Emails Suggest Geithner Colluded With AIG to Violate SEC Rules

Recently released emails from Nov. 2008 suggest that New York Fed President Timothy Geithner instructed AIG to withhold key details from the public about the 'back-door bailout' that benefited Goldman Sachs and more than a dozen other Wall Street firms

The New York Fed -- an arm of the Federal Reserve -- then led by now-Treasury Secretary Timothy Geithner, reportedly told bailed-out insurance giant AIG to withhold key details from the public about overpayment that put billions of extra taxpayer dollars in Wall Street's hands. Rep. Darrell Issa (R-CA), ranking member of the House Committee on Oversight and Government Reform, released a series of emails between AIG and the New York Fed. The emails were originally reported on by Bloomberg News. The emails span a five month period beginning in November 2008. The government has committed about $182 billion in taxpayer money to AIG, the non-regulated firm whose bets on seedy derivatives that were sold despite not having the proper capital in place brought the economy to its knees. AIG, courtesy of U.S. taxpayers, repaid more than a dozen financial firms at 100 cents on the dollar for nearly worthless credit-default swaps that banks bought from AIG. The New York Fed, run by Timothy Geithner, stepped in when AIG was trying to negotiate better terms with the banks. Information Should not be Withheld Because it's Politically Inconvenient It seems that Geithner told AIG to delete references on draft regulatory filings to the seedy deals so AIG excluded any mention of them in its December 2008 filing with the U.S. Securities and Exchange Commission (SEC), opting instead to keep the information hidden from its investors and the public. According to Bloomberg News, Rep. Issa said that it appears the New York Fed deliberately pressured AIG to manipulate and withhold disclosure information to the SEC, and Americans -- who own approximately 80% of AIG -- deserve full and complete disclosure under our nation's securities laws, and information should not be withheld because it's politically inconvenient. Rep. Issa wonders why the New York Fed didn't fight for a better deal for American taxpayers. Why did the New York Fed want to suppress details and limit disclosure of the deal from American taxpayers? Goldman Sachs, Merrill Lynch and Wachovia were three of the Wall Street firms that received full value for their derivative contracts -- $27.1 billion of the 'back-door bailout' money that AIG received. Geithner and his team helped those companies receive top dollar for the seedy derivatives instead of bargaining for deals. When the New York Fed took over negotiations between AIG and the banks in November 2008, they reportedly decided that Goldman Sachs and more than a dozen banks would be fully repaid $62.1 billion in contracts that were tied to toxic assets. Geithner Proposed Asking Congress to Give the President Power to Guarantee all Bank Debt A recent 47-page report (PDF) from the Office of the Special Inspector General for the Troubled Asset Relief Program suggests that New York Fed officials decided to pay AIG's counter-parties 'par value' -- fair market value plus collateral payments they had already received -- for the collateral debt obligations underlying AIG's credit default swap portfolio to avoid a downgrade because it knew that a further downgrade was coming. In order to avoid another downgrade, the Federal Reserve and Treasury decided to create yet another potentially fraudulent special purpose vehicle called Maiden Lane III which served to buy the underlying collateral of a portion of AIG's credit default swaps from a number of AIG's counter-parties. As noted by Common Dreams, consider the timing of the newly discovered action. On Nov. 21, 2008 reports emerged that Geithner was being tapped by President-elect Obama to head the U.S. Treasury; Geithner's nomination was confirmed by the Senate on Jan. 29, 2009. The details of AIG's full payments to various banks with billions of dollars in taxpayer funds -- which otherwise would have become public no later than December of 2008 -- weren't disclosed to the public until March when Geithner was already in office. Those five months of emails are just the tip of the iceberg. Credit default swaps were an important contributing factor to the economic meltdown. Since taxpayers own 80% of AIG, taxpayers are entitled to full disclosure of AIG's actions and documents pertaining thereto. Apparently three former Fed officials are the 'trustees' in the A.I.G. Credit Facility Trust who holds the taxpayer's stake in AIG. This should bode well for taxpayers... Geithner -- member and overseer of the Finance club who proposed asking Congress to give the President broad power to guarantee all the debt in the banking system -- is already under fire for his dubitable role in the Lehman Brothers bankruptcy. Revelation of those emails offer more evidence that makes it appear that taxpayers may have been defrauded in the government's handling of the AIG affair. TARP Inspector General Neil Barofsky reportedly has an open investigation into the allegations of Geithner's role in AIG's misstatements on the filings. Mr. Geithner has some 'splainin' to do.