New York Fed covered up junk loans under Tim Geithner

When Barack Obama appointed Tim Geithner to be his treasury secretary, concerns flew that the president was once again rewarding failure. Geithner was the former head of the New York Federal Reserve, which was responsible for watching over some of the country's largest banks. Now we know that Geithner not only failed, but was complicit with the very banks he was supposed to regulate.

As Lehman Brothers careened toward bankruptcy in 2008, the New York Federal Reserve Bank came to its rescue, sopping up junk loans that the investment bank couldn't sell in the market, according to a report from court-appointed examiner Anton R. Valukas.

The New York Fed, under the direction of now-Treasury Secretary Tim Geithner, knowingly allowed itself to be used as a "warehouse" for junk loans, the report says, even though Fed guidelines say it can only accept investment grade bonds.

Meanwhile, the Fed and Geithner both strongly oppose a congressional measure to authorize an independent audit of the central bank and its lending facilities. The provision passed the House but is under attack in the Senate, where Banking Committee Chairman Chris Dodd (D-Conn.) says he hopes to stop it.

So before the federal government initiated its bailout, Geithner violated Fed rules and used New York taxpayer money to try to save Lehman Brothers. All this was done in the service of a bank that was going to fail anyways.

When Congress came looking for answers, the New York Fed and Geithner shrouded themselves with secrecy. The bill to audit the Federal Reserve gained 313 sponsors in the House before it passed overwhelmingly. But senators are often more vulnerable to special interests than congressmen. Chris Dodd opposes the bill largely because of his incestuous relationship with major banks, which have contributed millions to his election campaigns. Whether the Senate will ultimately side with taxpayers or with Geithner has yet to be seen.

You can read more about the effort to audit the fed and expose Tim Geithner here.