Geithner and the NY Fed Code of Conduct
Geithner and the NY Fed Code of Conduct by David Kotok
January 18, 2009
David R. Kotok co-founded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in Economics from The Wharton School of the University of Pennsylvania, an M.S. in Organizational Dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a Masters in Philosophy from the University of Pennsylvania. Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron’s, and other publications. He is a frequent contributor to CNBC programs. Mr. Kotok is also a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), the Philadelphia Council for Business Economics (PCBE), and the Philadelphia Financial Economists Group (PFEG).
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We will start with two quotes.
“It is indispensable to the proper functioning of, and the maintenance of public confidence in, the Federal Reserve Bank of New York (“Bank”) and the Federal Reserve System (“System”) that every employee perform his or her duties with honesty, integrity and impartiality, and without improper preferential treatment of any person. Each employee has a responsibility to the Bank and to the System to avoid conduct which places private gain above his or her duties to the Bank, which gives rise to an actual or apparent conflict of interest, or which might result in a question being raised regarding the independence of the employee’s judgment or the employee’s ability to perform the duties of his or her position satisfactorily. Each employee should conduct his or her financial affairs with integrity and honesty. To ensure the foregoing, each employee, including all Bank officers, shall respect and comply with the principles and standards of conduct contained in this Code. An employee who needs assistance in interpreting the provisions of the Code or who desires additional information should contact the Bank’s Ethics Officer.”
Source: Code of Conduct, Federal Reserve Bank of New York.
“There will be false starts and setbacks, frustrations and disappointments. I will make some mistakes, and we will be called to show patience even as we act with fierce urgency.”
President-elect Obama, in Philadelphia, before he commenced his historic rail trip to Washington.
We thank our readers for the many emails regarding the nomination of Tim Geithner for Treasury Secretary. His hearing is scheduled for January 21, one day after our newly elected President Obama officially takes office. Remember that this is the new US Senate at work, too. Many eyes around the world are watching to see how they handle this hearing, now that the facts around the Geithner tax scofflaw behavior have been disclosed.
Our email and conversations have revealed several things. The email critical of Geithner and suggesting that his name should be withdrawn is consistent and in high volume. He has no defenders. Only two emailers responded that this is not a “big deal” and “what difference does it make,” since all the politicians are like that.
Most emailers did not extend the error to Obama. They noted that Obama’s staff people and vetting process were at fault for letting the nomination proceed, but they were not ready to extend Geithner’s apparent judgment error to the new President. Obama enjoys the “honeymoon” status that most observers affirm.
One member of Congress I spoke with noted how appalling this Geithner revelation is and that “it is no wonder” the public holds “such a low opinion of politicians.” Several political staffers said the same. All of this was “off the record.” After all, no one in Washington wants to publicly alienate the future Treasury Secretary in case Geithner gets confirmed.
A former IMF employee noted how they were advised about these taxes repeatedly and in writing and that the IMF was very proactive in getting tax compliance from its staff. They saw Geithner’s excuse as lame and they found his claim of innocence “inconceivable.” The IMF has confirmed the story about the written documentation that they gave out.
Federal Reserve officials are silent on this matter, as they must be. And the board of the New York Fed is silent as well, even as they conduct a search for Geithner’s replacement. There are six names in play for the NY Fed presidency; they include prominent NY Fed senior officers. The Fed’s Washington-based Board of Governors has its input into this replacement choice and is also publicly silent.
The Geithner affair has become an embarrassment to the Federal Reserve. We can expect the vetting process for new Fed presidents and governors to become more intense as a result. In a way this is a good thing. Obama will be appointing several more Fed governors and has the option to replace Bernanke as chairman within a year. We will not see any more tax scofflaws holding Fed positions.
Several readers commented on the double standard that would prevail if Geithner is confirmed. They recalled the facts around the “pulled” judicial appointments of Kimba Wood and Zoe Baird for the judicial vacancies at that time. In the case of Wood, she paid her taxes legally and on time and she violated no law. She did employ a “nanny” who was an undocumented person (illegal alien status). Perception alone was enough to end her consideration for the nation’s highest court.
The Geithner affair is now in the hands of the US Senate. They have heard from the press (lots of critical editorials and letters to editors). They are aware of the facts. And they know that the world is seeking a new and trustworthy level of integrity and transparency in the post-Lehman, post-Madoff environment. Senators know that the qualities of good character and sound judgment are needed by the Treasury Secretary. Senators also know from the behaviors within their own ranks that the tests of character and judgment are most profound when they are determined by behavior that occurs when no one is watching.
