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House Panel Subpoenas N.Y. Fed's AIG Documents

Source: WSJ

Posted on 13 Jan 2010

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House panel issued a subpoena for Federal Reserve Bank of New York documents related to American International Group Inc., as the political pressure surrounding one of the more controversial events of the financial crisis continued to grow.

Rep. Edolphus Towns (D., N.Y.), who chairs the House Committee on Oversight and Government Reform, said he was issuing a subpoena for documents that would "shed light on how and why taxpayer dollars were used for a backdoor bailout." At issue is the government-orchestrated decision to make whole AIG's counterparties on some $62 billion in bets on soured mortgage securities.

"We will work with the committee to provide relevant information as appropriate," said a spokeswoman for the New York Fed.

The payments to the insurer's counterparties has been a source of simmering controversy that reached a boil over the last week. Rep. Darrell Issa of California, the ranking Republican on the Oversight panel, recently released documents showing that officials at the New York Fed told AIG not to disclose key details of their agreements with counterparties in late 2008.

The names of the counterparties and the details of the transactions were eventually released, but the new debate over disclosure has thrust the discussion over the government's actions with AIG back into the political arena. Mr. Issa on Tuesday accused Fed officials of blocking attempts to gain access to documents, circulating a letter he received from Neil Barofsky, the special inspector general for the Troubled Asset Relief Program.

The Fed, Mr. Barofsky said in the letter, "has directed us not to provide you with the documents that it has provided to us, and that it will instead respond to your request directly."

People familiar with the matter said the Fed's decision was in line with its standard policy, but Mr. Issa said the New York Fed was trying to "prevent this committee's oversight … for as long as possible."

Republicans have also sought to tie the issue to Treasury Secretary Timothy Geithner, who was president of the New York Fed when decisions over the counterparty payments were being made. The Treasury has insisted that Mr. Geithner had no role in the disclosure discussions with AIG, an argument backed by New York Fed General Counsel Thomas Baxter Jr. Mr. Baxter, in a letter sent to Mr. Issa last week, said that Mr. Geithner "played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those e-mails."

Both Mr. Geithner and Mr. Baxter have been invited to appear later this month before the Oversight panel at a hearing on the AIG matter.