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Timothy Geithner

More on Timothy Geithner's Tax "Fraud"

Earlier today and this week, Toomre Capital Markets LLC ("TCM") wrote about the possible willful failure of Treasury Secretary-nominee Timothy Geithner to pay his social security taxes during the 2001-2004 period when he was employed at the International Monetary Fund. Those posts were WSJ: IMF Informed Geithner on Taxes and Timothy Geithner Has Some Past Tax Problems.

Reading further about this failure to pay taxes when due, TCM has concluded that this possible willful failure to pay taxes is much worse than originally portrayed. According to The New York Times, "“Look, is this an embarrassment for him? Yes. He said so himself,” Mr. Obama said, referring to Mr. Geithner’s remarks in a private meeting with the Senate Finance Committee the day before. But Mr. Obama said Mr. Geithner had made a common mistake and corrected it."

Apparently, Timothy Geithner accepted payment from the IMF on an annual basis as restitution or a "true up" for social security taxes he was required to have, but had not, in fact, paid. Further, according to Byron York of National Review, the IMF supposedly

took great care to explain to those employees, in detail and frequently, what their tax responsibilities were. First, each employee was given the IMF Employee Tax Manual. Then, employees were given quarterly wage statements for the specific purpose of calculating taxes. Then, they were given year-end wage statements. And then, each IMF employee was required to file what was known as an Annual Tax Allowance Request. Geithner received all those documents.

The tax allowance has turned out to be a key part of the Geithner situation. This is how it worked. IMF employees were expected to pay their taxes out of their own money. But the IMF then gave them an extra allowance, known as a “gross-up,” to cover those tax payments. This was done in the Annual Tax Allowance Request, in which the employee filled out some basic information — marital status, dependent children, etc. — and the IMF then estimated the amount of taxes the employee would owe and gave the employee a corresponding allowance.

At the end of the tax allowance form were the words, “I hereby certify that all the information contained herein is true to the best of my knowledge and belief and that I will pay the taxes for which I have received tax allowance payments from the Fund.” Geithner signed the form. He accepted the allowance payment. He didn’t pay the tax. For several years in a row.

According to an analysis released by the Senate Finance Committee, Geithner “wrote contemporaneous checks to the IRS and the State of Maryland for estimated [income] tax payments” that jibed exactly with his IMF statements. But he didn’t write checks for the self-employment tax allowance. Then, according to the committee analysis, “he filled out, signed and submitted an annual tax allowance request worksheet with the IMF that states, ‘I wish to apply for tax allowance of U.S. Federal and State income taxes and the difference between the “self-employed” and “employed” obligation of the U.S. Social Security tax which I will pay on my Fund income.”

In a conversation today with sources on Capitol Hill who are familiar with the situation, I asked, “Was Geithner made whole for tax payments that he didn’t make?”

“Yes,” one source answered. “He was getting the money. He was being paid a tax allowance to pay him for tax payments that he should have made but had not.”

If this reporting turns out to be fact, there is no way Timothy Geithner, no matter how much he otherwise is qualified, should be confirmed as Treasury Secretary of the United States. One simply cannot have a tax fraud overseeing the Internal Revenue Service. What is even more troubling though is reporting that President-elect Barack Obama and his transition team have been aware of Geithner's tax issue since early November 2008. Yet, despite what clearly was not an "common mistake", President-elect Obama went forward with this nomination and continues to support Timothy Geithner's confirmation.

What does this say about the judgment and morality of the United States' in-coming President? Henceforth, will it be permissible for other "tax frauds" to be confirmed for leading governmental positions? The events of the coming week will say much about what is permissible for the country's leadership and whether the American electorate even cares whether their leaders lie, cheat and potentially defraud.

Toomre Capital Markets LLC strongly hopes that some of our leaders will draw a line in the sand and hence prevent the successful confirmation of this nominee. A tax cheat simply cannot be allowed to oversee the IRS in our society of voluntary compliance. Leadership means holding oneself up for others to follow and aspire to. Do Americans really want to follow the leadership of a tax cheat???

WSJ: IMF Informed Geithner on Taxes

 Timothy Geithner, Federal Reserve Bank of New York President On Thursday January 15th 2009, The Wall Street Journal published an article entitled IMF Informed Geithner on Taxes. According to the article's lead, "Timothy Geithner, whose nomination as Treasury secretary has been delayed by his past failure to pay taxes, was repeatedly advised in writing by the International Monetary Fund that he would be responsible for any Social Security and Medicare taxes he owed on income he earned at the IMF between 2001 and 2004."

