|Lawmakers say Timothy Geithner went too easy on the Wall Street banks that helped elect him N.Y. Fed president.|
New York Fed told AIG to keep quiet on deals
Report gives fuel to Geithner critics
WASHINGTON - Controversial deals that sent billions of bailout dollars to Goldman Sachs and other banks were kept quiet under pressure from the Federal Reserve Bank of New York, then led by Treasury Secretary Timothy Geithner.
E-mails between lawyers for the New York Fed and bailed-out insurance conglomerate American International Group Inc. show AIG wanted to disclose some details about payments it made to banks, including Goldman and Deutsche Bank, to cancel financial deals.
But lawyers for the New York Fed, which engineered AIG’s bailout with the Bush administration’s Treasury Department, told AIG to remove the information from a draft.
A watchdog report has said Geithner and the New York Fed mismanaged the AIG rescue, potentially handing billions more than necessary to banks that have since recovered and are again paying record bonuses.
The New York Fed has countered that officials were focused on defusing the worst financial crisis in generations.
It says officials were trying to protect the value of the taxpayer investment. And it says paying the banks less or sharing more information could have sparked a global financial collapse.
But lawmakers of both parties have criticized how Geithner and the New York Fed handled the AIG bailouts.
They say Geithner went too easy on the banks that helped elect him president of the New York Fed and has been too willing to rush to their aid.
The e-mails were provided by California Representative Darrell Issa, the senior Republican on the House Committee on Oversight and Government Affairs. Issa said the information raised new doubts about Geithner’s qualifications.
“This begs the question, knowing what we know now: Would he have even been confirmed?’’ he said in a statement.
The names of the banks that benefited from AIG’s bailouts earlier were kept secret by the Fed’s Board of Governors, which oversees the regional banks.
Fed vice chairman Donald Kohn told lawmakers in March that identifying the banks could upend financial markets just as they were beginning to stabilize.
But when the Fed did reveal which banks had gotten the money, and how much they got, there was little reaction in the markets.
Representative Barney Frank called the New York Fed’s move “troubling’’ yesterday, saying he is in favor of hearings on the issue. But the Massachusetts Democrat and chairman of the House Financial Services Committee said he continues to support Geithner.
“To the extent that there were problems in that AIG situation, we have taken steps to prevent their occurrence,’’ Frank said.
New York Fed spokesman Jack Gutt said the e-mail exchanges were typical of conversations between lawyers preparing financial disclosures.
He said it was the responsibility of AIG’s lawyers to decide what would be disclosed, regardless of pressure from the New York Fed lawyers.
Material from Bloomberg News was used in this report.