Geithner's NY Fed Reportedly Told AIG To Withhold Info

One charge that has trailed Treasury Secretary Tim Geithner since he took office is that the former top Federal Reserve official in New York is too cozy with Wall Street.

Of course, it's hard to remember the last Treasury Secretary who wasn't chummy with big Wall Street bankers but, be that as it may, Geithner has especially drawn such accusations because of his previous role as president of the New York Federal Reserve Bank.

Which is why it's not surprising that in the last day or so, a big Internet story has been e-mails from the NY Fed while Geithner still headed it which instructed American International Group, or AIG, not to disclose that it paid certain the Wall Street banks holding certain dubious investments 100% on the dollar.

The e-mails date back to December 2008 after Geithner had been named President Barack Obama's Treasury Secretary-designate.

Geithner's people have said he wasn't behind the e-mails, having recused himself because of his nomination to the Treasury post. But even congressional Democrats want to have hearings to learn more about the matter.

Reuters reported Friday morning:

WASHINGTON (Reuters) - Two prominent U.S. lawmakers Friday called for U.S. Treasury Secretary Timothy Geithner to testify to help determine if the New York Federal Reserve Bank improperly influenced insurer AIG to withhold information on payments it made to banks after a government bailout.

Representative Spencer Bachus, the top Republican on the House Financial Services Committee, and Elijah Cummings, a Democrat on the House Oversight and Government Reform Committee, requested their respective panels hold hearings on the matter.

Bloomberg News has done the heavy lifting on this story. As it reported Thursday:

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer's payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a "backdoor bailout" of financial firms.

 

"It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information," said Issa, a California Republican. Taxpayers "deserve full and complete disclosure under our nation's securities laws, not the withholding of politically inconvenient information."

Geithner Had 'No Role'

"Secretary Geithner played no role in these decisions," Meg Reilly, a Treasury spokeswoman, said in an e-mail. "He was recused from working on issues involving specific companies, including AIG," after his nomination for Treasury secretary on Nov. 24, 2008. Geithner "began to insulate himself weeks earlier in anticipation of his nomination," she said in a separate statement.

It may be true Geithner had no role in those decisions though that doesn't necessarily mean he didn't know about them in real time but didn't decide the final outcome.

Stay tuned on this one. Expect Geithner to be grilled hard on this one at his next congressional appearance.