AIG House oversight
House Oversight Committee hearing January 27
- Source: Chairman Towns Announces Hearing to Examine AIG’s Federal Financial Assistance House Oversight Committee
WASHINGTON – On Wednesday, January 27, 2010, the House Committee on Oversight and Government Reform will hold a hearing titled: “Factors Affecting Efforts to Limit Payments to AIG Counterparties.” The hearing will examine the collapse and federal rescue of American International Group, Inc. (AIG), in particular the compensation of AIG credit default swap counterparties.
The hearing will take place at 10:00 a.m. in room 2154 Rayburn House Office Building. A live webcast of the hearing will be available on the Committee website: http://oversight.house.gov. The witnesses invited to testify include:
- The Honorable Timothy F. Geithner, Secretary , United States Treasury Department
- Mr. Thomas C. Baxter, Executive Vice President and General Counsel, Federal Reserve Bank of New York (Testimony)
- Mr. Neil Barofsky, Special Inspector General, Troubled Asset Relief Program (SIGTARP) Testimony
- Mr. Elias Habayeb, Former Senior Vice President and Chief Financial Officer – Financial Services Division , American International Group, Inc.
Rep Towns requests documents on Friedman waiver
- Source: [ Fed Told to Hand Over Friedman Documents] Wall Street Journal, March 19, 2010
Lawmakers demanded documents from the Federal Reserve relating to the purchases of Goldman Sachs Group Inc. stock by Stephen Friedman, the former Goldman executive who stepped down as chairman of the Federal Reserve Bank of New York last year because of a controversy over those purchases.
Mr. Friedman's Goldman stock purchases, which occurred in December 2008 and January 2009, raised "serious questions about the integrity of the Fed's operations," Edolphus Towns, chairman of the House Committee on Oversight and Government Reform, said in a letter to Fed Chairman Ben Bernanke on Thursday.
Mr. Towns's staff has been investigating the incident, which involves potential conflicts of interest and revolves around complicated rules that oversee the boards of 12 regional Fed banks.
A spokeswoman for the Fed said it had received Mr. Towns's request and planned to respond.
Rep Issa requests AIG documents
- Source: Bernanke Asked for Fed’s AIG Bailout Documents by Lawmaker Bloomberg, February 18, 2010
Feb. 18 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke has been asked by a Republican lawmaker to turn over documents related to the decision to rescue insurer American International Group Inc.
The Federal Reserve should deliver the records by March 2, according to a letter dated yesterday from Representative Darrell Issa of California, ranking member of the House Oversight and Government Reform Committee. Bernanke last month invited the Government Accountability Office to conduct a “full review” of the central bank’s actions tied to the bailout that swelled to $182.3 billion.
“In light of your professed commitments and your apparent desire to cooperate with this committee’s investigation, I am writing to request that you voluntarily produce to this committee all records and communications in the possession of the Federal Reserve” regarding the rescue, Issa wrote.
Issa is seeking to widen the probe into what he’s called a “backdoor bailout” of banks that got funds from AIG after its rescue and efforts by the Federal Reserve Bank of New York to withhold details from the public about the payments. Treasury Secretary Timothy Geithner, who ran the New York Fed when AIG was bailed out in 2008, testified last month that the payments were necessary and that subordinates made disclosure decisions.
The New York Fed, which turned over about 250,000 pages of documents after the oversight committee issued a subpoena, is “not in full compliance” with the demand, Issa wrote in a separate letter to committee Chairman Edolphus Towns. The regulator limited material to the period from September 2008, the month of the bailout, to May 2009, Issa wrote to the New York Democrat.
- Request by Darrell Issa for Fed and Treasury Subpeonas House Oversight and Reform Committee, January 27, 2010
- Treasury Secretary Tim Geithner and Rep. John Mica discuss government assistance of AIG C-Span, January 27, 2010
French were willing to negotiate AIG discounts
- Source: French Were Willing to Negotiate AIG Discounts, Barofsky Says January 27, 2010, Bloomberg
"A French regulator was willing to discuss allowing lower payments to retire American International Group Inc.’s obligations to the country’s banks, according to congressional testimony that undermines part of the rationale the Federal Reserve Bank of New York gave for paying full value.
