AIG Bailout: Issa Demands Fed Turn Over All AIG Documents

04/20/2010 05:12 am ET | Updated May 25, 2011

A leading House Republican called for Federal Reserve Chairman Ben Bernanke to release more documents related to the 2008 bailout of troubled insurer AIG.

In a letter dated Wednesday, Rep. Darrell Issa of California, the top ranking Republican on the House Oversight and Government Reform Committee, demanded that Bernanke turn over the records by March 2.

Issa's investigation into the secretive and oft-criticized AIG bailout -- which at one point put taxpayers on the hook for more than $180 billion -- has already yielded about 250,000 pages of documents. Thanks to Issa's dogged efforts and subpoenas for information, taxpayers have learned crucial details that the Fed and its regional arm in New York had tried to keep under wraps.

But in a separate letter to his committee's Democratic chairman, Edolphus Towns of New York, Issa said his work is "far from complete." Referring to the AIG bailout and subsequent "cover-up," Issa accused the Federal Reserve Bank of New York of withholding key documents and asked Towns to hold the New York Fed in contempt "if they continue to fail to comply" with the committee's subpoena for all related documents.

At issue is what certain regulators knew, when they knew it, and whether they suppressed any information (from the SEC and public) during the bailout of the insurer, which lost big after it gambled with derivatives. Issa said key details and documents have yet to be released by the Federal Reserve, New York Fed and Treasury Department.

During the fall of 2008, the New York Fed, which played a lead role in the bailout and its immediate aftermath, was led by current Treasury Secretary Timothy Geithner. One fateful decision -- how much to pay the banks holding the other side of AIG's derivatives bets -- was led by the New York Fed. Geithner's team decided that AIG and taxpayers should buy the slew of souring assets that stood behind those bets, and then pay the world's biggest banks 100 cents on the dollar in November and December 2008 -- a tab mostly picked up by taxpayers.

Teetering Wall Street firms benefited enormously, but Goldman Sachs was the biggest beneficiary. It's been called a "backdoor bailout." Billions of dollars were sent to the banks in exchange for toxic assets that some say were worth just pennies on the dollar. The move served essentially as a direct subsidy to those banks from taxpayers. A scathing report by a government watchdog held Geithner responsible for the overpayments.

The New York Fed initially pressured AIG to keep the list of those banks hidden from investors, regulators and the public. When it was eventually filed with the Securities and Exchange Commission, the SEC allowed the Fed and AIG to keep the details secret. A heavily-redacted version was made public last March. The Huffington Post obtained an unredacted copy last month before it was publicly released.

Issa wrote that there are documents at the Federal Reserve that "show troubling details about [Fed] Chairman Bernanke's role in the AIG bailout," a claim originally based off a statement made by Sen. Jim Bunning, a Kentucky Republican and member of the Senate Banking Committee. Issa's office received information from a whistleblower that confirmed it.

Bernanke allegedly squashed discussion during that fateful fall about allowing AIG to simply fail. Bernanke has claimed that he wasn't "directly involved" in the government decision to force AIG to keep the identities of the insurer's counterparties secret.

"We now know from several sources that both the Federal Reserve and the Treasury Department are in possession of documents that are essential to inform the Committee's investigation," Issa wrote.

Pre-bailout documents (before September 2008) and those created after May 2009 weren't turned over to Issa's investigators as part of its subpoena. Issa wants them now -- particularly the latter as they could show a concerted cover-up to keep information from the public, as has been alleged.

"The American people deserve to know how and why their tax dollars were spent this way," Issa said in a statement. "These documents are critical to fully understanding the bailout."

READ Issa's letter to Bernanke:

READ Issa's letter to Towns: