Executive Intelligence Review
Subscribe to EIR


Congressional Investigation of AIG Putting Geithner and Bernanke on Hotseat

Jan. 28 (EIRNS)—Even as Federal Reserve Chairman Ben Bernanke was reconfirmed to another term as Fed Chairman, he and Treasury Secretary Tim Geithner are about as secure in their offices as President Richard Nixon was after his 1972 landslide election victory.

There are ongoing Congressional investigations exposing their role in bailing out AIG while covering up the details of the bailout.

On Jan. 25, the ranking members of the House Oversight and Government Reform Committee, led by Rep. Darrell Issa (R-Calif.), released a 22-page report entitled: "How the Federal Reserve Fought to Cover up the Details of the AIG Counterparties Bailout from the American People" which took place in September 2008. The report releases a number of e-mails from the New York Federal Reserve officials which prove that Geithner, then chairman of the New York Federal Reserve Bank (FRBNY), was deeply involved in the policy decision. His meeting log also shows that he conducted six formal meetings on AIG in November 2008 with staff.

As for Bernanke, on Jan. 26, Ranking Member Issa sent a letter to Committee Chair Edolphus Towns urging him to issue a new subpoena in the AIG case, this time to the Bernanke-chaired Federal Reserve. Issa points out that new information has come to light about documents in the possession of the Federal Reserve Board of Governors regarding the Federal Reserve's decision to bail out AIG. Issa points out that his office has received important information from a whistleblower who has identified specific documents which detail Bernanke's personal involvement in the decision to pay AIG credit default swaps at 100%.

Following the Jan. 27 hearing of the House Committee on Oversight and Government Reform examining the government's role in bailing out AIG counterparties and hiding its details from the American public, Issa made public a document (Schedule A) that the FRBNY wanted kept confidential by the Securities Exchange Commission (SEC) until 2018. This 5-page document is a list of approximately 400 worthless credit default swap deals that were paid at 100% of par at the insistence of Fed Reserve Chairman Ben Bernanke and then FRBNY Chairman Timothy Geithner.

Schedule A includes the names of all of AIG's counterparties, the identification numbers of each transaction, and the prices at which Maiden Lane 3 was purchasing the underlying assets. In the end, AIG's filings on December 2, 2008, and December 24, 2008, included the agreements between AIG and ML3 but omitted Schedule A. The Schedule A was finally submitted under pressure from the SEC, but was kept "in a special area at the SEC where national security related files are kept."

In this second document, several emails further establish that Geithner lied under oath when he stated that he had recused himself from the AIG matter.

  • On Nov. 6, 2008, Sarah Dahlgren, the FRBNY's lead staff member in AIG's operations, emailed Geithner with a proposed statement regarding AIG's upcoming equity capital raise for Geithner's approval: "If you are good with this, ... we would also make sure that the company sticks to this line ...."

  • On Nov. 13, Geithner received a report on AIG's restructuring that would be sent to Congress, which Geithner had asked to personally review. Sophia Allison, a staff member of the Federal Reserve's Board of Governors, e-mailed the draft congressional report to several Federal Reserve staff. Michael Nelson, a staff member of the FRBNY, forwarded Allison's email to Geithner with the following message: "Tim—this is the draft EESA-required filing on AIG that the Board owes the Hill, as you requested."

  • In addition, Geithner's meeting logs show that he had at least six formal meetings with the top FRBNY staff members about AIG-related issues between Nov. 4, 2008, and Nov. 21, 2008.

  • Also, Geithner did not respond to a request from Issa for an interview before the hearing. He did, however, meet with Congressman Cummings together with Tom Baxter, General Counsel of the FRBNY, on Friday Jan. 15, 2010, even though Baxter was scheduled to be a witness at the hearing as well. It is Baxter, who has claimed that Geithner had recused himself from AIG case.

In releasing these documents, Issa said: "It's not conjecture, its not speculation, it's fact, the New York Fed gave a back-door bailout to AIG's counterparties and then tried to cover it up. The veil of secrecy that swept through the Fed embraced a mentality that treated transparency as a dispensable luxury rather than a moral imperative."

Regarding Secretary Timothy Geithner's testimony addressing the NYFRB's efforts to limit public disclosure, Issa said, "If he didn't know, he should have and no one has answered the question as to why the New York Fed were so adamant at keeping details of the counterparty deal confidential. If he or anyone else thinks that this investigation will stop after today's hearing, they are completely mistaken. There has been a widespread effort by officials at the NY Fed to thwart transparency and working with the SIGTARP, we will continue to pursue this investigation for as long as it takes to get the truth. Unfortunate as it may be for those who acted deliberately to deceive the American people, there is no statute of limitations in our pursuit of transparency."

In the case of Geithner, he could be facing perjury charges. During sworn testimony before the House Oversight and Government Reform Committee on Thursday, he admitted that he did not sign an agreement recusing himself from the AIG matter. Nonetheless, he claimed: "I withdrew from day-to-day management, operations, policies of the New York Fed, and my colleagues both in Washington and in New York can attest to that." Unfortunately for Geithner, Neil Barofsky, Special Inspector General of TARP, who also testified at the hearing, contradicted Geithner on this matter, and reported that FRBNY executives have stated to his office that they met with Geithner on the AIG credit default swaps deal, and that Geithner "acquiesced" to their proposal to pay the AIG credit default swaps at 100%. When asked by Barofsky's office if the executives felt they had received their "marching orders" from Geithner to pay the counterparties par, one FRBNY official responded, "Yes, absolutely."