France’s regulator was “open to further negotiations” to discuss the possibility of concessions by AIG counterparties Societe Generale SA and Credit Agricole SA’s Calyon unit, in November 2008, Neil Barofsky, the special inspector general for the Treasury Department’s Troubled Asset Relief Program, said in prepared remarks for a House oversight committee hearing today.
New York Fed General Counsel Thomas Baxter wrote to Barofsky last year that the regulator declined to demand concessions from U.S. banks partly because “it would not have been appropriate” when rivals in other nations were unwilling or “legally barred” from giving discounts. Baxter, Barofsky and Treasury Secretary Timothy F. Geithner, who was New York Fed president during the rescue, are scheduled to testify today before the House panel reviewing the $182.3 billion bailout.
“It appears officials at the New York Fed deceived or even lied to the inspector general regarding the French regulator’s position,” said Joshua Rosner, managing director at Graham Fisher & Co., a New York investment research firm.
Barofsky is investigating the extent of U.S. regulators’ cooperation with his office and whether the New York Fed improperly limited disclosures about the bailout, he said in his testimony. Andrew Williams, a spokesman for the Treasury Department, referred questions to the New York Fed.
AIG’s obligations had to be resolved quickly to avoid “catastrophic consequences” for the economy, Baxter said in prepared remarks for the hearing. “Taking additional time to press further for a discount was not justified.”...
...Geithner approved payments of $62.1 billion, or full value, to 16 AIG counterparties, including Goldman Sachs Group Inc., in November 2008 to retire contracts in which the insurer promised to reimburse the banks for declines in mortgage-linked holdings, according to a Nov. 17, 2009, Barofsky report. The French banking regulator “forcefully asserted” that firms in the country couldn’t make concessions outside of an AIG bankruptcy, Barofsky said in that report.
Barofsky learned subsequently that France’s Commission Bancaire was prepared to negotiate with the New York Fed, he said in today’s testimony. Previously the New York Fed told his office that the commission prohibited concessions, he said.
“The French regulators noted that such negotiations would have been unprecedented, would have likely required universal agreement among counterparties to make concessions, and would have had to be conducted in a transparent manner and at a high level, but continued negotiations were possible,” Barofsky said.
While the French regulators didn’t tell Barofsky what specific statements they made to New York Fed negotiators, they did say “they did not ‘slam the door’ to such continued discussions,” according to his testimony. Commission Bancaire spokeswoman Corinne Dromer declined to comment.
“Abus de biens sociaux”
- Source: AIG 100-Cents Fed Deal Driven by France Belied by French Banks Bloomberg, January 21, 2010
...The French law that the Commission Bancaire may have cited is called “abus de biens sociaux,” or misuse of company assets, said David Chijner, a partner with Fried, Frank, Harris, Shriver & Jacobson LLP in Paris who specializes in corporate restructuring and mergers.
The law prohibits company executives from making decisions they know to be contrary to the interests of the company. Violators can be jailed for up to five years and fined as much as 375,000 euros ($545,000).
“It could be considered an ‘abus de biens sociaux’ in extreme circumstances,” Chijner said.
James D. Cox, a professor of corporate and securities law at Duke University School of Law in Durham, North Carolina, said it is “preposterous” that reaching a settlement for less than 100 cents “could be a criminal act in a developed Western country in the depths of a financial crisis.”
“Even if you concede the point, it was not a crime for Goldman Sachs to take less than 100 percent,” Cox said. “Treating all the banks the same is a bunch of hooey.”
Goldman Sachs’s Friedman says he didn’t favor bank at N.Y. Fed
- Source: Goldman Sachs’s Friedman Says He Didn’t Favor Bank at N.Y. Fed Bloomberg, January 27, 2010
Goldman Sachs Group Inc. board member Stephen Friedman said the bank didn’t gain any unfair advantage during his tenure as Federal Reserve Bank of New York chairman.
Friedman said New York Fed staff kept sensitive information away from him and other officials with private-sector ties to avoid conflicts. He testified today before a U.S. House committee on what some lawmakers are calling the New York Fed’s “backdoor bailout” of banks, including Goldman Sachs, that did business with American International Group Inc.
