The Financial Landscape: Geithner Gossip Groundless; DSK Case Dissolving


Case Against Strauss-Kahn Near Collapse:

Investigators have turned up serious doubts about the credibility of Dominique Strauss-Kahn's accuser, undermining the case against him. The New York Times reports that "forensic tests found unambiguous evidence of a sexual encounter between Mr. Strauss-Kahn," the former managing director of the International Monetary Fund, and the woman, an immigrant from the African nation of Guinea; "But prosecutors now do not believe much of what the accuser has told them about the circumstances or about herself."

She seems to have given incorrect information about her application for asylum, saying it included the story of a previous rape, which was missing, and offering a different account of her experience with forced genital mutilation in Guinea. The woman also appears to have personal and financial ties to people involved with drug dealing and money laundering: According to officials, she "had a phone conversation with an incarcerated man within a day of her encounter with Mr. Strauss-Kahn in which she discussed the possible benefits of pursuing the charges against him. The conversation was recorded."

On Friday, Strauss-Kahn, 62, who had been confined to an expensive loft in TriBeCa, was released from house arrest. Lawyers are currently discussing whether to dismiss the felony charges against him, which include attempted rape. Misdemeanor charges are still possible.

Geither Gossip Groundless: Citing unnamed sources "familiar with [Timothy] Geithner's thinking," news outlets reported Thursday evening that the treasury secretary might leave the Obama administration after negotiations over lifting the debt ceiling (and reducing the deficit) are completed.

According to Bloomberg, which broke the story, "Geithner, 49, has told associates he needs a break from government service after dealing with the turmoil that followed the collapse of Wall Street firms, including Bear Stearns Cos. and Lehman Brothers Holdings Inc., first as president of the Federal Reserve Bank of New York and then as Treasury secretary."

In response to the rumors, Geithner, speaking at the Clinton Global Initiative in Chicago insisted, "I live for this work. It's the only thing I've ever done. I believe in it. We have a lot of challenges as a country. I'm going to be doing it for the foreseeable future."

Geithner is the last remaining member of Obama's original economic team, having been preceded out the door by Office of Management and Budget Director Peter Orszag, Council of Economic Advisers Chair Christina Romer, National Economic Council Director Larry Summers, and Romer's replacement, Austin Goolsbee. "Of all these departures," The New York Times opines, "Mr. Geithner's would have arguably have the greatest impact. He has become one of the president's closest and most trusted counselors, attending his daily briefings and coordinating the White House's strategy on a range of crucial issues, from financial reform to pressuring China on its currency."

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Geithner turns 50 in August, the same month in which he has said the Treasury will cease being able to pay all the country's bills: According to The Wall Street Journal, "The Obama administration believes congressional leaders must agree to a deficit-reduction deal by July 22 in order to raise the government's borrowing limit in time to avoid a default in early August," since drafting and passing the necessary legislation is expected to take one to two weeks. With agreement apparently reached on the broad strokes of a $1 trillion reduction in spending, the sticking point is now tax increases demanded by Democrats, opposed by Republicans.

The Journal notes that "many disagree about what would happen if they don't reach a deal, and it is hard to know for certain because the federal government hasn't defaulted in modern times." According to Nobel laureate economist Paul Krugman, "Failure to raise the debt limit -- which would, among other things, disrupt payments on existing debt -- could convince investors that the United States is no longer a serious, responsible country, with nasty consequences. Furthermore, nobody knows what a U.S. default would do to the world financial system, which is built on the presumption that U.S. government debt is the ultimate safe asset." Krugman also anticipates more concrete consequences -- in his estimation, resultant government spending cuts could "destroy hundreds of thousands and quite possibly millions of jobs."

Secretary Dimon?:
Speculation is rampant about Geithner's eventual replacement. Politico's Morning Money focuses on Jamie Dimon, CEO and chairman of JPMorgan Chase & Co (JPM), an admittedly "high-risk" choice given the left's antipathy towards Wall Street. In a piece published by The New York Times DealBook section, ProPublica's Jesse Eisenger outlines the vast amount of hidden support for banks contained within U.S. government monetary policy, with a glance at Dimon's recent well-publicized criticism of Dodd-Frank reforms (which he voiced rather forcefully to Fed Chairman Ben Bernanke). "The federal government," Eisenger explains, "in ways explicit and implicit, profoundly subsidizes and shelters the banking industry. True since the 1930s, it is much more so today. And that makes Mr. Dimon no capitalist colossus astride the Isle of Manhattan, but one of the great welfare queens in America."

Another Internet IPO: Online game and application developer Zynga is preparing to go public. The company -- which created FarmVille, Facebook's most popular application -- hopes to raise $2 billion and is aiming for a valuation of $15-20 billion. Paperwork could be filed as early as Wednesday, The Wall Street Journal reports.

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