The New York Federal Reserve and Tim Geithner, its former president and current US Treasury secretary, will come under increased pressure on Wednesday on Capitol Hill, after the release of more e-mails relating to the bail-out of AIG.
Republicans on the House oversight committee are accusing the New York Fed of a “cover-up” after reviewing thousands of pages of e-mail traffic between officials discussing the decision to pay $27.1bn, equivalent to par value, to banks led by Société Générale and Goldman Sachs that had bought credit default swaps from AIG.
Mr Geithner and Thomas Baxter, general counsel of the New York Fed, are set to offer a robust defence of the New York Fed’s actions, although the Treasury secretary will distance himself from the subsequent decision of the bank to press hard to keep information about the transactions confidential.
“There is no evidence whatsoever in the documents that Timothy Geithner was himself involved [in the quest for secrecy],” said a Democratic committee staffer on Tuesday.
The Fed originally resisted releasing names of counterparties who were paid out in full when the New York Fed stepped in to rescue AIG. Critics have argued the Fed should have negotiated a discount.
Even after conceding the names could be released, the Fed has sought to keep confidential more detailed information about the collateralised debt obligations it purchased.
Mr Baxter is set to argue that that was the responsible thing to do to protect the public money at stake. Giving up detailed information about the CDOs could lead to market participants taking advantage of the Fed when it came time to sell them, he will argue. Some details of the CDOs appeared in subpoenaed documents that were being circulated widely last night.
Other e-mails, assembled by investigators, show the New York Fed at one stage trying to keep private the fact that it paid par value for the CDOs. That detail does not have obvious implications for either the Fed’s trading position or for AIG’s future business.
“As a matter of course, we do not want to disclose that the concession is at par unless absolutely necessary,” writes Alejandro Latorre, a Fed official, in one e-mail in which he suggests removing a sentence from documents due to be provided to financial agents working for the Fed. Officials say they saw no need to provide the information.
In one e-mail to Mr Geithner, Margaret McConnell, a New York Fed official, reveals tensions between the New York Fed, the Bush Treasury and the Federal Reserve board in Washington in the run-up to the counterparty payments, with the last two institutions adopting a more cautious, and slower, approach.
“Leaving aside Treasury’s unfortunate (untenable?) stance on this, board staff still doesn’t seem to be attacking this in a ‘here’s what we need to do and why’ kind of way,” wrote Ms McConnell on October 22 2008.
Fed officials later disagreed about the need to keep different parts of the deal secret. In one discussion, James Bergin, a Fed official, wrote: “There were too many people involved in the deals – too many counterparties, too many lawyers and advisers, too many people from AIG – to keep a determined Congress from the information.”
Investigators have not produced any e-mails tying Mr Geithner to the bid for secrecy, but committee members say he will still have to answer questions over the transaction and the New York Fed’s subsequent behaviour.
Get alerts on Insurance when a new story is published