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Earlier this week, George Stephanopoulos had an interview with Timothy Geithner:

GEITHNER: You know, I think it's very important banks work very hard to start to rebuild trust and confidence of the American people in their institutions in the financial system. They did a huge amount of damage to the country, lost a huge amount of trust and confidence. They need to work very hard to restore that. One of the ways to do that...

STEPHANOPOULOS: Do you think they get that?

GEITHNER: I don't think they get it. I think some banks do; I don't think all banks get it yet.

STEPHANOPOULOS: What do they need to do to show that they get it?

GEITHNER: I think they need to make sure they're doing everything they can to help people who can afford to stay in their homes stay in their homes, help make sure they are lending in communities that need access to credit, they're working very hard to make sure that viable businesses that face some increased demand for orders now for their products now can get the credit they need.

They need to show some restraint and care in how they pay their people, and they need to be supportive of the kind of reforms we need to create a more stable system in the future.

STEPHANOPOULOS: That's all encouragement. Where's the stick?

GEITHNER: The stick is through what Congress is going to have to legitimate through reforms. You know, we're not going to run a strategy to protect the country from future financial crises that rests on the hope that banks in the future behave more wisely and more nobly. We're going to run a strategy that requires reforms that are going to -- going to restrain risk-taking, provide better protections for consumers.

Really, Tim? Because I don't hear anything like reform happening in Congress. In fact, voters might somehow get the wrong idea (or the right idea) about your banking bailout after stories like this:

Dec. 21 (Bloomberg) -- In the first six months of 2010, about 6,000 employees of Goldman Sachs Group Inc. will take a break from their spreadsheets and move across the southern tip of Manhattan to a new 43-story, steel-and-glass skyscraper.

The building was a bargain -- and not just because the final cost is expected to be $200 million less than the $2.3 billion price the company had estimated when construction began in November 2005. Goldman Sachs also benefited from the government’s determination to avoid losing jobs in lower Manhattan after the Sept. 11, 2001, terrorist attacks.

Building a new headquarters cater-cornered to where the World Trade Center once stood qualified the firm to sell $1 billion of tax-free Liberty Bonds and get about $49 million of job-grant funds, tax exemptions and energy discounts. Henry Paulson, then Goldman Sachs’s chief executive officer, threatened to abandon the project after delays in addressing his concerns about safety. To keep the plan on track, state and city officials raised the bond ceiling to $1.65 billion and added $66 million in benefits. The interest expense on the financing is about $175 million less over 30 years than if the company had issued corporate debt at the time, according to data compiled by Bloomberg.

“It was absolutely imperative that Goldman Sachs keep its world headquarters downtown,” says John Cahill, who took part in the negotiations as chief of staff to then-Governor George Pataki and now works at New York law firm Chadbourne & Parke LLP. “They had the financial resources to move anywhere.”

Spitzer, along with Frank Partnoy, a professor of law at the University of San Diego, and William Black, a professor of economics and law at the University of Missouri, make the case in today's Times for releasing all the AIG emails before they're lost forever - and we never really know what happened to trigger their crash. Obviously, it serves the nation to know:

We end this extraordinary financial year with news that the Treasury is in discussions with American International Group about selling the taxpayers’ 80 percent ownership stake in that company. The government recently permitted several banks to break free of its potential oversight by repaying loans made during the rescue. But with respect to A.I.G., the Treasury should not move so fast. There is one job left to do.

A.I.G. was at the center of the web of bad business judgments, opaque financial derivatives, failed economics and questionable political relationships that set off the economic cataclysm of the past two years. When A.I.G.’s financial products division collapsed — ultimately requiring a federal bailout of $180 billion — those who had been prospering from A.I.G.’s schemes scurried for taxpayer cover. Yet, more than a year after the rescue began, crucial questions remain unanswered. Who knew what, and when? Who benefited, and by exactly how much? Would A.I.G.’s counterparties have failed without taxpayer support?

The three of us, as experienced investigators and prosecutors of financial fraud, cannot answer these questions now. But we know where the answers are. They are in the trove of e-mail messages still backed up on A.I.G. servers, as well as in the key internal accounting documents and financial models generated by A.I.G. during the past decade. Before releasing its regulatory clutches, the government should insist that the company immediately make these materials public. By putting the evidence online, the government could establish a new form of “open source” investigation.

