In an Awkward Turn of Events: Kilroy Exposes Geithner

On Tuesday revelations on the depth of Treasury Secretary Timothy Geithner's complicity in disguising the instability of collapsed investment services titan Lehman Brothers were exposed in a hearing held by the House Financial Services Committee. The hearing had been called for by Congresswoman Mary Jo Kilroy as part of the Ohio Democratic Party's strategy to place blame for Lehman Brothers's collapse on Republican gubernatorial candidate and former Columbus-based Lehman Brothers employee John Kasich. Just as his name was not mentioned in the bankruptcy examiner's report released last month, Mr. Kasich's name was not mentioned in the testimonies delivered before the committee. It would seem that living and working 500 miles away from Lehman Brothers headquarters, Mr. Kasich truly was out of the loop on the questionable accounting practices.

From Congresswoman Kilroy's perspective the hearing may have been a total failure as it neglected to prove once and for all that John Kasich single-handedly--and with malice in his black heart--caused the global financial crisis. However, the hearing provided a great public service by exposing the systemic organizational failures of the Federal Reserve Bank of New York (FRBNY) as it existed under the leadership of then-President Timothy Geithner. For once some good has come out of Mary Jo Kilroy's addiction to the lowest brand of negative, deceptive politics.

In his testimony, William K. Black, a distinguished bank regulator and professor of economics and law, found President Geithner and his FRBNY team "knew that Lehman was engaged in fraud" and that Geithner's failure to take commensurate action constituted "an egregious violation of the public trust." According to Black, "The FRBNY, led by President Geithner, had a clear statutory mission -- promote the safety and soundness of the banking system and compliance with the law -- stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a “three card monte routine.” Black went on, "the regulatory perpetrators [Geithner and his team] must be held accountable."

How awkward for Mary Jo! She was looking to smear John Kasich and she ended up exposing Obama's Treasury Secretary as asleep at the wheel. I sure hope this isn't going to cause a rift that would stop White House Chief of Staff Rahm Emanuel from channeling more of his dirty housing market collapse money to her!

Not what she had planned

(Photo available at http://www.c-spanvideo.org/marykilroy#)

Anton Valukas, the Lehman Brothers bankruptcy examiner, describes in his report how the FRBNY administered three consecutively less rigorous stress tests to evaluate Lehman's ability to withstand a run or a potential run on the bank. After Lehman failed all three tests, the FRBNY allowed Lehman to design its own fourth stress test which the firm then passed. Valukas concluded, "It does not appear that any agency required any action of Lehman in response to the results of the stress testing."

So, apparently, now-Treasury Secretary of the United States Timothy Geithner's mantra is "If at first you don't succeed, keep lowering the bar until you do."

How confidence inspiring.

I'll bet Mary Jo Kilroy, Nancy Pelosi, and the rest of the congressional chupacabra crew wish the American people would adopt that mantra too--it's the only way their job-killing, deficit-deepening policies could ever get a passing grade.

Mary Jo & Rahm's Dirty Money

Congresswoman Mary Jo Kilroy’s ultra-negative 2008 campaign centered around the same tired refrain that Lt. Colonel Steve Stivers, then also a state senator, had, in the past, worked for a bank. The implication was that Stivers had personally wrought the global financial crisis—and from Columbus, Ohio no less. Former banking lobbyist Steve Stivers was one evil dude, Ms. Kilroy would have us believe. We were to pay no heed to his solid legislative record in the Ohio Senate and his military service overseas. With an awkward smile, Mary Jo Kilroy assured us he was a very bad man—and that she was a very nice lady, by the way.

Now, Governor Ted Strickland’s re-election campaign is centered on similar assertions that John Kasich, as a former Columbus-based employee of Lehman Brothers, is also single-handedly responsible for the global financial crisis. It seems if you’re a Republican and at some point in your life you worked at a bank you personally brought on the global financial crisis—at least by Democrat logic. But keep in mind these people believe spending hundreds of billions of dollars we don’t have will lower the deficit.

With the Democrats’ deeply earnest desire to root out the parties responsible for the global financial crisis I am shocked—SHOCKED!—that they have yet to draw attention to White House Chief of Staff Rahm Emanuel, former managing director of the investment bank Wasserstein Perella and the House of Representatives’s No.1 recipient of campaign contributions from hedge funds.

Beyond being a former investment banker and a recipient of massive amounts of campaign contributions from his friends in the business Mr. Emanuel was the chosen Congressional errand boy of Alec Litowitz, CEO of Magnetar Capital. You’ve probably never heard of Magnetar Capital so let me introduce you: according to financial author Yves Smith, Magnetar Capital is “the single market player most responsible for the severity of the 2008 financial crisis.” (For an overview of how Magnetar contributed to the financial crisis please view: The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going.)

