A few weeks ago, I commented on Bloomberg’s finding that the New York Federal Reserve urged AIG not to disclose some details about its bank swap payments to big investment banks. Since then, the Fed has asserted that it did nothing wrong. Today, there’s additional news: its chairman, Ben Bernanke, says that he’d welcome a full inquiry into the AIG bailout. I say, let’s have one — but don’t expect to find anything too dramatic.
Bernanke’s office released a letter (.pdf) today to the U.S. Government Accountability Office saying:
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.
This tells me that Bernanke doesn’t believe that Fed has anything to hide. Presumably, neither does then president of the New York Fed, Treasury Secretary Timothy Geithner. He said he’d testify too.
I think a full inquiry would be useful for two reasons. First, it would better illuminate how the Fed handles these kinds of situations. Not only is that a useful exercise for Congress, but it could also help shape its opinion on whether the Fed is ripe for more authority as the sole systemic risk regulator.
But second, it would put any fears to rest that the Fed broke any laws. I would be shocked — shocked — if it did so. If the Fed did have anything to hide here, it could just continue to deny wrongdoing, but resist a full inquiry, and eventually people would forget and move on. That’s not what it’s doing here.
Yet, that doesn’t mean the Fed necessarily acted as ethically as some might believe it should have in this circumstance. If it did, indeed, urge AIG to provide fewer details, then that won’t please Congress. But it also might be perfectly legal — and I’d bet any actions it took stayed within the confines of the law. Again, Geithner and Bernanke are hardly going to voluntarily provide evidence that the Fed broke laws. But whether the Fed exhibited questionable ethics in the process is quite another matter. I hope an inquiry will sort this out.
