AIG Silence On Fed Bailout Details Leads To House Panel Inquiry

"More than one year after the first Federal bailout of AIG, the American people continue to question where their tax dollars were really sent when the government rescued this company," Rep. Towns said.

"I continue to believe that a comprehensive review of the rise and fall of AIG, and the involvement of counterparties can provide a useful vehicle to understanding how inadequate regulations, cheap money, risky business deals and in some instances, corruption led to the current economic crisis," he added.

Rep. Spencer Bachus, R-Ala., ranking minority member of the House Financial Services Committee in seeking a hearing had written his committee's chairman, Rep. Barney Frank, D-Mass telling him,"There is no more urgent business before the committee and this hearing should be given the highest priority."

The letter was written after House Oversight Committee ranking minority member Rep Darrell Issa, R-Calif., obtained e-mails between AIG and the Fed.

Mr. Issa provided NU Online with one e-mail that indicated in September 2008 after Fed officials provided AIG more than $180 billion in bailout cash to ward off insolvency, it asked the insurance conglomerate to alter a Dec. 24 securities filing so full details of its decision to totally pay off credit default swaps contracts were not disclosed.

Amongst the institutions which AIG used federal funds to fully repay were Goldman Sachs, Societe Generale, Paribas and Barclays.

The filing with the Securities and Exchange Commission did not include a Schedule A, which would provide the amounts and the names of the institutions which AIG made payments to.

The information was not disclosed until May 2009, after members of the Senate Banking and House Financial Services Committee demanded the information. And, in the material provided Rep. Issa by AIG, the SEC also privately asked AIG why the full data was not disclosed.

"Unfortunately, disclosure and transparency have been sorely lacking when it comes to congressional and public review of the circumstances surrounding AIG's bailout," Rep. Bachus said in his letter to Rep. Frank demanding a hearing.

"For months, the public was prevented from knowing the names of AIG's counterparties and the extent to which AIG fulfilled its obligations to those firms," the letter said.

He wrote that he and other Republicans had just learned that "it was the New York Fed that stepped in to prevent public disclosure of this information by deleting the counterparty names and payment information from AIG's draft regulatory filing.

"This calculated attempt to withhold important information from the public and market participants runs counter to the principles of our capital markets," Rep. Bachus said.

The letter made particular reference to Treasury Secretary Timothy Geithner, who was head of the New York Fed at the time when the Fed and the Bush administration made the decision to provide more than $180 billion to AIG in return for 79.9 percent of its stock.

But, at the time the transactions took place, Secretary Geithner was not involved in the decisions being questioned by House Republicans, according to Meg Reilly, a Treasury spokesperson.

"Secretary Geithner played no role in these decisions and indeed, by November 24, he was recused from working on issues involving specific companies, including AIG," Ms. Reilly said.

The Fed and the Treasury Department jointly agreed to provide aid to AIG because AIG's financial condition was deteriorating to the point where it was unable to provide additional collateral on the credit default contracts, according to information disclosed at the time and elaborated on in a number of congressional hearings in 2009.

It was later learned that AIG had $2.77 trillion in CDS obligations outstanding at the time it received aid from the Fed, according to testimony in June to the House Government Reform Committee by then AIG Chief Executive Officer Edward Liddy.

The documents obtained by Rep. Issa indicated that AIG, also at the request of the Fed, did not disclose its investments of $10 billion in troubled synthetic securities known as collateralized debt obligations that the Fed acquired at a discount in exchange for giving bailout cash to AIG.

The New York Fed, in a belated response to questions yesterday, provided NU Online with a statement today from Thomas Baxter, its general counsel.

"It was appropriate as a party to the Maiden Lane III transactions for the New York Fed to comment on a number of issues, including disclosures, with the understanding that the final decision rested with AIG and its external securities counsel," Mr. Baxter said.

"Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress," he added.

"All information was in fact disclosed that was required to be disclosed by the company, showing that counterparties received par value," he said. "There was no effort to mislead the public."

Mr. Baxter also defended Mr. Geithner. "Matters of AIG securities law disclosure would not have been brought to the attention of the president of the Federal Reserve Bank of New York," he added.