Geithner's Disgrace

A recent government report suggests that the government's rescue of American International Group (AIG) was less than perfect. Eliot Spitzer thinks that Timothy Geithner should be embarrassed:

Perhaps most remarkable is that Geithner claims the "sanctity of contract" prevented renegotiating with the counterparties. But the government wasn't a party to these contracts! The government was stepping in with taxpayer money to save a broken company on terms to be set by the government. The counterparties had the contractual right to refuse the terms, throw AIG into bankruptcy, and suffer the consequences. In a workout context, the entity with cash—here, the government—can set the terms, and the other parties can either accept those terms or walk over to bankruptcy court. The government had absolutely no contractual obligation to do anything.

Read more about what Geithner could have done better here.