Toomre Capital Markets LLC ("TCM") wrote about this issue two days ago in the post Timothy Geithner Has Some Past Tax Problems. If the information is indeed correct, sadly while admiring Mr. Geithner's work in general, Toomre Capital Markets LLC strongly believes that the willful decision to avoid paying social security taxes, particularly being audited and being required to pay back taxes for the 2003 and 2004 tax years, disqualifies Timothy Geithner from being confirmed as Treasury Secretary in the Obama administration. TCM strongly believes that a tax evader is unqualified to oversee the Internal Revenue Service.

While we wish that Timothy Geithner had paid his taxes when due, his personal decision smacks of tax avoidance when he chose not pay social security taxes for the years 2001 and 2002 (after the 2006 IRS audit) until the business day before his nomination. TCM does not accept the defense offered by the transition officials earlier this week: Mr. Geithner made a mistake common to people who work for international institutions. Mr. Geithner is a pretty sharp individual and he should have at a minimum known that he had made a mistake after the 2006 audit.

If Mr. Geithner did not know that those past taxes were due (after the audit), he surely is not qualified to lead economic policy in the new administration. If he did know that they were due and still did not pay them until recently, the incident speaks volumes to his personal ethics and should likewise disqualify him from overseeing the IRS. As Senator George V. Voinovich (R., Ohio) said, "He may be a smart guy, but the average person on the street sees that he hadn't paid his taxes." In this period of change, Toomre Capital Markets LLC hence hopes that either President-elect Obama will rescind this nomination or the United States Senate will refuse to confirm this nominee.

In short, if one willfully cheats on one's taxes, one definitely is not qualified to oversee the IRS and the United States tax system, not matter how qualified one otherwise is. Will the Senate and President-elect Obama demonstrate that they understand and live true to a world of high ethics? Or will this be yet another example of cutting an ethical corner? Reader comments and thoughts are welcome.

Timothy Geithner Has Some Past Tax Problems

On the afternoon of Tuesday January 13th 2009, news emerged that Treasury Secretary-nominee Timothy Geithner has a few tax problems in his recent history. As a result, his confirmation hearing scheduled for that date was postponed. Instead, behind closed doors, members of the Senate Finance Committee huddled with the nominee to discuss the specifics of his particular case. Similar tax issues in the past have derailed other candidates for high office.

Rather predictably Democratic senators emerged from the meeting reiterating their support for President-elect Obama's nominee. According to The Wall Street Journal, "Obama aides said they didn't think these issues would present a problem, given what they characterized as the minor nature of the infractions and the gravity of the role Mr. Geithner has been nominated to take. Mr. Geithner's 'service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed,' Obama press secretary Robert Gibbs said in a statement."

Sen. Charles E. Grassley of Iowa, the committee's senior Republican, did not give Mr. Geithner a pass. "It's serious, and whether or not it's disqualifying is to be determined," Mr. Grassley said after the meeting. A new hearing, which promises to be contentious, has been scheduled for Friday January 16th.

History Often Repeats Itself

Many people believe that history often repeats itself. Maybe the exact details are not the same, but the two time periods in question share many common characteristics. For example, many economists point to the parallels between the current economic crisis and the period of 1932-33 when President Hoover was in the tail end of his term and about to be succeeded by Franklin Roosevelt with his "New Deal" thoughts about change to get the economy functioning again. As a result of potential parallels between various points in time, some people study various historical events, people and time periods to gain a better understanding of how current events might be handled so as to prevent the mistakes of the past. The history of the financial markets is a case in point.

Economies have had periods of prosperity and contraction throughout all known history. Some of the contractions have been caused by excess supplies of some type of inventory; others have resulted from fears about the availability of credit or fears about the soundness of the banking system. Less frequently, the periods of contraction have been led by a complete collapse in the demand for products and services (like what appears to be happening during this credit crisis). Hence, it is often useful to have a better understanding of historical events and people.

Recently President-elect Barack Obama has been announcing the new members of this economic team, such as Timothy Geithner, Larry Summers and Paul Volcker. As a result, Toomre Capital Markets LLC ("TCM") has been reviewing just what did happen in the Korean crisis of 1997 (and which resulted in the in-coming Treasury Secretary Timothy Geithner rising to the attention of Robert Rubin and Larry Summers)? Or what were the forgotten details of Paul Volcker's "Saturday Night Massacre" in October of 1979 that inflicted large losses on many Wall Street houses as he suddenly raised short-term interest rates?

