Geithner Needs To Grow a Pair

This has not been a good week for Treasury Secretary, Timothy Geithner. It is now coming to light that not only did he know about the AIG bonuses before last week, he and Larry Summers pressured Senator Dodd to add an amendment to the stimulus package that, in effect, protected the bonuses. Then he pinned it on Senator Dodd.  Timeline, via HuffPo.

In general, cooler heads should prevail in these tense and uncertain times, but Geither comes across as rather too reticent and/or mild. Unlike Obama, who is unflappable but no pushover, Geithner is emerging as something of a doormat. We need someone to take a stand and make a symbolic gesture to right all this corporate malfeasance, not underwrite it.

AIG's argument is that the problem is so esoteric and complex that none but their own can unravel it. Wasn't that essentially the same reason Bernie Madoff was able to run his Ponzi scheme -- his brilliance was of such a high order that his methods were completely opaque and beyond scrutiny, making him a "wizard"?

Geithner bought wholesale AIG's claims that they needed to retain their "best and brightest" in order to understand the contraption the Financial Products unit had built, made of algorithms, fairy dust and 401ks. We can understand the structure of DNA, pinpoint the gene responsible for Parkinson's, invent a polio vaccine, clone sheep and put robots on Mars, yet we cannot find people outside of AIG who are smart enough to decode the subroutines dreamt up by a few rogue derivatives traders? Does it even matter? Those algorithms were fraudulent to begin with. Garbage in, garbage out. And at the end of the day, isn't it essentially going to boil down to forensic accounting like it did for Enron? No one from Enron hung around to help clean up. A couple of them even croaked. But the Feds still got to the bottom of it.

I'm no expert on derivatives trading or the economy, but if you sent in, say, the dynamic duo of Henry Paulson and Eliot Spitzer -- both of whom need jobs -- along with a crack team of economists, lawyers and other credentialed eggheads to dig through the AIG muck, they'd get the task done. With their expertise and no bullshit management style, they'd produce results, with or without AIG's cooperation. Sure, they're unpopular and unlovable and it'd be a bit of a PR nightmare, what with Spitzer's extramarital dalliances with ladies of the night, but is the public's rapidly waning confidence in Geithner any better than that?

Instead of public hand-wringing over legal roadblocks invented by himself, Geithner needs to start playing some serious offense, even at the risk of offending a few dozen precious derivatives traders and their lawyers. Fire the clowns and send in the A-team. If he assigns a high-profile, independent team of experts to clean up the mess, Geithner will be freed up to do the most important part of his job, which is fix the economy.