Friedman, who spent a career at Goldman Sachs, said it “wasn’t feasible” for him to sell his company stake and step down from the board in September 2008 when the New York Fed assumed oversight of Goldman Sachs. The New York Fed authorized $8.1 billion in payments to Goldman Sachs as part of the government bailout of AIG.
Stephen F. Lynch, a Massachusetts Democrat, asked Friedman why he bought 37,000 additional Goldman shares during his tenure and sought a waiver to allow him to stay with the New York Fed. The shares purchased by Friedman in December 2008 and January 2009 have about doubled in value to around $8 million. Friedman resigned his post at the New York Fed in May.
“You knew you were not in compliance, you had to apply for a waiver,” Lynch said at the hearing of the House Oversight and Government Reform Committee. “Yet you bought 37,000 more shares.”
Friedman, 72, said the New York Fed staff sought the waiver on his behalf. He said he “played no role” in decisions about payments to AIG counterparties.
Goldman Sachs, the most profitable firm in Wall Street history, became a bank holding company after the 2008 collapse of rival Lehman Brothers Holdings Inc. That move, which submitted the firm to Fed oversight, would have normally barred Friedman from continuing to serve at the New York regulator. Officials gave him the waiver so he could remain in the job.
“Although I have been in compliance with the rules, my public service-motivated continuation on the Reserve Bank Board is being mischaracterized as improper,” Friedman said in a letter to Fed officials last year as he announced his resignation. The Goldman Sachs stock purchases “did not violate any Federal Reserve statute, rule or policy,” Thomas Baxter, general counsel of the New York Fed, said in a statement.
AIG publishes holdings that Fed wanted to keep secret
- Source: AIG publishes holdings that Fed wanted to keep secret Bloomberg, January 30, 2010
"American International Group Inc. publicly filed a list of mortgage investments two days after Representative Darrell Issa disregarded testimony from a Federal Reserve Bank of New York executive and released the data.
AIG issued a filing today with the so-called Schedule A, a table that identifies collateralized debt obligations purchased from the insurer's bank counterparties including Goldman Sachs Group Inc. in 2008. Regulators at the time were injecting cash into financial firms to prevent the credit freeze from worsening. Money from the New York Fed was used to buy CDOs and fulfill AIG contracts that guaranteed the slumping securities.
The filing was made "due to the recent public disclosure of the full contents of Schedule A," New York-based AIG said. The list was distributed by Issa on Jan. 27, published by news organizations and posted on the Internet.
The New York Fed has said the securities may be more difficult to sell if investors know the composition of the AIG portfolio. Lawmakers including Issa, a Republican of California, have pushed for more information on the insurer's bailout and efforts by the New York Fed to limit disclosure..."
SEC mulled national security status for AIG details
- Source: SEC mulled national security status for AIG details Reuters, Jry 24, 2010
Reuters) - U.S. securities regulators originally treated the New York Federal Reserve's bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security, according to emails obtained by Reuters.
The request to keep the details secret were made by the New York Federal Reserve -- a regulator that helped orchestrate the bailout -- and by the giant insurer itself, according to the emails.
The emails from early last year reveal that officials at the New York Fed were only comfortable with AIG submitting a critical bailout-related document to the U.S. Securities and Exchange Commission after getting assurances from the regulatory agency that "special security procedures" would be used to handle the document.
The SEC, according to an email sent by a New York Fed lawyer on January 13, 2009, agreed to limit the number of SEC employees who would review the document to just two and keep the document locked in a safe while the SEC considered AIG's confidentiality request.
The SEC had also agreed that if it determined the document should not be made public, it would be stored "in a special area where national security related files are kept," the lawyer wrote.
In another email, a New York Fed official said the SEC suggested in late December 2008, that AIG file the document under seal and then apply to the regulatory agency for so-called confidential treatment, if central bankers wanted to stop the information from becoming public.
Full repayment removed "uncertainty" for counterparties
- Source: Fed E-Mail to Geithner Cites Bank Benefit From AIG Bloomberg, January 25, 2010
"Timothy F. Geithner, who has denied that the financial condition of American International Group Inc.’s bank counterparties was a consideration in structuring the insurer’s bailout, was told by a senior colleague that the rescue was a way to remove “uncertainty” for the firms.
