The NYT reports:

The inspector general who oversees the government’s bailout of the banking system is criticizing the Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks.

Is it just misleading or plain ole lying?

Former Treasury Secretary Henry M. Paulson Jr., for instance, said on Oct. 14 that the banks were “healthy,” and that they accepted the money for “the good of the U.S. economy.” The banks, he said, would be better able to increase their lending to consumers and businesses. In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general writes.

Treasury Secretary Timothy Geithner said “signs of economic recovery are “stronger” and have appeared “sooner” than expected”.  Is he telling the truth this time? Don’t bet on it!

Bernanke and Geithner both argue that the FED should be free from congressional audit review.  While this “freedom” is in effect, the FED is truly free to do whatever its owners, the banks, tell it to do.  Minyanville has a great piece that argues that “the Federal Reserve has been responsible for every financial crisis in the United States since 1913″:

“The facts prove beyond a shadow of a doubt that the Federal Reserve has failed in every one of its mandates: Inflation has destroyed the value of the dollar. Interest rates and employment have been violently erratic. The Fed has been manipulated by politicians, showing a complete lack of independence. And only two of the fourteen Chairmen have been truly independent and competent — Paul Volcker and William McChesney Martin. The incompetence and arrogance of the other Chairmen have brought the country to its knees.

The final chapter is about to be written.

Our fiat currency system has proved to be a wretched failure. Within the next five years, a final crisis will bring an end to this diabolical experiment in hubris. Man is not smarter than the free markets. The US dollar is a piece of paper. It only has value because people have trust that the government issuing the paper is financially stable with rational fiscal policies.

This doesn’t describe the United States of today. When the next crisis causes the dollar to collapse and uncontrollable inflation to result, abolition of the Federal Reserve will become feasible. Average Americans have been victims of the boom and bust caused by the Federal Reserve policies. The sole beneficiaries have been bankers, politicians, the military industrial complex, and the super-rich elite.

Geithner is interviewed below by Digg.com and WSJ (ht zerohedge). If you can stomach listening to this guy, you can hear our banker-owned treasury secretary assert that auditing the FED would be “problematic for the country”.  It’s not problematic for the country – it’s problematic for the FED and its co-conspirators…   Geithner offers this argument for FED independence as if Bernanke and his co-conspirators are benevolent gods who smile down on America with only good intentions, infallible actions and limitless love for their ignorant, dependent people. What a crock and what a bunch of crooks!

Click the button below to hear Dr. Marc Faber tell the truth about Bernanke and Geithner (from Kingworld News):

[audio:drmarcfaberintro.mp3]

Zero Hedge has a must read on Judicial Watch’s release of Treasury Department talking points of the meeting with the nine big banks in October. The release demonstrates that Ken Lewis was telling the truth when he says he was threatened.  The Obama Administration withheld information specific to Tim Geithner’s role.  This paste is from Judicial Watch, but read the ZH post too:

“Judicial Watch, the public interest group that investigates and prosecutes government corruption, announced today that it forced the Obama administration to release documentsabout the October 13, 2008, Treasury Department meeting that coerced major banks to allow the government to take $250 billion equity stakes. Among the other news, the documents confirm former Treasury Secretary Hank Paulson told the CEOs of nine major banks that they had no choice but to allow the government to take equity stakes in their institutions. The documents show Obama Treasury Secretary Tim Geithner, FDIC Chairman Shelia Blair, and Fed Chairman Ben Bernanke co-hosted the meeting with Paulson.

“These documents show our government exercising unrestrained power over the private sector. Despite promises of transparency, the Obama administration tried to cover up the very existence of these smoking-gun documents. And the cover-up continues, as the Obama administration protects Timothy Geithner by withholding a key document about his role in this infamous bankers meeting,” stated Judicial Watch President Tom Fitton.”

Douglas A. McIntyre at 24/7 Wall St. is a little cynical that the government is up to the task of turning the economy around:

“After the GDP numbers were released, the Fed put out the minutes of its two-day Federal Open Market Committee. At the core of the statement was one of the greatest hedges in recent memory:

“the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.”

