Bunning Pressing for SEC Probe of AIG Bank Payments
Jan. 12, 2010 – U.S. Senator Jim Bunning has joined a growing chorus of lawmakers calling for a federal investigation into potential law violations regarding the roles officials for the Federal Reserve Bank of New York might have played in securing full reimbursement for ailing insurers American International Group’s (AIG) banking partners and then hiding the transactions for U.S. taxpayers.
U.S. Senator Jim Bunning (R-Kentucky) is a member of the Senate Banking Committee and yesterday wrote U.S. Securities and Exchange Committee Chairwoman Mary Schapiro requesting a federal investigation into the matter.
“Because the information withheld appears to be material information about the financial condition of AIG and the value of the company, these actions may constitute a serious violation of the securities laws,” Bunning said his letter to Schapiro. Bunning also suggested the secretive actions by Federal Reserve Bank of New York officials “are likely to have caused and continue to cause losses to private investors and undermine the credibility of the U.S. financial and securities markets.”
Bunning joins other federal lawmakers calling for an investigation into the matter and whether or not U.S. Treasury Secretary Timothy Geithner, then president of the Federal Reserve Bank of New York, had any knowledge of or played a role in negotiating a full settlement amount for AIG’s banking partners and then hiding the details from U.S. taxpayers. Geithner was the president of the Federal Reserve Bank of New York until President Barack Obama appointed him U.S. Treasury Secretary in December 2008. But several federal lawmakers during the past week have accused Geithner of orchestrating full payments for AIG’s banking partners during the fall and winter of 2008, when Geithner was the president of the Federal Reserve Bank of New York.
Congressman Darrell Issa (R-California) last week released copies of e-mails indicating Federal Reserve officials actively sought to keep U.S. taxpayers from knowing about efforts to fully reimburse banks with contractual business ties to AIG. But a Jan. 8 letter to Issa from the Federal Reserve Bank of New York’s general counsel, Thomas Baxter, suggests lower-level employees kept Geithner out of the loop regarding negotiations and settlement amounts.
Geithner has denied having any role in the controversial negotiations between AIG officials and representatives of banking giants Goldman Sachs, Deutsche Bank and Societe Generale. But Issa suggested the letter from Baxter confirms Federal Reserve Bank officials already knew Geithner’s position on the matter and carried out his will.
Congressman Spencer Bachus (R-Alabama) and Congressman Elijah Cummings (D-Maryland), last week requested Geithner appear before the House committees on which they serve to explain how AIG’s banking partners received 100 cents on the dollar for high-risk, mortgage-backed securities known as credit default swaps, which crippled AIG and would have bankrupted the insurer had it not received nearly $183 billion in involuntary aid from U.S. taxpayers.
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, Federal Reserve officials 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.
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