While members of the LaRouche Political Action Committee rallied outside, Timothy Geithner, in his two-hour appearance before the House Finance Committee today, was confronted with calls for the reinstatement of Glass-Steagall, and forced to admit that despite his knowledge of criminal fraud being carried out in fixing the LIBOR rate, he failed to make a criminal referral to the Department of Justice, as required.
Geithner's appearance today was preceeded by news that the former CEO of CitiGroup, Sandy Weill, known as the "Shatterer of Glass Steagall," had effectively called for the reinstatement of Glass- Steagall. The appearance was also preceeded by news coverage in the New York Times, which quoted the former special counsel of the the Federal Financial Crisis Inquiry Commission (FFCIC) as saying that Geithner had an obligation to make a criminal referral, and by news coverage in the Washington Post quoting Neil Barovsky saying that Geithner used the LIBOR rate, which he knew was fraudulent, to determine how much AIG had to pay back to the government and to set the interest rate for the TALF.
As the hearing opened, Rep. Carolyn Maloney (D-NY) began by reporting on Weill's call for the reinstatement of Glass- Steagall (without naming it — see slug), describing it as "absolutely huge." She said, "I feel that that is a very strong statement, stronger than the Volcker Rule, calling for the strictest Volcker Rule possible, a return really to Glass-Steagall." She then asked Geithner, "I would like a detailed answer in writing on what does this mean to the financial crisis if investment banking and banking had been separated, what would that have meant for AIG, for Bear Stearns, for Lehman, for Wachovia, for all the big banks."
Rep. Walter Jones (R-NC) stated that "the two worst votes I made in the 18 years I've been in Congress were, the Iraq war, which was very unnecessary, and the repeal of Glass-Steagall." He then asked Geithner, in light of reported losses at JPMorgan, "Isn't it time to have a discussion and debate about the reinstatement of Glass-Steagall?" Jones also added that he had joined Rep. Marcy Kaptur in cosponoring HR 1489, which calls for reinstating Glass-Steagall, and called for a hearing in the committee on the measure.
Later in the hearing Rep. Bill Huizenga (R-Mich) also asked Geithner for his response to Weill's call. Rep. Stephen Lynch (D-Mass) also raised Weill's call during his questioning. And Rep. Steve Pearce (R-NM) asked for a copy of Geithner's response, as requested by Maloney, to Weill's call.
Snake that he is, in answer to Jones Geithner came out against reinstating Glass-Steagall by arguing that it had been considered during the deliberations on Dodd-Frank, which he described as "tough" legislation. He then appealed to the Congressmen to "give those reforms a chance to take effect and work."
At the same time Geithner was repeatedly confronted with his criminal complicity in the cover-up of the LIBOR fraud.
Rep. Spencer Bachus (R-Ala) asked Geithner, when did he report the LIBOR rate fixing to the Treasury and to the Department of Justice, and to whom? Geithner avoided answering the question in respect to the Department of Justice and instead said that he had reported it to the President's Working Group on the Financial Markets in 2008, when he was head of the New York Federal Reserve. Bachus followed up by asking the question raised in the Washington Post by Neil Barovsky, as to why he used the LIBOR rate, which he knew was fraudlent, for AIG and TALP. Geithner's answer was: "We chose LIBOR at that point, as did many others."
Rep. Jeb Hensarling (R-Texas) followed up on this line of questioning by pointing out that Geithner's "early response" to knowledge of the LIBOR rate-fixing "was to keep using it." He also took issue with Geithner's statement that "it was our best choice." Hensarling said: "How can a number you know was manipulated be the best choice?" Hensarling also forced Geithner to admit that he was not obligated to use the LIBOR rate.
Other Republicans followed suit. Rep. Garret (R-NJ) told Geithner that he cannot have cake and eat it too, pointing out that he had never once mentioned to the committee, in multiple appearances, that the LIBOR rate was fixed. Nor had he mentioned it during the entire debate over Dodd-Frank.
Rep. Randy Neugebauer (R-Texas) revealed that there are reports of emails about the fixing of the LIBOR rate dating back to the fall of 2007. Geithner claimed that he only remembered hearing about it in 2008, but said that he is reviewing his earlier emails. Neugebauer stressed that what was involved was not merely a structural problem but was fraud, and, referring to the comments by the former special counsel to the FFCIC, asked Geithner, did he not have an obligation to make a criminal referral?
While a number of Democrats were soft on Geithner's responsibility for LIBORgate, in some cases trying to blame it on the Bush administration and thus let Geithner off the hook, Brad Miller (D-NC) pointed out that the emails reveal not just an opportunity for manipulation of the rates, but an actual criminal act. He then repeated the question first posed by Bachus, which Geithner did not answer. Did you report this to Justice? Geithner initially tried to squirm out of answering the question by saying that he did not know what the NY Fed staff did. But Miller pressed him and asked specifically whether he, Timothy Geithner, had reported it to the Justice Department. Geithner's answer says it all: "No, I did not."
As he was waiting in line to get into the hearing, former New York State Governor and Attorney General Eliot Spitzer remarked that Weill's about face is a "game-changer."