The Starr case is starting tomorrow, and hopefully will extract and make public important testimony and evidence.
Former Treasury Secretary Timothy F. Geithner, who orchestrated the bailout from his previous perch as New York Fed president, insists that extracting these “haircuts” would have shattered the market’s confidence and undermined the A.I.G. bailout.But this explanation is both counterintuitive — the haircuts would have helped save A.I.G. and stabilize the financial system — and ahistoric. The Fed has long used its leverage over banks in similar situations, to great effect. During the Asian financial crisis of the late 1990s, an episode Mr. Geithner observed up close as a senior Treasury official, the New York Fed president, William J. McDonough, leaned on Korea’s creditors to roll over and lengthen their loans and prevent that country’s financial collapse. Which leaves only two possible explanations for the overly solicitous treatment of Goldman and the others. The first is that their own financial position was so precarious that accepting anything less than the billions they expected from A.I.G. would have destabilized them, too. Which is to say, it really was a backdoor bailout of the banks — many of which, like Goldman, claimed they didn’t need one. Alternatively, maybe Mr. Geithner simply felt that Goldman and the like had a more legitimate claim to billions of dollars in funds than the taxpayers who were footing the bill.