Basically, Magnetar made billions of dollars shorting the market. As his company was contributing to the financial crisis, Mr. Litowitz and his wife, who had never before made significant political contributions, contributed massive amounts of money to Rahm Emanuel (“Friends of Rahm Emanuel”), Rahm Emanuel’s political action committee (Our Shared Values Pac), and the Democratic Congressional Campaign Committee (chaired by Rahm Emanuel). And during that time period Mr. Litowitz and his wife contributed only to Rahm Emanuel and Rahm Emanuel-connected political organizations. Curious.

So a portion of the money made by the misbehavers in the global financial crisis ended up in Rahm Emanuel’s campaign coffers. He’s a Chicago Democrat so that’s hardly shocking. Where’d the money go from there? Surely not to the incorruptible anti-banking crusader Mary Jo Kilroy!

Yep, that’s where it went.

In her 2006 congressional campaign, Mary Jo Kilroy accepted $10,000 from Rahm Emanuel’s Our Common Values PAC and $2,000 from the Friends of Rahm Emanuel.

In her 2008 congressional campaign, Mary Jo Kilroy accepted $10,000 from Rahm Emanuel’s Our Common Values PAC and $4,000 from the Friends of Rahm Emanuel.

And in her 2010 re-election campaign, Mary Jo Kilroy has already accepted $2,000 from the Friends of Rahm Emanuel.

So the money flow chart looks something like this:

People screwed in the financial crisis --> Magnetar/Alec Litowitz --> Rahm Emanuel --> Mary Jo Kilroy

It seems that Congresswoman Kilroy’s moral high ground on all things banking never existed. Don’t worry; I’m sure that won’t stop her from churning out more of those “former banking lobbyist Steve Stivers” campaign ads that kept us all entertained during the 2008 election. And when you’re watching them remember where she got the money to pay for them: out of the pockets of the people who got screwed in the financial crisis.

Mary Jo & the Politically Motivated Hearing

Congresswoman Mary Jo Kilroy may have just bumbled her way into exposing further evidence of the incompetence of Obama Administration Treasury Secretary Timothy Geithner. House Financial Services Committee Chairman Barney Frank (D-Mass.) has granted Congresswoman Kilroy’s request for a hearing into the already-investigated collapse of the former Wall Street banking company Lehman Brothers. Ms. Kilroy’s call for a hearing appears to be politically motivated by a desire to create a forum for attacking Ohio gubernatorial candidate and former Congressman John Kasich, a former employee of Lehman Brothers. Recent polls show Mr. Kasich on course to defeat Kilroy political ally Governor Ted Strickland in the November election.

Congresswoman Kilroy’s ill-conceived plan to discredit Mr. Kasich may backfire, however, as teams overseen by then-Federal Reserve Bank of New York President Timothy Geithner were in the office looking over the shoulders of Lehman Brothers executives as the questionable accounting practices responsible for the institution’s collapse took place. Geithner’s teams were provided desks, phones, computers, and total access to all of Lehman Brother’s books and records. The court-appointed bankruptcy examiner’s report does not indicate that Lehman Brothers kept two sets of books or attempted to hide its accounting practices from regulators. It would appear the questionable accounting was taking place in full view of Timothy Geithner’s team.

In fact, Timothy Geithner’s team appears to have gone to great lengths to give Lehman Brothers’s questionable accounting practices a passing grade. Geithner’s team may have even been complicit in disguising the instability of the institution. On page 1,488 of his report (page 445 of this PDF), the bankruptcy examiner describes how Tim Geithner’s team reduced standards to ensure Lehman Brothers would appear to be in good working order.

If Congresswoman Kilroy is serious about investigating the circumstances that led up to the collapse of Lehman Brothers, she must start with questioning Treasury Secretary Geithner’s ineffective oversight of the organization. If Geithner lacks the capacity to recognize “materially misleading” (the bankruptcy examiner’s words) accounting practices at a single Wall Street banking institution, how can he possibly have the competence to oversee the entire Treasury Department?

However, Ms. Kilroy doubtfully has the courage to ask the tough questions and demand accountability from Secretary Geithner, an Obama appointee. Instead she will undoubtedly use the hearing as an attempt to implicate Mr. Kasich in a scandal by his association as a Columbus-based employee of the collapsed institution.

NEVERMIND that the collapse of Lehman Brothers has already been investigated.

NEVERMIND that John Kasich was over 500 miles away in Columbus, Ohio while Timothy Geithner’s teams were in the room with Lehman Brothers executives as the questionable accounting occurred.

NEVERMIND the facts!

THIS IS POLITICS! By Kilroy’s reckoning, reality only muddies the water. She’s got to deliver for the Ohio Democratic Party so they will deliver for her.

If the Congresswoman were interested in representing her constituents she would devote her time towards fixing the economy and creating jobs, not breaking her knuckles beating a dead horse by reinvestigating a financial institution that collapsed years ago and has already been fully investigated.