By Michael R. Crittenden, Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- The actions during the rescue of American International Group Inc. () have “serious implications for the continued health of democracy,” according to a GOP memo prepared for a Wednesday hearing featuring Treasury Secretary Timothy Geithner.
The report, prepared by staff for Rep. Darrell Issa (R., Calif.), calls the a “quasi-governmental agency, unaccountable to the American people.” The Fed’s actions during the AIG rescue, including the effort to withhold the names of the insurer’s counterparties, “demonstrates the threat that the Federal Reserve poses to basic principles of American democracy,” the report concludes.
The charged language could up the ante for a Wednesday hearing before the House Committee on Oversight and Government Reform. The panel is investigating the government’s rescue of AIG in the fall of 2008 at the height of the financial crisis, as well as the November 2008 decision to pay the insurer’s counterparties 100 cents on the dollars for securities tied to soured mortgage bets.
Documents uncovered by the panel show that officials at the Federal Reserve Bank of New York, which Geithner was then president of, had little confidence in their attempts to get the counterparties to accept less than 100% on payments they were owed.
“I don’t know why we even bothered to ask,” New York Fed General Counsel Thomas Baxter told committee investigators, according to the GOP report.
Lawmakers from both parties have also expressed outrage at what they view as an attempt by Fed officials in New York and Washington to withhold the names of AIG’s trading partners, which includes firms such as Goldman Sachs Group Inc. ( GS). The GOP report quotes a Nov. 24 email from Alejandro LaTorre in which the New York Fed assistant vice president asks “But can [AIG] make these docs public without our consent? Aren’t we parties to this and shouldn’t we have a say?”
The Treasury Department has insisted that Geithner had no say in the discussions dealing with disclosures, a response Baxter echoed in interviews with congressional investigators. The GOP report for Wednesday’s hearings make clear, however, that lawmakers are not satisfied with the answers they’ve received thus far.
“At a minimum, the cover-up of the details about AIG’s counterparty payments began on Secretary Geithner’s watch, and the culture of the [New York Fed] in which this behavior occurred reflected his leadership,” the report said.
-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; [email protected]
(END) Dow Jones Newswires 01-25-102046ET Copyright (c) 2010 Dow Jones & Company, Inc.