A batch of internal emails showing that the New York Fed, at the time led by current Treasury Secretary Timothy Geithner, urged AIG to conceal certain terms of the company's bailout from the public is fueling a new round of anger from lawmakers.
The House Oversight Committee has set its sights on Geithner and has invited him to testify on the AIG scandal in the coming weeks, the Associated Press reports. But White House spokesman Robert Gibbs said that Geithner, who he said "was not involved" in the emails, still has President Obama's full confidence.
The emails show that after the government agreed to pay banks 100 cents on the dollar for their contracts with AIG -- despite the insurer's efforts at the time to negotiate the amount down -- New York Fed officials encouraged AIG to withhold references to the payments in regulatory filings.
Chief among Geithner's detractors, The Business Insider's Henry Blodget wrote that Geithner mismanaged the financial crisis by directing "the most appalling corporate bailout in U.S. history," consistently yielding to Wall Street first and failing to extract from companies key gains for taxpayers -- like increased lending. And for these errors, even if he worked with the best intentions, Secretary Geithner "must go," says Blodget:
Geithner must go not just because of the emails showing that his New York Fed ordered AIG to keep details of the bailout secret, but because of many other decisions and policies he has championed in the past two years.
These decisions and policies have consistently put the interests of Wall Street ahead of the interests of the taxpayer, and they have undermined the public's confidence in the government at a time when the country needs it the most.
The revelations about the New York Fed's attempts to shield the public from aspects of the AIG bailout also provoked criticism from several Congressmen. Rep. Darrell Issa, the ranking member of the House Oversight and Government Reform Committee, implored Geithner to testify to the committee about his involvement in the matter. It's unclear whether Geithner was aware of the Fed's instructions to obscure the payments, but according to Issa he's implicated either way:
"Inadvertent reporting errors are one thing. Directing a bailed-out company to withhold crucial information from a government agency in order to keep the American public in the dark is another. Whether or not the United States Treasury Secretary was directly implicated in the scheme is a key question. Either he didn't know and he was negligent or he did know and presided over a blatant attempt to withhold information from the American people."
Issa was joined in his calls for an investigation by Rep. Barney Frank, who called the Fed's actions "troubling" and fellow Congressman and House Oversight member Rep. Elijah Cummings, who called Geithner's appearance before Congress "critical":
"It is essential to know what knowledge or involvement now-Secretary of the Treasury Geithner had in the decisions made by New York Fed officials to exclude information" from AIG's regulatory filings, Cummings wrote yesterday to committee Chairman Edolphus Towns, a New York Democrat.
According to financial consultant and blogger Janet Tavakoli, the overpayments were just one of several aspects of the AIG bailout that were kept secret:
The general public was kept unaware of several politically explosive facts. Risky subprime loans partly backed CDOs that AIG insured. Goldman Sachs played a key role in AIG's distress with both credit default swap transactions and CDOs that Goldman underwrote. The identities of the banks--including some foreign banks--that received payments were not revealed until five months after the bailout. The November 2009 TARP Inspector General's report failed to mention that Goldman originated or bought protection from AIG on about $33 billion of the problematic $80 billion of U.S. mortgage assets that AIG "insured" with credit derivatives, about twice as much as the next two largest banks involved.
On Naked Capitalism, Credit Writedowns' Edward Harrison called the Fed's attempt at secrecy "looting and a cover-up plain and simple." As the NY Fed's top regulator, Harrison said, for Geithner "to absolve himself of responsibility is a disgrace." But Felix Salmon, thinking back to the uncertainty surrounding the crisis as it erupted in 2008, entertained the possibility of a different kind of explanation for the Fed's cover-up:
If you read Sorkin's Too Big To Fail, one of the themes running through it is that public-sector officials were in serious panic mode for months, and were convinced that things were much worse than the markets and the press were indicating. It seems they thought that if they just kept things secret, maybe the markets wouldn't find out, and could keep on running in thin air indefinitely. A bit like in the Road Runner cartoons: it's only when you look down and see how bad things are that you actually plunge.
The release of the AIG emails comes on the heels of a New York Times op-ed written by former New York Governor Eliot Spitzer and law professors Frank Partnoy and William Black calling for the online publication of all AIG documents. The trio reiterated their request for full disclosure yesterday in The Huffington Post:
As such, today we are renewing our request for the full public disclosure of all AIG documents. We believe the government should put these documents on-line, thereby establishing an open-source investigation that would allow journalists and citizens the opportunity to piece together the story of what happened at AIG and in so doing more fully understand what happened in the broader financial collapse. AIG -- and more specifically its credit-default swaps exposure -- was an important contributing factor to the crash of the financial markets.
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