Buying mortgage-linked assets from banks was better “from a financial-stability perspective” than other plans to shield AIG from losses on contracts guaranteeing the bonds, Margaret McConnell, then a Federal Reserve Bank of New York vice president, wrote in an e-mail to Geithner on Oct. 22, 2008. Geithner, now Treasury secretary, led the New York Fed at the time of AIG’s rescue and McConnell’s e-mail.
The special inspector general of Treasury’s Troubled Asset Relief Program wrote in a 2009 report that Geithner said the New York Fed didn’t weigh the financial status of banks, including Goldman Sachs Group Inc., when deciding to fully reimburse them for $62.1 billion of devalued assets. U.S. Representative Darrell Issa, the ranking member of the House oversight panel that called Geithner to testify this week, has described the rescue of New York-based AIG as a “backdoor bailout” of banks.
The New York Fed weighed two other options for stanching losses tied to AIG’s credit-default swaps in the weeks after the September 2008 rescue, the inspector general, Neil Barofsky, said in the Nov. 17, 2009, report. One included asking counterparties to cancel their swaps and selling the underlying assets for an investment in a vehicle that would assume ownership of the securities. Another was for a Fed-backed vehicle to take over AIG’s responsibility of backing the assets..."
NY Fed gave up on concessions after two days
- Source: AIG Analysis Reveals Bank Discussions Wall Street Journal, January 24, 2010
"Internal documents provided to Congress shed further light on how the Federal Reserve Bank of New York approached its unsuccessful and now controversial negotiations with large U.S. and European banks for concessions in the bailout of American International Group Inc.
An analysis put together by a unit of BlackRock Inc., and given to the New York Fed in November 2008, indicated various banks had significant bargaining power with AIG on insurance contracts tied to souring mortgage securities. Without receiving par, or 100 cents on the dollar, for those securities, the parties had little incentive to cancel the contracts, it noted.
BlackRock's analysis, which preceded the regional Fed bank's attempts to extract concessions from AIG's trading partners, also suggested the mortgage securities AIG insured were worth more than what some banks such as Goldman Sachs Group Inc. had priced them at in the fall of 2008.
Two days after the date of the presentation, and following the Fed's discussions with banks, a New York Fed lawyer reported in a Nov. 7, 2008, email to colleagues that "the concession negotiations did not go favorably although the notions of tear-ups was greeted warmly."
James Bergin, a New York Fed lawyer, also wrote that "we've given up on concessions" and banks would be compensated for the full value of assets they insured with AIG in exchange for canceling contracts written on them..."
Two at Fed had doubts over payout by A.I.G.
- Source Two at Fed Had Doubts Over Payout by A.I.G. New York Times, January 26, 2010
Weeks after rescuing the American International Group with an $85 billion taxpayer loan in late 2008, Federal Reserve Board officials rejected a proposal that would have forced the insurer’s trading partners to return $30 billion in cash that they had received from A.I.G. in the preceding months.
The Fed chose instead to let the banks keep the cash and to receive additional billions from taxpayers. This decision was made, internal documents show, after two Fed governors expressed concern that such a plan might be “a gift” to the company’s trading partners, including Goldman Sachs and Société Générale, a major French bank. The documents were provided to Congressional investigators by the Federal Reserve and were obtained by The New York Times.
Lawyers for the Fed argued in the documents that it did not have the legal authority to guarantee A.I.G.’s obligations. The New York Fed’s chief counsel is expected to reiterate this point in Congressional testimony on Wednesday...
...According to the documents, Mr. Kohn is one of the two Fed governors — the other was Kevin M. Warsh — who expressed worry that paying the counterparties receipt of 100 cents on the dollar to unwind their insurance contracts could be a gift to the banks.
Lawmakers may also ask Mr. Paulson about the extensive bailout work done by Dan Jester, a Treasury adviser who was a top executive alongside Mr. Paulson at Goldman Sachs. Mr. Jester, who did not return calls seeking comment, was instrumental in the Treasury’s handling of A.I.G. until a new person was hired by the Treasury to handle the bailout. Mr. Jester ceased having any role in late October because of his stockholdings in Goldman Sachs, according to a person briefed on the matter who was not authorized to discuss it and so asked for anonymity.