It is the Fed’s way of saying, in terms that are hardly subtle, that if its programs to improve the credit markets, the Treasury’s plans to help banks and the auto companies, and the Administration’s budget and stimulus package works, then the American economy will walk away from the worst recession in memory. It is a preposterous statement which implies that, left alone, the financial health of the country would be in ruins. The sole salvation of the production, housing, and employment sectors of the United States rests in very few hands, all of them in Washington.

People who believed in the power of institutions like the Fed and Treasury will lose their faith and become embittered as time passes and the economy does not show signs of substantial improvement. That is a shame because it means that they will have needlessly turned their back on the concept that there is power in self-sufficiency.”

The real question is WHEN the economy turns around, will the government really have had anything to do with it?  Few argue that pure laissez faire should be followed. Even Nouriel Roubini argued that laissez faire was dead:

“To paraphrase Churchill, capitalist market economies open to trade and financial flows may be the worst economic regime–apart from the alternatives. However, while this crisis does not imply the end of market-economy capitalism, it has shown the failure of a particular model of capitalism. Namely, the laissez-faire, unregulated (or aggressively deregulated), Wild West model of free market capitalism with lack of prudential regulation, supervision of financial markets and proper provision of public goods by governments.”

However, Mr. McIntyre is arguing the idea that centralized planning embodied in the actions of the FED and Treasury without reference to free market principles AND the rule of law, is equally ineffective.  Roubini too, holds to this concept:

“But the design of the new system should be robust enough to counter three types of problems with rules. A tendency toward “regulatory arbitrage” should be kept in mind, as bankers can find creative ways to bypass rules faster than regulators can improve them. Then there is “jurisdictional arbitrage,” as financial activity may move to more lax jurisdictions. And, finally, “regulatory capture,” as regulators and supervisors are often captured–via revolving doors and other mechanisms–by the financial industry. So the new rules will have to be incentive-compatible, i.e., robust enough to overcome these regulatory failures.”

The regulatory capture risk is, with little doubt, not a risk- but a certainty, under the current management of the FED and Treasury.  Mr. Geithner is a prime example.  Can we actually think of giving credit for the recovery, when it comes, to such ineptitude?

According to the WSJ, the sacrificial lambs will include B of A, Citi and a few regionals:

Regulators have told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government’s so-called stress tests of lenders, according to people familiar with the situation.

Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital.

No way could GS or JPM need capital, not with crony Geithner at the helm…and… B of A and Citi have not finished squirming out of it yet…

From the New York Times:

Last June, with a financial hurricane gathering force, Treasury Secretary Henry M. Paulson Jr. convened the nation’s economic stewards for a brainstorming session. What emergency powers might the government want at its disposal to confront the crisis? he asked.

Timothy F. Geithner, who as president of the New York Federal Reserve Bank oversaw many of the nation’s most powerful financial institutions, stunned the group with the audacity of his answer. He proposed asking Congress to give the president broad power to guarantee all the debt in the banking system, according to two participants, including Michele A. Smith, then an assistant Treasury secretary.

Geithner’s proposal was quickly dismissed, but it highlights Geithner’s incredible loyalty to his banker friends and his desire to protect banks at all costs…to the taxpayer. (ht naked capitalism)

Here is a link to New York Attorney General Cuomo’s letter to the SEC, Elizabeth Warren, Barney Frank and Chris Dodd regarding the government’s coverup of the extent of Merrill’s losses by threatening Ken Lewis to keep quiet or lose his job.  Let’s hope Cuomo and others keep the backbone to chase this wherever it leads.  Geithner’s office could be center stage before too long…

Hopefully, Cuomo will also find the courage to investigate Goldman while he’s at it.  Ken Lewis will probably lose his job…and sing like a canary afterward…

Portfolio.com’s Gary Weiss has a fair assessment of Timid Tim here. It’s worth the read.  The real question raised in the article is: Are we really OK with a innovation-averse bureaucrat learning on the job to lead the treasury department in the middle of a financial crisis?  Swamp Report is not, but Obama will never fire him, he knows too much…

“If we lie to the people and they believe us, all will be well.”   We think only the most naive don’t already know it, but since we have seen the suckers move markets on ignorance in the past, it may help to let experts, like Bill Black, a former senior bank regulator responsible for helping wind down the S&L crisis in the late 80’s tell us all again:  the Geithner bank stress tests are a sham.  The Treasury controls the outcome of the tests and insolvent banks will not be identified…unless the bank is not “playing ball” with the Obama administration.