In the Cafe this morning, Institutional Risk Analyst Chris Whalen lobs a hand grenade at the nomination of Tim Geithner to Treasury Secretary.

It is this morning’s must read.

What Barack Obama Needs to Know About Tim Geithner, the AIG Fiasco and Citigroup

Category: Bailouts, Credit, Derivatives

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

15 Responses to “Tim Geithner and the AIG, Citigroup Fiasco”

  1. Jim C says:

    Your website looks like someone went and changed all the fonts to random sizes. It is very…um…strange looking.

  2. Jim C says:

    To follow up, issue doesn’t appear in Chrome, so I’m gonna guess it is Internet Explorer related.

    What I see is that as each story appears on your front page, the fonts get bigger. Each successive story is bigger. It’s pretty funny.

  3. Gene says:

    Wonderful and well reasoned argument.

    Why do the specs deserve even pennies on the dollar? Some excellent and well principled investors were hung out to dry over a curious FDIC seizure this weekend of at least one seemingly solvent entity. Why crush the good and allow the dastardly to run away with any money at all?

    If we are going to go this far, cancel the spec CDS contracts completely.

  4. Gene says:

    @Jim C

    I see some issues with FireFox 3.0.4 layouts as well. It looks like the style sheets are a bit messed up. The right hand column of links scrolls well below the footer. On my layout, everything below the Powered By Feedburner bitmap/link is below the top of the footer.

  5. mike j says:

    I’m seeing the same font issue with IE6 at work and saw it with Opera 9.1 at home. Haven’t checked with Firefox, yet.

  6. msecc says:

    It seems to be a problem on only the ‘Big Picture’ tab… the other tabs fonts are fine…

  7. inthewoods says:

    Excellent article – I have two questions on it:

    - The article makes the claim that the current bailout philosophy put forward by Paulson is also put forward by Geithner. My only question is this: to what extent do we know (from quotes or other sources) that the two are locked at the hip? I’m just curious if there is any separation between the two.

    - My very limited understanding of the CDS market has this idea that the notional amount of risk in the current contracts is often offset by other contracts. Is that factored into the analysis?

  8. Cesar@Doddsvilleinvestments says:

    I saw Whalen this morning on CNBC and he had really compelling arguments. Very few people right now are coming out and giving reasons for anything they are suggesting other than “gut” or some other bullcrap arguments like “back in the 80′s this company survived” and the like. This scenario hasn’t been seen since at least the 29-32 period so trying to frame the banking crisis in other time frames is just wrong.

  9. KJ Foehr says:

    Imo, muddling along using the Paulson/Geithner model of financial rescue is preferable to crashing into a deep hole from which the when and how of our emergence is a huge unknown.

    The path we each prefers to “rescue” the economy depends on our political and economic philosophy. The free-marketeers and libertarians seem to prefer the crash and burn scenario, while the majority of less ideological people prefer a more moderate approach that temporally incorporates socialistic remedies in order to minimize the pain inflicted on Americans who are not accustomed to it and may not accept it as well as previous generations did.

    Many free-marketeers now appear to want to let the entire house of cards they constructed over the past 25 years to collapse. The more reasonable among us prefer to prevent a complete collapse so that many more people are not buried under its rubble.

    IMO, this is not a time for ideology. Muddling through is much better than causing much more pain through further laissez-faire induced, self-inflicted wounds.

  10. KJ Foehr says:

    Barry, the selection criteria on that spam filter seem to be very stringent. What did I say that was “inappropriate” this time? You can just toss the comment if you want. I don’t think it will be well received here anyway, and it’s just my bullcrap opinion / gut feeling.

  11. Byno says:


    The notional principal is offset by seller of the protection (I’m not using the actual terms for user-friendliness). As such, there is not necessarily an equal amount offsetting. Let’s use a real example:

    I’m a hedge fund, and you’re an I-Bank trying to offset your exposure to those shitty car bonds you took on to keep your cash management business with shitty car maker. I’m the hedge fund, and I know that, in the aggregate, BBB bonds default at a rate of 15%. I have a huge swath of BBB bonds, so I only reserve 15% of the capital and – wala – I’ve made this deal at nearly 7x leverage.

    But, oh shit, my shitty car bonds from shitty car maker go tits up along with a whole bunch of other shitty bonds in other shitty industries at the same time. Now, I default, and we have the magical “double default” that is blowing up the system (the bonds default, default one, then I default because I don’t have enough reserves, default two).

    ISDA’s doing their damndest, but you it’s pretty hard to ride to the rescue when I can use $5 to lose $75 (which is about par for the course; the above deal is actually fairly tame). Oh, and to answer your question, no, there’s not an equal amount offsetting CDO’s. Remember, you’re offsetting default risk, not swapping fixed for floating or something along those lines.

  12. scorpio says:

    yes, The Git is Rubin/Summers/Paulson/Greenspan Wall St messenger boy. so what? crony capitalism must be bailed out, there is no alternative. the only question is, will you have to write an essay about why u need the money, a la the automakers? The Git wont ask that of Wall St because he knows those guys are REALLY REALLY smart, and there’d be lots of numbers in it and he wouldnt understand it anyway, SO JUST GIVE THEM THE MONEY. everybody else, pick up your pens

  13. 10 cc says:

    “If you look at how the Fed and Treasury have handled the bailouts of Bear Stearns and AIG, a reasonable conclusion might be that the Paulson/Geithner model of political economy is rule by plutocrat.

    Facilitate a Fed bailout of the speculative elements of the financial world and their sponsors among the larger derivatives dealer banks, but leave the real economy to deal with the crisis via bankruptcy and liquidation.”

    Hard to sum it up much better than that.

  14. me says:

    So Whalen is now smarter that Geithner? Somehow an investment analyst, risk manager on CNBC is probably not someone I would put a lot of stock in.

  15. me says:

    And in this corner FOR Geithner (someone I HAVE heard of) Brad Setser:

    “As Calculated Risk notes, before moving to New York I worked for Mr. Geithner at both the Treasury and the IMF. Mr. Geithner was, by the end of the 1990s, in charge of Treasury’s International Affairs division, so almost everyone who worked there — Tim Duy and Nouriel Roubini to name two — also worked for Mr. Geithner. At the IMF, Mr. Geithner encouraged the IMF to pay more attention to balance sheet vulnerabilities — and helped to push a paper I worked on with a group of talented young IMF economists through the IMF’s internal review process.

    It consequently is no surprise that I am thrilled that Mr. Geithner looks to be Obama’s choice for Treasury Secretary. I am also pleased that President Obama also found a way to pull Dr. Summers — a voracious consumer of economic and financial analysis, including economic and financial blogs — into the administration. The current, severe crisis will provide plenty of work for both. Like Noam Scheiber, I hope that the combination of Dr. Summers’ intellectual creativity and Mr. Geithner’s disciplined analysis and political acumen proves fruitful. I suspect that Felix is right.”