Trust in Wall St plunges to all-time low as pair seen to have swindled taxpayers
Geithner’s job ‘may be on the line’
In what was the the height of the US banking panic, the Federal Reserve Chairman Ben S. Bernanke (and then-New York Fed President Geithner) told senators on April 3, 2008, that the tens of billions of dollars in ‘assets’ the Government agreed to purchase in the demise of Bear Stearns were – quote – ‘investment-grade’.
In fact, they were anything but: the Government became the owner of $16 billion of credit-default swaps, and taxpayers ended up guaranteeing high-yield, high-risk junk bonds…and it is now emerging that both men knew at least some of the obligations were already well below anything approaching investment grade. The net result was that the Federal Reserve took on the most credit risk in its 96-year history.
Just four days after Bernanke’s testimony in Congress, Moody’s credit agency downgraded the total batch of bonds to junk status.
“The Federal Reserve was not straightforward with the American people regarding the risks they were taking with taxpayer money, despite my efforts to obtain such clarity at the time,” Republican Senator Richard Shelby of Alabama told Bloomberg News. “It is apparent that the Fed withheld from the Congress and the public material information about the condition of these securities.”
As Geithner was an early Obama appointment, the President will face enormous pressure asa result of the revelations.