AIG

Simone Baribeau

Why no public/private solution?

The Congressional Oversight Panel convened a hearing to speak with the lawyers from the Federal Reserve and NY Fed (and others) about the decision to bail-out AIG.

By all accounts, the Fed was blindsided by AIG’s liquidity situation. Though Michael Finn, the Office of Thrift Supervision’s northeast regional director, said there had been an OTS/NY Fed staff meeting to discuss the OTS’s concerns about AIG’s liquidity, representatives from the Fed and the NY Fed said they were unaware of the risks AIG posed to its counterparties until the Lehman Brothers weekend. Sarah Dahlgren, an executive vice president of the NY Fed, said that, until a couple days before the group’s collapse, it was not believed to be one of the top ten risks to counterparties.

And even then, AIG seemed to be a problem with a private sector solution. 

Simone Baribeau

It’s been a rough day for “TFG75″ – the email name for Tim Geithner. At least, it’s been a rough day according to intrade, which is giving Treasury secretary a 40 per cent chance of losing his job by the end of June, after a day of being grilled by the House oversight committee.

For a wrap of today’s hearings, see: 

Simone Baribeau

Ok, they’re not secret any more. But the New York Fed did, early on, put some effort into not disclosing the names of AIG counterparties. And so, in the run-up to Geithner’s testimony tomorrow, Darrell Issa, the Republican ranking member of the House oversight committee, has released the results of his investigation.

The report reads more like a Washington political thriller than a Congressional document. Just look at its title: “Public disclosure as a last resort: How the Federal Reserve fought to cover up the details of the AIG counterparties bailout from the American people”

Simone Baribeau

The “tremendous expansion” of the NY Fed’s balance sheet, the bank has created a new “Special Investments Management Group,” the bank said today.

The new group will separate out the management of new investments from its financial risk management. 

By Henny Sender

The Federal Reserve is sitting on billions of dollars in paper profits from its controversial effort to unwind credit insurance contracts that AIG provided to banks such as Goldman Sachs, people familiar with the matter said. 

Simone Baribeau

Ben Bernanke, chariman of the Federal Reserve, joined the chorus of those calling for a closer look into the Fed’s actions in the AIG bail-out. In a letter to the Government Accountability Office, he today wrote,

“To afford the public the most complete possible understanding of our decisions and actions in this matter, and to provide a comprehensive response to questions that have been raised by members of Congress, the Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG.” 

Simone Baribeau

Darrell Issa, the ranking Republican member of the House oversight committee who has been spurring on an investigation into the governments role in the AIG ‘backdoor bail-out’, today asked the committee’s chair to subpoena “all relevant documents from the Federal Reserve Board and the Treasury Department” and “obtain information” Ben Bernanke and Hank Paulson, the Treasury secretary at the time of the decisions.

It’s a significant move. 

Simone Baribeau

AIG is back on the House’s radar.

Earlier this week, Edolphus Towns, the Chairman of the House oversight committee, said he would subpoena the NY Fed for documents related to AIG counterparty payments and today he said that Tim Geithner had confirmed that he would speak before the committee later this month.

And separately, in a tersely worded response to Spencer Bachus, the Republican Ranking Member on the House Financial Services Committee, Barney Frank, the committee’s Democratic Chairman, said the Fed’s role in the AIG bail-out would be back on his committee’s agenda.

It is not, of course, the idea of looking into Chairman Ben Bernanke’s role that has Mr Frank up in arms. Mr Bernanke was, after all, a Republican appointee, and the decision to bail-out AIG and its counterparties came while Mr Bush was still president. It’s that Mr Bachus is continuing to focus on Tim Geithner, then head of the NY Fed and now Treasury Secretary.

But enough background, here’s the statement: 

Simone Baribeau

Edolphus Towns, the Chairman of the House oversight committee, today said he would subpoena the Federal Reserve Bank of New York for documents related to AIG counterparty payments.

“To help the Committee’s investigation of payments made by AIG to its counterparties, I am issuing a subpoena today to the Federal Reserve Bank of New York. This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout.”