorts of risks with his own livelihood, what risks will he take with Treasury?

    At a time when the normally low-key Treasury Secretary is in the news more than the conventionally high-profile Secretaries of State and Defense combined, both Mr. Geithner’s personal ethical questions and his disgraced public policy views make him unqualified to serve.

    Overall, a vote to confirm Timothy Geithner to the U.S. Treasury is a vote of confidence in the Fed’s failed economic policies—and those of the greater government—that led to this crisis in the first place. Instead, the Senate should reject Mr. Geithner’s nomination—and ask Mr. Obama if he has at least one good friend he could send over to the Treasury who hasn’t evaded taxes and fould up his own financial nest.

    Isaac MacMillen is a contributing editor of ALG News Bureau.

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