Timothy Geithner is Choice As Secretary Treasury

Late on the afternoon of Friday November 21st 2008, NBC News and CNBC are reporting that New York Federal Reserve Bank President Timothy Geithner is the apparent selection as the Secretary of Treasury in the forthcoming President-elect Barack Obama administration. Toomre Capital Markets LLC ("TCM") has previously written positively of Mr. Geithner in the post Timothy Geithner: "Illigitimum non Carborundum" and applauds this selection.

As head of the New York Fed, Mr. Geithner has been in the thick of the regulatory response to the on-going credit crisis and working very closely with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson. His rumored competitor was former Treasury Secretary Larry Summers who subsequently served as the head of Harvard University before more recently moving to a hedge fund. Mr. Summers is well known for being one of the smartest economists involved in public policy.

TCM suspects that Mr. Summers will continue to offer his counsel to both President-elect Obama and now Timothy Geithner, so in a sense the American electorate will get the benefit of both of these economic policy officials. The rest of President-elect Obama's economic team is scheduled to be announced at a press conference to be held on Monday November 24th 2008.

Timothy Geithner: We Can Reduce Risk in the Financial System

Toomre Capital Markets LLC ("TCM") is a fan of New York Federal Reserve Bank President Timothy Geithner (as demonstrated by the post Timothy Geithner: "Illigitimum non Carborundum"). On Sunday June 8th 2008, Mr. Geithner penned a commentary piece in The Financial Times that calls for global banks and investment banks whose health is crucial to the global financial system should operate under a unified regulatory framework with "appropriate requirements for capital and liquidity". Entitled We can reduce risk in the financial system, this article is must reading for those struggling with the question of what will be the value of investment banking franchises in the post-Bear Stearns environment. The commentary reads as follows:

Timothy Geithner: "Illigitimum non Carborundum"

Toomre Capital Markets LLC ("TCM") has previously written favorably of New York Federal Reserve President Timothy Geithner in the posts Bear Stearns: U.S. Banking Committee Starts Looking At Regulatory Change and Suggested Reading: Timothy F. Geithner Speech on Credit Derivatives. New York Fed President Timothy Geithner has been the Federal Reserve's point person dealing with Wall Street during the on-going credit crisis that seemingly started last year with the collapse of two Bear Stearns hedge funds that were highly leveraged and highly exposed to sub-prime mortgages and Collateralized Debt Obligations ("CDOs"). His active involvement in trying to stabilize the bursting of the housing bubble culminated with his prominent involvement with the March 2008 rescue of Bear Stearns which is expected to formally taken over by J.P. Morgan Chase & Co. on Friday, May 30th 2008.

Since the Bear Stearns rescue effort unfolded in mid-March, there has been considerable criticism of the Federal Reserve and Treasury Department brokered sale of Bear Stearns to JP Morgan, particularly around the issues of moral hazard and the Federal Reserve's ability to act as an 'honest broker' in future financial crises. On the front page of the May 30th 2008 edition of The Wall Street Journal, there is an article written by Greg Ip entitled Fed's Fireman On Wall Street Feels Some Heat that summarizes some of the criticism still being directed at Timothy Geithner. The article contains the interesting reference that "As early criticism of the rescue swirled, the president of the Dallas Fed, Richard Fisher, sent Mr. Geithner an email in Latin: 'Illigitimum non carborundum,' along with his translation, 'Don't let the bastards get you down.' Mr. Geithner replied that his grandfather had the same slogan on his kitchen wall."

Toomre Capital Markets LLC for one is glad that Mr. Geithner pushed for the Federal Reserve to lend $29 billion to JP Morgan to facilitate the latter's takeover of Bear Stearns on Sunday, March 16th 2008. Although some rather ignorant Congressmen claimed that the Federal Reserve's participation "exposed the American taxpayers to unknown amounts of financial loss", TCM is sure that such politicians would have been singing a much different self-serving tune had Bear Stearns filed for bankruptcy early the next Monday morning. Many people who are not intimately involved with the Capital Markets do not appreciate how intricately the various investment and global commercial banks have become through derivative contracts and particularly what are known as Credit Default Swaps ("CDS").