Libor Scandal: Why the N.Y. Fed Must Be Investigated

U.S. Treasury Secretary Timothy F. Geithner
U.S. Treasury Secretary Timothy F. Geithner

Photo by Michael Nagle/Getty Images.

So now the records are beginning to seep out.

The New York Federal Reserve knew about Libor games being played by the banks years ago and seems to have done precious little about it—except perhaps send a memo parroting the so-called reform ideas proposed by the banks themselves. Then nothing more. No prosecutions, no inquiries of the banks to see if the illegal behavior had stopped—just a live-and-let-live attitude.

Of course, this was the New York Fed led by Tim Geithner—who testified at his confirmation hearings to be treasury secretary that he had never been a regulator. Huh? As president of the N.Y. Fed, he was the most important regulator out there, and he didn’t even know it?

Simply amazing.

But at least he was consistent—because he certainly didn’t act like a regulator. He led a New York Fed that paid back Goldman Sachs 100 cents on the dollar in the middle of the crash—with your money—when Goldman was doing business with AIG. Then they bailed out AIG—with hundreds of billions of our dollars. This decision has never been explained.

Meanwhile, Hank Greenberg of AIG and John Whitehead of Goldman Sachs–these companies that got bailed out—were on the NY Fed committee that made Tim Geithner their president.

Was there a similar conflict of interest when the New York Fed apparently did nothing adequate about the Libor games? Well, look who was on the board: Dick Fuld of Lehman fame; Sandy Weill of Citibank; Jeff Immelt of GE—the largest beneficiary of the Fed’s commercial paper guarantees; and, of course, Jamie Dimon of JPMorgan Chase, whose bank’s London derivative trades and Libor involvement make his role on the board even more absurd.

So what to do?

We need an investigation of the New York Fed and its board by someone we can trust. And so far that doesn’t seem to be any of the existing government agencies. Let’s get a special prosecutor, maybe Louis Freeh, to find out what happened, who spoke to whom, and why the Fed once again did nothing.

And maybe the prosecutor can find out one other thing: If Tim Geithner wasn’t a regulator, what was he?