The only open item is whether the Senate has heard from you. Email is nice and easy but a phone call with a message to a Senator’s office carries a lot more weight. Politicians know that emails are easily sent. They have greater respect for constituents who pick up the phone. The US Capitol switchboard number is (202) 224-3121. If you do not know the name of your Senator, ask the operators; they will help you. The same is true for your Congressman. They can connect you to an office so that you may leave a message.
We close by remembering an interpretation of an ancient text.
God was talking with Adam in the Garden of Eden. He was describing all the trees that would be in the world since they were all there for Adam to see in that special garden. The trees were the metaphor for all the decisions that men and women would be making in the future. Adam asked God what he was going to do with the trees. God replied, “I am going to give them to you. What you do with them will be your decision.”
On January 21 a piece of a tree will gavel a Senate hearing to order. Tim Geithner’s confirmation or rejection will be determined. And then newly inaugurated President Obama will see if his Philadelphia quote was prescient.
Readers who wish may find the full 15 page Code of Conduct of the NY Fed on the New York Fed website by searching under the words “code of conduct.”
David R. Kotok, Chairman and Chief Investment Officer, email: david.kotok -at- cumber.com
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Copyright 2008, Cumberland Advisors. All rights reserved.
The preceding was provided by Cumberland Advisors, 614 Landis Ave, Vineland, NJ 08360 856-692-6690. This report has been derived from information considered reliable but it cannot be guaranteed as to its accuracy or completeness.
For a list of all equity sales/purchases for the past year, please contact Therese Pantalione at 856-692-6690, ext. 315. This report is currently about 600 pages in length. It is not our intention to state or imply in any manner that past results and profitability is an indication of future performance. This does not constitute an offer to sell or the solicitation or recommendation of an offer to buy or sell any securities directly or indirectly herein.
Cumberland Advisors supervises approximately $1 billion in separate account assets for individuals, institutions, retirement plans, government entities, and cash management portfolios. Cumberland manages portfolios for clients in 42 states, the District of Columbia, and in countries outside the U.S. Cumberland Advisors is an SEC registered investment adviser. For further information about Cumberland Advisors, please visit our website at www.cumber.com.
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January 19th, 2009 at 10:01 am
Hopefully the conduct of existing officials such as Chris Cox, Alberto Gonzalez, Dick Cheney, George Bush and the numerous minions will not go unpunished. Mr. Kotok’s political leanings are very clear. Bringing God into the equation is another example of the hypocrisy spewed by the right.
January 19th, 2009 at 10:55 am
Put me down in the middle: Mr. Geithner is yet another human being who has not been aggressive enough in meeting his social obligations.
However, his nomination for Treasury is NOT meant primarily as an honor; it is Mr. Obama’s attempt to put the most capable individual into a position where he can help the people of the United States. Lose sight of that objective, and you get a bunch of people whose moral codes and practices can safely go unwatched, because you expect no good to come from the office anyway. A soon-to-be recent administration comes to mind.
All very good for Mr. Kotok and all to tell us what fine people they want our public servants to be; meanwhile, we have a government to run here and it would be good to hear who would be more capable than Mr. Geithner — surely, out of 300 million Americans, somebody? — and also help us encourage the well-off to pay the full amount of taxes they owe, something that I think has been slipping over the past decade or so.
January 19th, 2009 at 11:22 am
No need to wonder, we now know that the NY Fed is a Supply Side money laundering pizza place.
January 19th, 2009 at 12:52 pm
The subject Mr. Kotok raises is whether an admitted tax cheat should be confirmed by the Senate to be the next Treasury Secretary at a time when trust and confidence in the system has been shattered. Obama should welcome the debate. So should we all, regardless of our political leaning. The last thing America needs is for the global community to lose confidence in Obama or his cabinet/advisor selections.
Ignoring the topic raised by Mr. Kotok completely, and using the forum instead to advance your idea that heads need to be lopped off members of the current administration, adds nothing to the debate.
It does, however, make you look like a moron.
January 19th, 2009 at 2:18 pm
A debate is one thing but this letter is far from a debate offering. He is openly calling for the reader to call Congress to NIX the appointment. This is the goal, to have the appointment nixed. I am not defending Geithner simply questioning the true motives conveyed here.
January 19th, 2009 at 2:36 pm
I agree with Groty.
Equivocations like that of WaltFrench really make my stomach turn. The guy deliberately took money to pay a tax he acknowledged he owed, repeatedly, then kept the money and filed fraudulent returns for several years. This is not some gray area.
Should we take from this that you yourself regularly cheat on your taxes, and so don’t see a problem when someone else does?
