The chairman of the House oversight committee has questions about the $182 billion in bailouts given to American International Group and he’s ready to call in the U.S. Treasury secretary to get some answers.
At least one television host is suggesting the New York Federal Reserve’s involvement in the bailout could spell the “end” of Sec. Timothy Geithner.
Rep. Edolphus Towns (D-NY) said he plans to hold a hearing on the AIG bailouts sometime in January and plans to ask Geithner to testify about why the New York Federal Reserve told AIG to hide massive payments to banks, according to a published report.
“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,” Towns said in a statement, The Washington Post reported. “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.”
In the aftermath of its near collapse, AIG was told by the New York Federal Reserve to keep off the books its planned over-payments to other banks that had agreed to purchase its toxic assets, most notably Goldman Sachs. The move was revealed in a series of e-mails unearthed by Congressional investigators working for the Troubled Asset Relief Program inspector general.
“After the firm was given a taxpayer-funded backstop, one of its most controversial acts was to repay banks at 100 cents on the dollar for what was by that point nearly worthless insurance the banks had bought from AIG, known as credit-default swaps,” The Huffington Post noted. “A brutal report issued in November by a government watchdog disclosed that AIG had actually been trying to negotiate better terms with the banks until – guess what? — the New York Fed stepped in. The report held Geithner personally responsible, and led to renewed questions about his fitness for the job.”
Those questions were echoed by MSNBC’s liberal host Ed Schultz, who wondered aloud on Thursday night whether the scandal would be “the end” of Geithner.
“If there’s anybody out there who’s still harboring any doubt that the fix is in, I mean that most of this government has become a government of the bankers, by the bankers and for the bankers, this story has got to put an end to that and it’s also got to put an end to Tim Geithner,” Huffington editor Roy Sekoff opined to Schultz.
White House Press Secretary Robert Gibbs defended the embattled Treasury secretary on Friday, telling reporters that Geithner had recused himself from the AIG negotiations and “wasn’t party to the decision” to have AIG hide its payments.
A lawyer for the New York Federal Reserve later claimed, according to Bloomberg, that Geithner was unaware of the negotiations’ details because it was thought to be an issue unworthy of the bank president’s attention.
Rep. Barney Frank (D-MA), who chairs the House Financial Services Committee, said Friday that he is “troubled” by reports of the NY Fed’s actions and plans to hold a hearing on the matter, according to Politico.
“The power of the Fed in forcing AIG to keep these details secret cannot be understated,” Huffington Post added. “As detailed in journalist Andrew Ross Sorkin’s recent book on the bailout, “Too Big To Fail”, AIG officials had been pleading with the New York Fed for assistance throughout the crucial first weeks of September 2008 before the firm was finally given a taxpayer-funded bailout. The firm’s pleadings were largely ignored by Geithner, who was preoccupied with Lehman Brothers and other Wall Street broker-dealers like Merrill Lynch, Morgan Stanley and Goldman Sachs. The firm owes the Fed its survival.”
“In the end, A.I.G. would pay Société Générale $16.5 billion, Goldman $14 billion in total, Deutsche $8.5 billion and Merrill $6.2 billion,” The New York Times reported.
This video was broadcast by MSNBC on Jan. 8, 2010.
This story was updated from a prior version.