In Lieu of Geithner

Said Obama: "In term number two,
For Treas'ry I want Mr. Lew.
I'll rely on his talents
To find fiscal balance,
And fight with Republicans, too."

It's reported that President Barack Obama will nominate Jacob ("Jack") Lew, his former budget director and current chief of staff, to succeed Timothy Geithner as Treasury Secretary.  As the mainstream media will tell you, this signals a change in focus from the global financial crisis that dominated the President's first term, toward budget fights with Congress, and long-term fiscal sustainability.  The Wall Street Journal characterizes Mr. Lew as "a veteran of numerous Washington budget battles, stretching back to his work as a senior congressional aide in the 1980s." Oddly, there is little initial signaling of congressional opposition to this proposed nomination, despite Mr. Lew's inflexible reputation and angry clashes with Republican aides during the 2011 debt ceiling fight. Former Senator Judd Gregg, a New Hampshire Republican, may have summed it up best: "He's a tough guy to negotiate with. He has his positions and he doesn't give much ground, though he's really a nice person."

Day of LIBOR Reckoning

Though collusion on rate executions
Was the norm in finance institutions,
When the tide quickly turned
Many bank traders learned
They would naturally face prosecutions.

The trouble with a culture of open financial fraud is that it leaves behind quite a paper trail in the unlikely eventuality that the authorities ever decide to crack down. So it is with the London Interbank Offer Rate-setting process, in regard to which US federal prosecutors and European regulators now intend to arrest individual traders on both sides of the Atlantic. Accounts differ as to how long the manipulation of LIBOR and related interest rates has gone on - some say 15 years - but central banking authorities in the US and UK have known of it since at least 2008. That was when staff members of the Federal Reserve Bank of New York discussed LIBOR with one or more traders who told them that their submitted rates were fake. Alarmed, then-FRBNY president Timothy Geithner sent off a "best practices" memo to Bank of England governor Sir Mervyn King, outlining ways to curb the abuses. Four years later, the media attention and public outcry have seemingly forced the hand of officialdom; against whom, we will soon hear.

From Geithner to King re: LIBOR

Some traders disclosed to the Fed
That LIBOR deceit was widespread;
The news reached Tim Geithner,
Who responded by writin' a
Quite well-stated memo, 'tis said.

In verbiage clear and concise,
Mr. Geithner dispensed his advice
To follow the fundin'
Of bankers in London
To find the most accurate price.

But the memo to King, while persuasive,
Is fairly alleged as evasive,
In its glaring exclusion
That traders' collusion
On setting of rates was pervasive.

Simon Johnson writes in his Baseline Scenario blog that the Federal Reserve Bank of New York may have missed an opportunity to inform its counterparts at the Bank of England of the LIBOR manipulation occurring back in 2008. Interbank traders active in the LIBOR-setting process had plainly admitted to the New York Fed that they gave self-servingly false indications of the rates at which their banks could fund themselves. Understandably concerned, the FRBNY's then-president Timothy Geithner spoke with the English central bank governor Sir Mervyn King, and followed up with a memo outlining his staff's recommendations for improving the LIBOR process. The memo, a model of brevity and clarity, outlines six proposals to improve the accuracy of LIBOR, which is based on funding rates reported by US and other international banks in the London market. Among the proposals: "Eliminate the incentive to misreport" by randomly selecting quotes from a subset of reporting banks.

What the memo did not mention was that the Fed already had admissions of fraudulent reporting from some of those banks. How might things have turned out differently if it had?

More Stimulus, Please

Said Tim Geithner, voicing complaint, 
"A premature fiscal restraint, 
While seemingly prudent,
As a Keynsian student
Can testify, certainly ain't." 

Post Mortem on the Dow's 1000-Point Drop

Said CFTC Chairman Gensler
To Geithner, "Are we among friends, sir?
(I'd like to say how
They whipsawed the Dow,
But I really don't think that I can, sir.)"

Mr. Geithner's Lingering Resentment

"The stimulus had its effects, 
And avoided some financial wrecks, 
But while saving the banks, 
Did I ever hear thanks 
As they cashed in their big bonus checks?"

Special thanks to guest contributor Andy Golub!

A Drop in the Bucket

Said Bernanke to Geithner, "I'm phonin' in
To say profits from TARP keep on rollin' in;
Here's 46 billion."
Said Tim, "Thanks a million!
So tell me: is Uncle Sam whole agin?"

Money Supply

"I'm afraid," said Bernanke to Geithner,
"The debt crisis still has lots of bite in 'er.
Though it may cause some ranklin',
We'll print lots more Franklins;
Let's loosen our money, not tighten 'er!"