Tim Geithner is testifying before the House Financial Services Committee on a number of issues today. It looked like he would skate by without questions on the Libor scandal until Scott Garrett, an unlikely source, tore into him:

Garrett’s anger was different.
Why? Because he was most upset that Geithner had four years, and meeting after meeting, to bring the LIBOR issue to Congress’ attention and it just wasn’t done.

“You keep saying… we’re just like investors. Well you’re not! You’re the Secretary of the Treasury of the United States. You have the authority to do something about this.”

Geithner said that he briefed the broader regulatory community about the problem — which only made Garrett more angry.

“There’s always so much finger-pointing by regulators after the fact,” he said. Then he jumped on Geithner for not informing the Justice Department “simply because they weren’t at the table.”

Jeb Hensarling added that Geithner treated the Libor scandal like it was a jaywalking ticket instead of robbery. Barney Frank operated as Geithner’s lawyer through all of this, saying that the 2008-era financial regulators were all Bush appointees. But that’s not the point; none of those regulators had access to documentary evidence of the commission of fraud.

Here’s the backstory. When Geithner ran the New York Federal Reserve Board, they failed to inform US regulators that they had an admission of guilt from a Barclays employee that the Libor was being rigged. The Commodity Futures Trading Commission and the Justice Department had to build their case without the direct evidence of rigging that Geithner and his staff knew all about.

Geithner denied this today. He claimed that he did everything he could. “We took the initiative to bring those concerns to the attention of the broader U.S. regulatory community, including all the agencies that have responsibility for market manipulation and abuse,” he said in testimony.

Well, someone’s lying. And Geithner’s claim that he didn’t know about rate rigging until 2008, when the NY Fed acknowledged in documents that they had evidence in 2007, doesn’t make him a credible witness. Not to mention the fact that the NY Fed set the payouts for the AIG bailout, and the TALF lending facility, using Libor as a benchmark:

“We, like investors around the world, had to take advantage of the rates available at that time, and we chose LIBOR at the time like many others,” Geithner told the House Financial Services Committee as he testified for the first time about the rate-rigging scandal.

Geithner said it was not clear if taxpayers paid more for those bailouts because the interest rate was rigged. But Rep. Jeb Hensarling (R-Texas) said he didn’t understand why the Fed used LIBOR to set the terms of those bailouts given concerns that it was not legitimate.

“How can a number that you know has been manipulated, how can that possibly be the best choice?” he asked Geithner.

Geithner said all the Fed knew at the time was that the rate was vulnerable to manipulation, but decided it still was the best rate to use.

“I think that was the right choice back then,” Geithner said.

If there were any justice in the world, Geithner would be dead to rights. He had documentary evidence of fraud, and he didn’t send it up the chain to the authorities. In fact, he continued to use the fraudulent rates in the NY Fed’s everyday business.

When pressed about Libor, Geithner said that he would press the British authorities “to fix or reform it. [pause] Reform it; fix is a bad word in this context.”


David Dayen

David Dayen