Michael Hampton
Homeland Stupidity
Sunday, January 10th, 2010
The Federal Reserve Bank of New York, during its $180 billion
bailout of American International Group, Inc., instructed AIG to omit
details of its purchase of certain toxic assets from a December 24,
2008, Securities and Exchange Commission filing, according to e-mails between the company and the Fed released Thursday.
Using bailout money provided by the Fed, AIG paid a number of banks
100 percent of the face value of credit-default swaps, contracts tied
to subprime home loans, at a time when other institutions were
negotiating deep discounts for the paper. The names of the banks were
also omitted from the SEC filing.
The information was finally disclosed in March 2009 after the SEC
challenged AIG’s filing, prompting lawmakers and analysts to call
the transactions a “backdoor bailout” of the banks. Topping
the list of banks which benefited from the backdoor bailout of their toxic paper were Goldman Sachs and Societe Generale SA.

The e-mails, released Thursday by Rep. Darrell Issa (R-Calif.),
ranking member of the House Oversight and Government Reform Committee,
show the Fed wanted a number of other details about the AIG bailout
withheld or their disclosures delayed.
The coverage from Bloomberg News has all the gory details,
including a non-denial denial that Treasury Secretary Timothy Geithner,
who was then chairman of the New York Fed, had anything to do with the
cover-up.
Rep. Barney Frank (D-Mass.) has called the disclosure “troubling” and plans to hold hearings on the issue, though he publicly maintains full confidence in Geithner.
“The new details revealed today regarding AIG’s bailout
in 2008 come as no surprise to those of us who believe that the
American people deserve full transparency from the Federal
Reserve,” Rep. Ron Paul (R-Texas) said in a statement. “My strong suspicion is that secret arrangements between cronies like this are not an anomaly, but the norm.”
The Fed, as you’ll recall, fought disclosure of the information, claiming that it would erode market confidence. No such thing happened, of course.
If dollar investors aren’t already spooked enough to run like
hell, it’s hard to see what would convince them that the dollar
isn’t nearly as safe as they seem to think.
“The status quo has made it entirely too easy and too tempting
to behave recklessly with public funds in total secrecy,” Paul
said. “The system needs radical change,
but we should start with honesty, transparency and accountability to
the American people about how their money is being handled.”
Update: TheNew York Times reported Friday that the Treasury department explicitly denied Geithner had anything to do with it. TheTimes quoted
Treasury spokeswoman Meg Reilly as saying Geithner “played no
role in these decisions and indeed, by Nov. 24, he was recused from
working on issues involving specific companies, including A.I.G.”