Once the documents are available for everyone to inspect, a thousand journalistic flowers can bloom, as reporters, victims and angry citizens have a chance to piece together the story. In past cases of financial fraud — from the complex swaps that Bankers Trust sold to Procter & Gamble in the early 1990s to the I.P.O. kickback schemes of the late 1990s to the fall of Enron — e-mail messages and internal documents became the central exhibits in our collective understanding of what happened, and why.

So far, prosecutors and regulators have been unable to build such evidence into anything resembling a persuasive case against any financial institution. Most recently, a jury acquitted Bear Stearns employees of fraud related to the collapse of the subprime mortgage market, in part because available e-mail messages suggested the employees had done nothing wrong.

Perhaps A.I.G.’s employees would also be judged not guilty. But we would like to see the record to find out. As fraud investigators, we would like to examine the trading patterns of A.I.G.’s financial products division, and its communications with Goldman Sachs and other bank counterparties who benefited from the bailout. We would like to understand whether the leaders of A.I.G. understood that they were approaching a financial Armageddon, and whether they alerted their counterparties, regulators and shareholders to the impending calamity.

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Is there really nothing more the White House can do about this? Seems like pretty weak tea to tell them to "think about it." Here's hoping there's some arm-twisting going on behind the scenes:

In the wake of reports that Goldman Sachs is set to pay a record 23 billion in bonuses this year, the President’s Senior Adviser David Axelrod told me this morning that he thinks big banks dishing out bonuses to their employees is “offensive” and advises banks to “think through what they are doing.”

“The bonuses are offensive and to the firms that still have federal TARP money there’s some jurisdiction, the pay master of Treasury is working on trying to limit that,” Axelrod said. “You’ve seen a lot of firms go to stock rather than cash, so at least people have a stake in the success of their company and they’re not just walking away with cash-making short-term decisions.”

“They ought to think through what they are doing and they ought to understand that a year ago a lot of these institutions were teetering on the brink and the United States government and taxpayers came to their defense. They have responsibilities and they ought to meet those responsibilities.”

It's getting to the point where I don't even want to read Simon Johnson anymore. Yes, he's right. If we reduce oversight safeguards to "trust us," we have a system far too ripe for corruption - in fact, almost asking for it:

Buried in the late wire news on Friday – and therefore barely registering in the newspapers over the weekend – Treasury announced the rules for pricing its option to buy shares in banks that participated in TARP.

The Treasury Department said the banks will make the first offer for the warrants. Treasury will then decide to sell at that price or make a counteroffer. If the government and a bank cannot agree on a fair price for the warrants, the two sides will have the right to use private appraisers.

This is a mistake.

The only sensible way to dispose of these options is for Treasury to set a floor price, and then hold an auction that permits anyone to buy any part – e.g., people could submit sealed bids and the highest price wins.

In Treasury’s scheme, there is significant risk of implicit gift exchange with banks - good jobs/political support/other favors down the road – or even explicit corruption. For sure, there will be accusations that someone at Treasury was too close to this or that bidder. Why would Treasury’s leadership want to be involved in price setting in this fashion?

Treasury apparently sees corruption as an issue about personalities (i.e., WE aren’t ever corrupt) rather than about institutional structure. For example, if you create an arrangement that easily permits corruption, such as through nontransparent decision making or negotiation around warrant pricing, you set up incentives to be corrupt. Either existing people change their behavior, or new people will seek appointment in order to participate in corruption.

This is also a point, by the way, that Treasury has been making for years through its representatives at the International Monetary Fund – including during the Clinton Administration, when the same people were running U.S. economic policy as now. It’s a good point and never easy for countries-with-potential-corruption to hear. It applies as much to the United States as to anywhere else.

Treasury will argue the disposal of warrants is a one-off event, but this is not a plausible line: it is part of a much longer series of nontransparent decisions over finance. The attitude that “we can be nontransparent because we will never be corrupt” creates reputational risk for both Treasury and participating banks. If extraordinary support for the financial sector lasts several years, we will likely have at least one time-consuming and damaging investigation into all the details of these settlements.

February 10, 2009 C-SPAN

January 21, 2009 News Corp