Monday, April 27, 2009

NYT: Geithner's Clubby Relationship with Wall Street's Power Elite

NYT's Jo Becker and Gretchen Morgenson fill in a lot of detail in the obvious close, relationship Geithner has with Wall Street's power elite (as especially with Goldman Sachs employees and former Goldman Sachs employees):

He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele Davis, then an assistant Treasury secretary....“People thought, ‘Wow, that’s kind of out there,’ ” said John C. Dugan, the comptroller of the currency, who heard about the idea afterward

[As New York Fed president] He was the federal regulator most willing to “push the envelope,” said H. Rodgin Cohen, a prominent Wall Street lawyer who spoke frequently with Mr. Geithner.


An examination of Mr. Geithner’s five years as president of the New York Fed...
shows that he forged unusually close relationships with executives of Wall Street’s giant financial institutions.

His actions, as a regulator and later a bailout king, often aligned with the industry’s interests and desires, according to interviews with financiers, regulators and analysts and a review of Federal Reserve records.


His calendars from 2007 and 2008 show that those interactions were a mix of the professional and the private.

He ate lunch with senior executives from Citigroup, Goldman Sachs and Morgan Stanley at the Four Seasons restaurant or in their corporate dining rooms. He attended casual dinners at the homes of executives like Jamie Dimon, a member of the New York Fed board and the chief of JPMorgan Chase.

Mr. Geithner was particularly close to executives of Citigroup, the largest bank under his supervision. Robert E. Rubin, a senior Citi executive and a former Treasury secretary [and former Goldman CEO], was Mr. Geithner’s mentor from his years in the Clinton administration, and the two kept in close touch in New York...

While the New York Fed’s rules do not prevent its president from holding such one-on-one meetings, that was not the general practice of Mr. Geithner’s recent predecessors, said Ernest T. Patrikis, a former general counsel and chief operating officer at the New York Fed.

“Typically, there would be senior staff there to protect against disputes in the future as to the nature of the conversations,” he said.


In fashioning the bailout, his drive to use taxpayer money to backstop faltering firms overrode concerns that such a strategy would encourage more risk-taking in the future. In one bailout instance, Mr. Geithner fought a proposal to levy fees on banks that would help protect taxpayers against losses.

The bailout has left the Fed holding a vast portfolio of troubled securities. To manage them, Mr. Geithner gave three no-bid contracts to BlackRock, an asset-management firm with deep ties to the New York Fed.


Mr. Geithner played a pivotal role in the next bailout, which was even bigger — that of the American International Group, the insurance giant whose derivatives business had brought it to the brink of collapse in September. He also went to bat for Goldman Sachs, one of the insurer’s biggest trading partners...

A.I.G.’s chief executive at the time,Robert B. Willumstad, said he had hired bankers at JPMorgan to help it raise capital. Goldman Sachs had jockeyed for the job as well, but because the investment bank was one of A.I.G.’s biggest trading partners, Mr. Willumstad rejected the idea. The potential conflicts of interest, he believed, were too great.

Nevertheless, on Monday, Sept. 15, Mr. Geithner pushed A.I.G. to bring Goldman onto its team to raise capital, Mr. Willumstad said.

Mr. Geithner and Mr. Corrigan, a Goldman managing director, were close, speaking frequently and sometimes lunching together at Goldman headquarters. On that day, the company’s chief executive, Lloyd C. Blankfein, was at the New York Fed.


Mr. Geithner has also faced scrutiny over how well taxpayers were served by his handling of another aspect of the bailout: three no-bid contracts the New York Fed awarded to BlackRock, a money management firm, to oversee troubled assets acquired by the bank.

BlackRock was well known to the Fed. Mr. Geithner socialized with Ralph L. Schlosstein, who founded the company and remains a large shareholder, and has dined at his Manhattan home


According to a recent report by the inspector general monitoring the bailout, Neil M. Barofsky, Mr. Geithner’s plan to underwrite investors willing to buy the risky mortgage-backed securities still weighing down banks’ books is a boon for private equity and hedge funds but exposes taxpayers to “potential unfairness” by shifting the burden to them.


  1. Hi Robert -

    It was very nice of you to blog my piece on living without health insurance. I appreciate it.

    I actually do think relatively simple things can improve health care - without any further government programs. High costs are a result of a third party picking up the tab, which sets up all sorts of incentives for raising the price tag...

    By the way, re the New York Times piece, the part I thought was curious but seems to have been missed by the blogosphere is the reference to Blackrock.

    Blackrock's CEO is Pete Peterson, whose foundation, the Peterson Institute, focuses a lot on the debt but a lot less on the Federal reserve. Peterson was NY Fed Reserve Chairman from 2000-2004 - thus he was Geithner's predecessor there.

    I think that's what needs exploring...


  2. Lila,

    Very good point re:Peterson.

    It is also interesting that NYT did not connect the dots on it, given NYT's story is all about Geithner's cozy relationships.

  3. Sorry - I misstated that...

    BlackRock is right but it's a spin off from Blackstone, which is what Peterson chairs. So, please correct that.

    Larry Fink who runs BlackRock originally ran it as part of Blackstone, if I understand that right..

    So that's the affiliation..
    Plus BlackRock is linked to the NY Fed through Peter Fisher...

    but my earlier statement was a slip up..sorry

    going back and forth trying to check how these things are interrelated is confusing

  4. BlackRock or Blackstone, it's all the same bloodline.

  5. Though not mentioned in the press release, Mink comes from Blackrock. I guess as head of the FRNY human resources dept, she'll be responsible for hiring the appropriate underlings.


    New York Fed Names Susan Ward Mink Executive Vice President and Head of Human Resources
    July 20, 2009

    NEW YORK—Susan Ward Mink has been named executive vice president of the Federal Reserve Bank of New York and head of the Bank’s newly formed Human Resources Group. She will serve on the Bank’s Management Committee. Ms. Mink’s appointment was made by the Bank’s board of directors and was effective July 13, 2009.

    William C. Dudley, president and chief executive officer of the New York Fed, said, “The creation of this new executive position at the Bank reflects the great importance we attach to the recruitment, retention and development of a diverse and highly capable staff who are essential to carrying out the Bank's mission.”

    Ms. Mink has more than thirty years of experience as a human resources professional, working in senior positions in banking, investment banking and insurance. At the New York Fed, Ms. Mink will work with senior management to support the recruitment, retention and development of outstanding talent and identify and develop the next generation of leaders for the Bank.

    Ms. Mink received her bachelor’s degree in history and Russian area studies from Pennsylvania State University.

    Ms. Mink currently resides in New Jersey with her husband and two sons.