Federal Lawmakers Want Geithner to Testify about AIG Payments
Jan. 8, 2010 – Already a known tax cheat, lawmakers want U.S. Treasury Secretary Timothy Geithner to answer for his potential role in ensuring banks received every cent contractually owed to them by the ailing American International Group (AIG) even after an initial $85 billion in taxpayer funds was allocated to the firm to stave off its impending bankruptcy in the fall and winter of 2008.
Congressman Spencer Bachus (R-Alabama) and Congressman Elijah Cummings (D-Maryland), have 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 deals known as credit default swaps, which crippled AIG and would have bankrupted the insurer had it not received tens of billions of dollars in involuntary aid from U.S. taxpayers. Because an AIG bankruptcy would have meant banks a much lower – if any – payout from AIG, federal lawmakers want to know why and how banks received full payments and to what extent Geithner, then the head of the Federal Reserve Bank of New York, might have acted to hide the payments from U.S. taxpayers.
“It is critical that we understand if the [Federal Reserve Band of New York] did request the withholding of information and what the extent and nature of the pressure exerted by the [Federal Reserve Bank of New York] on AIG may have been,” Cummings wrote in a letter requesting a hearing before the House Oversight and Government Reform Committee.
While Cummings wants to look into potential regulatory improprieties, Bachus more pointedly is accusing Geithner and others of deliberately misleading U.S. taxpayers.
“This calculated attempt to withhold important information from the public and market participants runs counter to the principles of our capital markets,” Bachus said in a statement.
Bachus is the ranking Republican member of the House Financial Services Committee while Cummings is a member of the House Oversight and Government Reform Committee. The lawmakers today requested their respective committees investigate Geithner’s role in ensuring banks received full payments instead of negotiating lower amounts and then acted to hide payments from the public.
The matter is the second financial scandal for Geithner during the past year. Soon after being appointed U.S. Federal Reserve chairman by President Barack Obama, Geithner was forced to pay some $34,000 in Social Security and Medicare taxes he hadn’t paid over several years.
Bachus and Cummings requested the hearings after recent news reports referencing e-mail correspondences between Federal Reserve Bank of New York officials and AIG suggesting Geithner and others sought to keep U.S. taxpayers from knowing how their tax dollars were being used.
The calls for Congressional investigations come after 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.
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.