Posted on 11 Jan 2010
Treasury Secretary Timothy Geithner was not involved in controversial deliberations between the Federal Reserve Bank of New York and American International Group Inc. (AIG) over what the embattled insurer should disclose in regulatory filings, a top bank official said in a letter to a U.S. lawmaker.
Thomas Baxter Jr., who is general counsel at the New York Fed, said in a Friday letter to Rep. Darrell Issa (R, Calif.) that then New York Fed President Geithner "played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those e-mails."
The emails in question, which were released by Issa's office Thursday, show that officials at the regional Fed bank told AIG not to disclose key details of their agreements to make big payouts to banks in late 2008. AIG later had to amend its regulatory filings several times and provide the information after the Securities and Exchange Commission requested more disclosure.
U.S. lawmakers, particularly Republicans, have seized on Geithner's role in the matter. The Treasury has said Geithner was not involved in the disclosure decisions, and many of the released documents cover a period when he had already recused himself after being named by President Barack Obama as his treasury secretary.
Baxter said in his letter that the matters "were not brought to the attention of Mr. Geithner" because the general counsel felt it "did not warrant the attention" of the then head of the New York Fed.
Issa, the ranking GOP member of the House Committee on Oversight and Government Reform, said Baxter's letter provides an incomplete picture of the high-stakes negotiations between AIG and the New York Fed. In a statement released by his office, he said Baxter has been asked to meet with committee investigators.
"This letter raises more questions on the inner-workings of the New York Fed during one of the most pivotal periods in our nation's history," Issa said.
The House Oversight panel, chaired by Rep. Edolphus Towns (D, N.Y.), is scheduled to hold a hearing on AIG later this month, to which Geithner and Baxter have been invited to appear.
The decision by AIG and the New York Fed to pay off in full the insurer's counterparties on some $62 billion in bets on soured mortgage securities has become a popular target for lawmakers and the public outraged at the financial crisis and its aftermath. Congressional pressure forced AIG to release the names of banks that were made whole, with the biggest payouts going to French bank Societe Generale (SCGLY) and Goldman Sachs Group Inc. (GS).
The issue also represents another headache for Geithner, who is already dealing with a struggling economy and fragile financial system he inherited when taking office, as well as an effort to overhaul regulation of U.S. financial markets.