Goldman, which was later identified as A.I.G.’s largest trading partner, received the most money — $12.9 billion — in the payments to counterparties.
A.I.G. got into trouble after its Financial Products unit wrote insurance on mortgage bonds held by large banks and financial institutions. Merrill Lynch, Goldman Sachs, Deutsche Bank and Société Générale were among the buyers of A.I.G.’s credit insurance, which promised to pay them if their bonds went bad.
AIG took four tries on filing as Fed asked to withhold data
- Source: AIG Took Four Tries on Filing as Fed Asked to Withhold Data Bloomberg, January 21, 2010
"... Days before the March filing, Kathleen Shannon, an AIG deputy general counsel, wrote to colleagues that she believed the New York Fed didn’t want the insurer to include names of the securities or their Committee on Uniform Securities Identification Procedures numbers, or CUSIPs.
“In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”
On May 15, AIG submitted additional amendments, this time including Schedule A documents with the total collateral posted and mark-to-market declines for each contract. AIG redacted most of the CUSIPs and tranche names tied to the swaps.
“If such information were to become available to traders in such securities, traders would be able to use such information to their advantage, and undercut the ability of Maiden Lane III to sell those assets for the maximum total return, to the detriment of taxpayers and AIG,” the New York Fed said in its Jan. 19 statement..."
Bernanke seeks ‘Full Review’ by GAO of Fed’s AIG aid
- Chairman Bernanke letter to the GAO inviting an audit Federal Reserve, January 19, 2010
- Source: Bernanke Seeks ‘Full Review’ by GAO of Fed’s AIG Aid Bloomberg, January 19, 2010
Federal Reserve Chairman Ben S. Bernanke invited congressional auditors to conduct a “full review” of the central bank’s aid to American International Group Inc. after lawmakers accused the Fed of trying to conceal information about the bailout.
“The Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG,” Bernanke said today in a letter to Gene Dodaro, acting head of the Government Accountability Office, that was released by the Fed.
Bernanke’s letter coincides with efforts by lawmakers to obtain more details on the Fed’s oversight of AIG after e-mails released this month showed that the New York Fed asked the company to withhold information from the public about payments to banks.
House Committee on Oversight and Government Reform last week subpoenaed all documents related to the New York Fed decision to fully reimburse banks that bought protection from AIG and efforts to persuade AIG to keep information about the payments from the public. The panel set a deadline of 4 p.m. today for the Fed to provide the documents, including Timothy F. Geithner’s e-mails, phone logs and meeting notes tied to the bailout of AIG.
Treasury Secretary Geithner, who was head of the New York Fed when AIG was rescued in 2008, agreed to testify Jan. 27 before the House Oversight Committee on the bailout.
Paulson, Friedman asked to testify on AIG bailout
- Source: Paulson Asked to Testify on AIG Bailout By Towns Bloomberg, January 15, 2010
Former Treasury Secretary Henry Paulson has been asked to testify before a House panel investigating bailout payments to American International Group Inc.’s trading partners.
Edolphus Towns, chairman of the House Oversight and Government Reform Committee, “is well aware of the fact that President Bush’s treasury secretary orchestrated” the bailout of AIG, said Jenny Rosenberg, a spokeswoman for the New York Democrat, in an e-mail today. “Therefore he has already invited Mr. Paulson to testify.” Michele Davis, a spokeswoman for Paulson, declined to comment.
The request by Towns widens the probe into what lawmakers have called a “backdoor bailout” of banks that benefited from the $182.3 billion rescue of AIG. Treasury Secretary Timothy Geithner, who ran the Federal Reserve Bank of New York when AIG was saved in 2008, agreed to testify before the committee this month. Stephen Friedman, the former New York Fed chairman who serves on the board of Goldman Sachs Group Inc., has also been asked to testify, Towns said in a statement.
- Source: Bernanke, Paulson Statements on AIG Bailout Demanded by Issa Bloomberg, January 15, 2010
Federal Reserve Chairman Ben S. Bernanke and former Treasury Secretary Henry Paulson should answer questions in a House probe of bailout payments to American International Group Inc.’s trading partners, a Republican lawmaker said.