I am a life-long Democrat, and in 15+ elections have never voted for a Republican. But this minimizing of deliberate tax fraud, at a time when taxpayers are asked to pony up for the hundredth bailout, is really pi$$ing me off. And my wife, who is politically to my left (yes, it’s possible) is even more pi$$ed off than I am.
Moss, what debate have you offered a refutation of the facts presented? No, some idiotic, vague finger pointing.
January 19th, 2009 at 2:46 pm
Well, I guess if God is mad at him, then he shouldn’t be confirmed….WTF?
January 19th, 2009 at 2:52 pm
If these statements about the IMF are really facts then they will all come out in the hearing. I am sick of the tit for tat politicization of everything. Here is some additional reading material for all you true believers.
U.S. TREASURY BANK REGULATORS HELPED INDYMAC (AND PROBABLY OTHERS) COMMIT FRAUD
http://abcnews.go.com/print?id=6658365
Darrel Dochow May Not Be the Only Official Who Helped Banks Hide Financial Problems
A brewing fraud scandal at the Treasury Department may be worse than officials originally thought.
Investigators probing how Treasury regulators allowed a bank to falsify financial records hiding its ill health have found at least three other instances of similar apparent fraud, sources tell ABC News.
In at least one instance, investigators say, banking regulators actually approached the bank with the suggestion of falsifying deposit dates to satisfy banking rules — even if it disguised the bank’s health to the public.
Treasury Department Inspector General Eric Thorson announced in November his office would probe how a Savings and Loan overseer allowed the IndyMac bank to essentially cook its books, making it appear in government filings that the bank had more deposits than it really did. But Thorson’s aides now say IndyMac wasn’t the only institution to get such cozy assistance from the official who should have been the cop on the beat.
The federal government took over IndyMac in July, after the bank’s stock price plummeted to just pennies a share when it was revealed the bank had financial troubles due to defaulted mortgages and subprime loans, costing taxpayers over $9 billion.
Darrel Dochow, the West Coast regional director at the Office of Thrift Supervision who allowed IndyMac to backdate its deposits, has been removed from his position but he remains on the government payroll while the Inspector General’s Office investigates the allegations against him. Investigators say Dochow, who reportedly earns $230,000 a year, allowed IndyMac to register an $18 million capital injection it received in May in a report describing the bank’s financial condition in the end of March.
“They [IndyMac] were able to maintain their well-capitalized threshold and continue to use broker deposits to make loans,” said Marla Freedman, an assistant Inspector General at Treasury. “Basically, while the institution was having financial difficulty, it kept the public from knowing earlier than it otherwise should have or would have.”
Critics Point to Cozy Relationship Between Banks and Regulators
In order to backdate the filings, IndyMac sought and received permission from Dochow, according to Freedman.
“That struck us as very unusual,” said Freedman. “Typically transactions are to be recorded in the period in which they occur, not afterwards. So it was very unusual.”
One former regulator says Dochow’s actions illustrate the cozy relationship between banks and government regulators.
“He did nothing to protect taxpayers in losses,” former federal bank regulator William Black told ABC News. “Instead of correcting it [Dochow] made it worse by increasing the accounting fraud.”
Meanwhile, IndyMac customers who lost their savings are demanding answers and are further infuriated after learning Dochow was also the regulator in 1989 who oversaw the failed Lincoln Savings and Loan, a scandal that sent its CEO Charles Keating to prison.
“He’s the person that claimed that he looked into Charles Keating’s eyes and knew that Charles Keating was a good guy and therefore ignored all of the professional staff that told him that Keating was a fraud, and he produced the worst failure of the Savings and Loan Crisis at $3.4 billion. Now he’s managed more than triple that,” said Black, now an economics professor at the University of Missouri in Kansas City, Missouri.
Following the Lincoln scandal, Dochow was demoted and placed into a relatively obscure office, but later, inexplicably was brought back into the Office of Thrift Supervision.
Dochow declined to answer questions from ABC News.
IndyMac Customers Furious
After Ronnie Lopez was killed in Iraq, his mother Elaine invested the $37,000 she received in life insurance at IndyMac. She lost all of it.
“I was hysterical,” she told ABC News. “I literally thought I was going to kill myself that day, because I felt so bad that I had let him down. I remember going to his grave and telling him “don’t worry, I’m going to get that money back’, and I feel like he was saying ‘hey mom, don’t let them take that. I did the ultimate for that’.”
A group of angry investors has started a website, demanding answers on the extent of Dochow’s actions.
“It’s just the strife and anger,” said IndyMac customer Lisa Marshall. “That this Dochow person is still employed, it’s unbelievable, it’s shocking.”
