Did Geithner do China’s bidding on Beijing investment in Morgan Stanley?

Reuters reports today that China decided to flex its considerable muscle as the largest US creditor in June 2009, and perhaps not coincidentally, got an approval for a key regulatory decision from the SEC.  The head of its sovereign wealth fund met with Tim Geithner that month to press for action on the request to buy $1.2 billion of Morgan Stanley — and the approval came the very next day:

As the U.S. Federal Reserve grappled with the aftershocks of financial crisis, the Chinese, like many others, suffered huge losses from their investments in American financial firms — from Lehman Brothers to the Primary Reserve Fund, the money market fund that broke the buck.

The cables, obtained by WikiLeaks, show that escalating Chinese pressure prompted a procession of soothing visits from the U.S.Treasury Department. In one striking instance, a top Chinese money manager directly asked U.S. Treasury Secretary Timothy Geithner for a favor.

In June, 2009, the head of China’s powerful sovereign wealth fund met with Geithner and requested that he lean on regulators at the U.S. Federal Reserve to speed up the approval of its $1.2 billion investment in Morgan Stanley, according to the cables, which were provided to Reuters by a third party.

Although the cables do not mention if Geithner took any action, China’s deal to buy Morgan Stanley shares was announced the very next day.

There are more coincidences in this money trail, too.  Just that spring, China dropped its stake in US treasuries to $764 billion, which sent ripples through the bond markets and threatened to complicate the Obama administration’s efforts to borrow money to fund its spending.  By July, after the regulatory decision to allow the Morgan Stanley purchase, China’s holdings in US treasuries hit a record $940 billion.

Did Geithner intervene with regulators to get the purchase approved?  The sudden dive back into treasuries has the appearance of a quid pro quo.  It kept Treasury sales from becoming prohibitively expensive, helping the Obama administration to continue its spending spree.   Perhaps Congress should follow the money to find out exactly where American fiscal policy gets set these days.

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