Geithner's New York Fed Urged AIG to Keep Quiet About Payments to Banks
The emails reveal that the New York Fed decided to pay $62.1 billion in CDS settlement payments to Goldman Sachs Group (GS) and "more than a dozen banks" but it wanted AIG not to disclose these payments to the public. Issa subpoenaed the emails after the New York Fed had urged AIG not to negotiate a discount on the CDS settlement payments to these banks -- which Bloomberg refers to as a "back door bailout" of the banks.
AIG then found itself in a tug of war between the New York Fed and the Securities and Exchange Commission (SEC). The emails reveal that New York Fed lawyers were urging AIG not to disclose the names of the CDS payment recipients and to withhold disclosure of its $9.8 billion in so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.
But the SEC argued that such disclosure was required, ultimately prevailing in AIG's March 15, 2009 disclosure of $27 billion in payments at 100 cents on the dollar. But the New York Fed also got part of what it wanted, since the disclosure did not identify the securities tied to the swaps or list the value of individual purchases by each bank.
My blood has been boiling while summarizing these facts. I feel a strong sense of outrage about them. Ultimately, free markets mean that companies succeed or fail based on the investments they make. But when failure was a real possibility, our government decided that free markets should be shut down and replaced with something decidedly un-free.
The two parts of un-free that bother me most? First, taxpayers financed a massive bailout of the bad bets of a handful of very wealthy bankers and insurance executives. And second, the government wanted the bailout recipients to keep quiet about it.
Is America still the land of the free?
Disclosure: Peter Cohan owns AIG shares and has no financial interest in the other securities mentioned.
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