While Dochow could end up losing his job, neither he nor his colleagues are expected to go to prison.
“This is criminal with the small ‘c’,” said Black. “No one within the regulatory ranks may go to jail, but they have done the worst possible disservice to the taxpayers of America.”
http://abcnews.go.com/print?id=6658365
January 19th, 2009 at 2:57 pm
Quite a cogent argument, Moss.
The facts are irrefutable to anyone not an ideologue.
See: http://finance.senate.gov/press/Bpress/2009press/prb011309d.pdf
January 19th, 2009 at 3:01 pm
Kudos David. Here’s the link to my interview on CNN Money on Geithner that broke a few minutes ago:
http://cnnmoney.com/video/#/video/news/2009/01/19/news.whalen.011908.cnnmoney
More soon.
Best,
Chris
January 19th, 2009 at 3:16 pm
Everyone keeps saying that we need Tim Geithner – what specifically does he bring to the table that others wouldn’t.
To understand what he brings, I looked for an exhaustive resume on the Internet and couldn’t find one. How did this guy end up running the NY Fed – there’s no clear indication of the successes or programs that he had that led him to his current position?
At least with Tech, I know that BillG had a rooting in code or that Jobs was a visionary – does banking not work on meritocracy?
Ted
January 19th, 2009 at 6:09 pm
Mr Geithner appears to have evaded taxes for 2 years. It may be that the statute of limitations has run out; nonetheless, how can we trust a man who appears to have evaded taxes to faithfully discharge the position of Secretary of the Treasury? I can’t trust the man. It is my view that President Elect Obama should withdraw his name.
January 19th, 2009 at 9:29 pm
TedS
Good question. Honestly, the only thing he has done that is written about is having been present when Bear Stearns was given to Chase. Forgot, it is written that Summers likes him. And also noted that he is not afraid to speak up. How about Corzine?
January 19th, 2009 at 9:29 pm
The only open item is whether the Senate has heard from you. Email is nice and easy but a phone call with a message to a Senator’s office carries a lot more weight. Politicians know that emails are easily sent. They have greater respect for constituents who pick up the phone. The US Capitol switchboard number is (202) 224-3121. If you do not know the name of your Senator, ask the operators; they will help you. The same is true for your Congressman. They can connect you to an office so that you may leave a message.
Ha! Just 15 years ago they would say a phone call is easy but your politicals would really stand up and take notice of a letter because that takes effort. Times certainly have changed. I guess the few nickles that someone pays to chew off the ears of a message board person equals to value.
I guess you could write a letter but by the time it gets to Washington the issue will already be settled and I doubt anybody would know what a letter was and what to do with it once it arrived. They’d have to call up 60 year old Joe the janitor from one of the basements to help them to first figure out how to open and then interpret the strange piece of….what did you call it?…..paper?
January 19th, 2009 at 11:02 pm
The arrogance by our so-called “leaders” continues.
January 20th, 2009 at 7:45 am
As an uber liberal (or more accurately, a socialist seeking alpha), I think Geithner’s nomination should be pulled. Just swap Romer or Summers for Geithner and problem solved.
January 20th, 2009 at 9:19 am
I think this shows just how our gray material has turned to cat litter.
We are talking about a guy who wants to be appointed as Treasury Secretary of the United States who cheats on his taxes or at least plays ignorant to the tax laws if it will save him a few bucks.
I also don’t understand the sound-byte that I continue to hear that “he is the man for the job”. The last time of checked, Paulson is not being praised as any financial genius for the work he has done. Wasn’t Geithner right there at the right hand of Paulson while all of this was going on?
I think Geithner is connected to certain players on Wall Street and THAT is why he is considered to be the man for the job. Whether he is honest or not when no one is looking is of no real significance.
The IRS would throw you or me out in the damn snow for $50 bucks if it had to; but, this guy skirted around paying (what was it?) $34,000 in taxes!! There are a lot of people in Middle America that don’t even make $34,000 in revenue much less taxes due! And we are supposed to endorse this guy for freaking Treasury Secretary??? Not Dog Catcher….TREASURY SECRETARY of the United States. This whole thing is actually quite hillarious if you just think about it for a minute. Treasury Secretary……Unfucking believable!! Only in America can this kind of crazy-ass thing pose for reality (and be energetically debated, I might add).
January 20th, 2009 at 10:44 am
Every time we give out a “pass” to a public servant, we tell the next generation “‘cutting corners’ won’t hold you back”.
As much as I sympathize with you, Moss, there have got to be other candidates floating around.