Congressional hearings often make wonderful theater. Last week at the House Oversight and Government Reform Committee, the American public heard testimony from Timothy Geithner, former head of the Federal Reserve Bank of New York and now US Treasury Secretary and Henry Paulson, former US Treasury Secretary. Both men’s testimony relied on one premise: if we did not bail out AIG and pay its counterparties 100 cents on the dollar, the financial world as we know it would have ended, i.e., the US would have plunged into a second Great Depression. By written statement, Fed Reserve chair Ben Bernanke informed the Committee of his full support for this decision. In person, Henry Paulson agreed. However, both men said they had nothing to do with the decision. Further, Mr. Geithner testified that he had relied on his staff or details of the bailout. And even further than that, he later distanced himself from the decision whether nor not to disclose the details of the bailout. America was treated to the concept of “plausible deniability.”
Plausible Deniability
Working in a corporation one gets a firsthand look at the concept of “plausible deniability.” Plausible deniability works something like this: a crisis starts; an important decision must be made; a senior executive is charged with making a decision; the senior executive delegates much of the preparatory work to staff or a trusted lieutenant; the staff or trusted lieutenant ultimately makes a recommendation which later becomes “The Decision. “ If or when something goes wrong in the future, the senior executive denies involvement and places the blame on the staff or the trusted lieutenant. Almost every time, the superiors of the senior executive accept this scenario. The senior executive survives.
Let’s Get Real
Harry Truman said “the buck stops here,” meaning that the most senior executive has ultimate responsibility for a decision. Perhaps with President Clinton or at some time it became fashionable for the senior person to distance himself from the decision so that he would have plausible deniability. Further, it was expected that subordinates would “throw themselves on their swords” to preserve their boss.
It stretches credulity that the three most senior financial executives in government, The Chairman of the Federal Reserve, the President of the New York Federal Reserve and the Treasury Secretary did not know the intimate details of the AIG bailout. At stake at the time was $62b of taxpayer money to effect this phase of the bailout. All three men agree that if the bailout did not take place financial Armageddon would have ensued.
More is expected of our public servants. We appointed these individuals because of their unique skills, judgment and character. Apparently, these individuals were unavailable in the AIG crisis to make critical decisions. Based on these stated actions, I deplore the confirmation of Ben Bernanke. Moreover, I would ask for the resignation of Timothy Geithner.
It is time that high level government officials took responsibility and become the watchdog of the public purse. Trying to blame subordinates should elicit the response from the public: “that dog won’t hunt!”
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