Secretary of Treasury Tim Geithner orchestrated a massive cover-up by the Federal Reserve during his term as Chief of the New York Federal Reserve Bank. According to reports in Bloomberg, the Fed ordered taxpayer bailed out insurer AIG to stay quiet about its payment of funds to Goldman Sachs.
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 insurer’s 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 Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.
Read more about the cover-up at Bloomberg News.
Taxpayers provided AIG with $182 billion in bail-out funds, much of which was used to pay off Goldman and the other big banks in whole, leaving the taxpayer holding the bag.
According to The Huffington Post:
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.
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.
Now it turns out Geithner’s people told AIG to delete references on draft regulatory filings to the sweetheart deals. And AIG then excluded any mention of them in its December 2008 filing with the Securities and Exchange Commission, keeping the information hidden from investors and the public.
“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information to the SEC,” Issa said in a statement. “The American taxpayers, who own approximately 80% of AIG, deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.
“This news ought to serve as a cautionary tale to those who advocate giving the Federal Reserve even more power over the U.S. economy. The lack of transparency and accountability is disturbing enough, but the outstanding question that remains is why the [New York Fed] didn’t fight for a better deal for the American taxpayer. Clearly, the New York Fed wanted to suppress details and limit disclosure of the counterparty deal from the American people — the only question is why?”