Bernanke and Paulson should provide statements about the decision to fully reimburse New York-based AIG’s bank counterparties for $62.1 billion in derivatives and efforts to limit disclosure about the payments, Darrell Issa, ranking member of the House Oversight and Government Reform Committee, said today in a letter. Treasury and the Federal Reserve should be subpoenaed for documents tied to the rescue, Issa said.
SEC may limit AIG disclosure till 2018
- Source: SEC order helps maintain AIG bailout mystery Reuters, January 11, 2010
It could take until November 2018 to get the full story behind the U.S. bailout of insurance giant American International Group (AIG.N) because of an action taken last year by the Securities and Exchange Commission.
In May, the SEC approved a request by AIG to keep secret an exhibit to a year-old regulatory filing that includes some of the details on the most controversial aspect of the AIG bailout: the funneling of tens of billions of dollars to big banks like Societe Generale, Goldman Sachs (GS.N), Deutsche Bank (DBKGn.DE) and Merrill Lynch.
The SEC's Division of Corporation Finance, in granting AIG's request for confidential treatment, said the "excluded information" will not be made public until Nov. 25, 2018, according to a copy of the agency's May 22 order.
The SEC said the insurer had demonstrated the information in the exhibit, called Schedule A, "qualifies as confidential commercial or financial information."
The expiration date for the SEC order falls on the 10th anniversary of Federal Reserve of New York's decision to provide emergency financing to an entity set up to specifically acquire some $60 billion in collateralized debt obligations from 16 banks in the United States and Europe.
All the banks that got money from the Fed-sponsored entity -- Maiden Lane III -- had purchased insurance contracts, or credit default swaps, on those mortgage-related securities from AIG.
The SEC's decision to approve AIG's request for confidential treatment got scant attention at the time. But it could spark controversy now following the release last week of 14-month-old emails that reveal that some at the New York Fed had discussions with AIG officials about how much information should be disclosed to the public about the Maiden Lane III transaction.
- Chairman Towns Announces Hearing to Examine New York Fed's Role in Advising Public Disclosure of A.I.G. Counterparty Payments House Oversight Committee website, January 8, 2010
- NY Fed Lawyer Says AIG ‘Didn’t Warrant’ Geithner Attention Bloomberg, January 9, 2010
- Lawmakers call on Geithner to testify about concerns over AIG bailout The Hill.com, January 8, 2010
- U.S. lawmakers press for Geithner testimony on AIG payment information Reuters, January 8, 2010
- Cummings Demands Geithner Testify on AIG-Fed E-Mails Bloomberg, January 8, 2010
- Geithner says was not involved on AIG disclosures Reuters, January 14, 2010
- AIG bail-out attracts further scrutiny Financial Times, January 8, 2010
- Ranking Member Issa's letter to William Dudley, President of the Federal Reserve Bank of New York Request for documents, U.S. House of Representatives Oversight and Reform Committee, November 2, 2009
- Source: Congressman Demands AIG ‘Backdoor Bailout’ Documents Bloomberg, October 30, 2009
Geithner’s Fed told AIG to limit swaps disclosure
- Source: Geithner’s Fed Told AIG to Limit Swaps Disclosure Bloomberg, January 7, 2010
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.
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 nation’s securities laws, not the withholding of politically inconvenient information.”
Geithner Had ‘No Role’
“Secretary Geithner played no role in these decisions,” Meg Reilly, a Treasury spokeswoman, said in an e-mail. “He was recused from working on issues involving specific companies, including AIG,” after his nomination for Treasury secretary on Nov. 24, 2008. Geithner “began to insulate himself weeks earlier in anticipation of his nomination,” she said in a separate statement.
Geithner, who was tapped by President Barack Obama, took the Treasury job in January, 2009. Mark Herr, a spokesman for New York-based AIG, declined to comment.
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. The decision to pay the banks in full may have cost AIG, and thus taxpayers, at least $13 billion, based on the discount the insurer was seeking.
The e-mail exchanges between AIG and the New York Fed over the insurer’s disclosure of the transactions show that the regulator pressed the company to keep details out of the public eye. Issa’s comments add to criticism from Republican lawmakers, including Senator Chuck Grassley of Iowa and Representative Roy Blunt of Missouri, who wrote letters in the past two months demanding information from Geithner, 48, about the costs of the AIG bailout.
Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, said the e-mail exchanges were “troubling” and that he supports holding congressional hearings to review them.
AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.
“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” Thomas Baxter, general counsel for the New York Fed, said in a statement. He said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”
Kathleen Shannon, an AIG deputy general counsel, wrote to the insurer’s executives in a March 12, 2009, e-mail about the conflicting demands from the New York Fed and SEC.
“In order to make only the disclosure that the Fed wants us to make,” Shannon wrote, “we need to have a reasonable basis for believing and arguing to the SEC that the information we are seeking to protect is not already publicly available.”
Under pressure from lawmakers, AIG disclosed the names of the counterparties, which included Deutsche Bank AG and Merrill Lynch & Co., on March 15. The disclosure said AIG made more than $27 billion in payments without identifying the securities tied to the swaps or listing the value of individual purchases by each bank, details the Fed wanted to keep out, according to the March 12 e-mail from AIG’s Shannon.
Earlier that month, Fed Vice Chairman Donald Kohn testified to Congress that disclosure of the counterparties would harm AIG’s ability to do business. The insurer agreed to turn over a stake of almost 80 percent in connection to its bailout.
The e-mails span five months starting in November 2008 and include requests from the New York Fed to withhold documents and delay disclosures. The correspondence includes e-mails between AIG’s Shannon and attorneys at the New York Fed and its law firm, Davis Polk & Wardwell LLP. Tom Orewyler, a spokesman for Davis Polk in New York, declined to comment as did Shannon.
According to Shannon’s e-mails obtained by Issa, the New York Fed suggested that AIG refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.
‘No Mention of the Synthetics’
The filing “reflects your client’s desire that there be no mention of the synthetics in connection with this transaction,” Shannon wrote to Davis Polk on Dec. 2, 2008. “They will not be mentioned at all.”
AIG had about $9.8 billion of swaps protecting the synthetic holdings as of September 2008, the company said on Dec. 10, 2008. Goldman Sachs said in a press release last month that it was among banks that had losses on synthetic CDOs.
As part of a bailout that swelled to $182.3 billion, AIG and the Fed created Maiden Lane III, a taxpayer-funded facility designed to remove mortgage-linked swaps from the insurer’s books. Shannon told the New York Fed on Nov. 24, 2008, that AIG executives wanted to publicly disclose details about Maiden Lane the next day.
“Do you think it might be feasible to hold off on the Maiden Lane III 8K and press release until next week?” Brett Phillips, a New York Fed lawyer wrote in an e-mail that day. “The thinking is that the Maiden Lane III closing will be a less transparent event, and it might be better to narrow the gap between AIG’s announcement and the New York Fed’s publication of term sheet summaries.”
‘Guided By Your Counsel’
“Given the significance of the transaction, AIG would be best served by filing tomorrow,” Shannon wrote. “We will of course be guided by your counsel.” The document outlining the Maiden Lane agreement was posted on Dec. 2, 2008.
In at least one instance, AIG pushed for documents to be disclosed and then released the information.
“We believe that the agreements listed in the index (i.e., the Master Investment and Credit Agreement and the Shortfall Agreement) do not need to be filed,” Peter Bazos, a Davis Polk lawyer wrote on Nov. 25, 2008. “Please let us know your thoughts in this regard.”
AIG’s Shannon replied that “the better practice and better disclosure in this complex area is to file the agreements currently rather than to delay.” The agreements were included in the Dec. 2 filing.
More details of the negotiations over swaps payments emerged in November 2009 when Neil Barofsky, the special inspector in charge of policing the Troubled Asset Relief Program, assessed the Fed’s role in the bailout.
‘Entitled to Know’
“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”
The New York Fed may eventually recoup its loan to Maiden Lane III, the vehicle that obtained CDOs from the banks after paying to cancel the swaps, Barofsky wrote. According to a New York Fed report, the value of securities and cash held in Maiden Lane III climbed 4.5 percent to $23.5 billion in the three months ended Sept. 30.
AIG’s first rescue was an $85 billion credit line from the New York Fed in September 2008. The bailout was expanded three times and is valued at $182.3 billion. That includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion for Maiden Lane facilities to buy mortgage-linked assets owned or backed by the company.