Report: Geithner Sought to Keep Taxpayers in Dark Over AIG Payments
Jan. 7, 2010 – Even after U.S. taxpayers involuntarily provided an initial $85 billion bailout to ailing insurer American International Group (AIG), U.S. Treasury Secretary Timothy Geithner pressured company officials not to inform taxpayers about payments to AIG’s banking partners.
Geithner’s efforts at secrecy occurred while he was head of the Federal Reserve Bank of New York, which initially allocated some $85 billion in taxpayer funds to AIG in late 20087. But instead of letting U.S. taxpayers know which banks would receive funds, Geithner pressured AIG officials to not disclose the names of its banking partners and the amounts of taxpayer dollars the banks would get through their contractual ties.
Congressman Darrell Issa (R-California) recently obtained e-mail correspondences between AIG officials and the Federal Reserve Bank of New York showing Federal Reserve officials attempted to hide the fact AIG fully would reimburse its trading partners on mortgage-backed securities and other contracts. Issa is the ranking member of the House Oversight and Government Reform Committee and requested copies of e-mails and other correspondences between AIG and Federal Reserve officials in October after news reports indicated AIG fully reimbursed its trading partners instead of negotiating settlement terms after nearly averting bankruptcy via AIG’s taxpayer-funded federal bailout.
“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” Issa told Bloomberg News. Issa suggested Geithner wanted to keep U.S. taxpayers in the dark about “politically inconvenient information.” Geithner became chairman of the U.S. Federal Reserve soon afterward upon President Barack Obama’s appointment.
AIG paid more than $62 billion to fully reimburse the Goldman Sachs Group and other banking partners on high-risk credit default swaps tied to various mortgage markets after receiving its initial $85 billion taxpayer bailout. But instead of revealing the extent of payments to banks, Geithner sought to keep them hidden from the public, Issa contends.
New York Federal Reserve officials negotiated the payments to banks, which was some $13 billion more than the settlement AIG officials attempted to negotiate. Issa suggested Geithner used the AIG bailout as a “backdoor” bailout for banks without taxpayers knowing.
Formerly the world’s largest insurance company, AIG became the world’s most indebted insurer after federal officials in September 2008 agreed to extend the company an $85 billion loan in exchange for an 80 percent share of company stocks. Federal officials said allowing AIG to go bankrupt would have a devastating impact on U.S. and international financial markets and later revised lending terms, making it a $153 billion loan with a lower interest rate and longer repayment period.
Under the new plan, the Federal Reserve provided AIG $60 billion in loans and the U.S. Treasury another $40 billion so company officials could buy up preferred stock. Federal officials also approved $53 billion to purchase the company’s risky mortgage-backed assets and other debt contracts.
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