Geithners Fed told AIG to limit swaps disclosure

Written by Bloomberg | Updated: Jan 9 2010, 03:56am hrs
The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc to withhold details from the public about the bailed-out insurers payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on December 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a backdoor bailout of financial firms.

It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information, said Issa, a California Republican. Taxpayers deserve full and complete disclosure under our nations securities laws, not the withholding of politically inconvenient information. President Obama selected Geithner as Treasury secretary, a post he took last year.

Issa requested the e-mails from AIG chief executive officer Robert Benmosche in October after Bloomberg News reported that the New York Fed ordered the crippled insurer not to negotiate for discounts in settling the swaps.