Federal Reserve Chairman Ben Bernanke took the unusual step Tuesday of asking Congress's investigative arm to conduct a "full review" of the Fed's role in bailing out insurance giant American International Group.
The Fed chief's move is aimed at defusing criticism of the government's $182 billion rescue. The bailout sparked public outrage and demands in Congress for more information, especially after it was revealed that millions in bonuses would go to employees in the AIG division most responsible for the company's need for a bailout.
Bernanke called for the audit "to afford the public the most complete possible understanding of our decisions and actions in this matter, and to provide a comprehensive response to questions that have been raised by members of Congress," he said in his Tuesday letter to the Government Accountability Office.
Congress passed a law last year giving the GAO authority to review Fed documents in the AIG bailout. The GAO said Bernanke's request will be weighed against other demands on the agency's staff.
One of the Fed's member institutions -- the New York Fed -- hasn't made Bernanke's job any easier. Then led by current Treasury Secretary Timothy Geithner, the New York Fed appears to have pressured AIG to keep secret its taxpayer-funded payments to counterparties like Goldman Sachs, according to scores of e-mails released by House Committee on Oversight and Government Reform Ranking Member Darrell Issa (R-Calif.).
AIG eventually released the details three months later, but not before the Fed and its lawyers tried to keep details hidden from the public and other federal regulators. The e-mails have embarrassed the New York Fed, particularly Geithner. Congressional hearings are scheduled for Jan. 27. Geithner will testify.
The secrecy -- and the billions involved that flowed directly from taxpayers into the hands of Wall Street banks -- has led many to accuse it of being a "backdoor bailout."
Issa has been at the forefront investigating the terms of AIG's bailout, most notably the New York Fed's decision to pay AIG's counterparties 100 cents on the dollar for what were nearly-worthless securities. Other firms successfully negotiated lower payments. The Geithner-led New York Fed did not, according to a government watchdog report released last year.
"If Chairman Bernanke is willing to give full disclosure to the GAO, I would think he would be just as willing to provide that same level of disclosure to the Congress and to our committee," Issa said in a statement. "I have asked repeatedly that documents from both the Treasury and the Fed be provided to the Oversight Committee so that we can gain a full picture of what really happened, who knew what and how is it that the American people were kept in the dark for so long?
"If the Fed is as vested in oversight and transparency as they claim in this letter, they should be quick to provide us with all the support we need to complete this bipartisan investigation," Issa wrote.
In the letter, Bernanke said the Fed expects to be "fully repaid" by Sept. 16, 2013 -- five years after the first lifeline was thrown to AIG.
READ Bernanke's letter below:
Information from the Associated Press was used in this report.