Lawmakers press for Geithner AIG testimony

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Agriculture, Nutrition and Forestry Committee during a hearing on over-the-counter derivatives reform on Capitol Hill in Washington December 2, 2009.

WASHINGTON (Reuters) - U.S. lawmakers on Friday pressed for Treasury Secretary Timothy Geithner to testify on whether the New York Federal Reserve Bank improperly pressured AIG to withhold information on payments it made to banks after its government bailout.

The requests came even as the Obama administration and the New York Fed rushed to say that Geithner, who headed the reserve bank at the time of the AIG rescue, was unaware of any emailed advice by Fed lawyers to limit disclosures.

Edolphus Towns, chairman of the House of Representatives Oversight and Government reform committee, said he asked Geithner to testify on the matter the week of January 18 at a hearing to examine emails between New York Fed and AIG lawyers that show AIG was advised to withhold "key details" of the bailout terms from the public.

Announcement of the hearing, requested by Republicans and one Democrat on the panel, kept on the boil the latest controversy surrounding the $180 billion AIG bailout, which has dogged Geithner since he took office nearly a year ago.

The use of government bailout funds by financial firms and banks to pay each other off in full during the crisis has caused public outrage.

"More than one year after the first Federal bailout of AIG, the American people continue to question where their tax dollars were really sent when the government rescued this company," Towns, a New York Democrat, said in a statement.

A Treasury spokesman declined comment on whether Geithner would agree to the request.

The emails, released by Republican Rep. Darrell Issa, showed that outside attorneys for the New York Fed recommended that specific payments to individual banks be excluded from a December 2008 Securities and Exchange Commission filing and an explicit reference to their receiving 100 cents on the dollar to liquidate credit default swaps was deleted.

A total of $62 billion in payments to specific counterparties was later disclosed in March 2009.

Geithner was president of the New York Fed at the time of the September 2008 bailout and when the email traffic started in late November 2008.

Republicans took advantage of the emails to bash Geithner's handling of the bailout, which has stoked rage over billions of dollars paid to banks and millions in bonuses paid to AIG executives after the insurer's near collapse.

"After a year of hearings and investigations, it is past time for this Committee to hold Secretary Geithner accountable for his decisions that have affected the lives of millions of Americans," said Issa and fellow Republican Rep. Patrick McHenry said in a statement.

Spencer Bachus, the ranking Republican on the House Financial Services Committee, asked the panel's chairman, Democrat Barney Frank, to hold a similar hearing on the AIG emails, citing a "calculated attempt to withhold important information from the public and market participants."

Frank told Reuters he had not decided whether to hold a hearing, and said he believed Republicans were making a "partisan attack" on Geithner by requesting his testimony and not that of two other key figures in the AIG bailout, Fed Chairman Ben Bernanke and former Treasury Secretary Henry Paulson. Both Paulson and Bernanke were appointed by the Bush administration.

Frank also reaffirmed his confidence in Geithner, adding "I think that Geither and Bernanke have done a good job of helping us get out from under this crisis."

White House spokesman Robert Gibbs, asked by reporters whether Geithner still had President Barack Obama's full confidence, said, "of course."

"Secretary Geithner was not involved in any of these e-mails," Gibbs said, confirming a statement on Thursday by a Treasury spokeswoman. "These decisions did not raise to his level at the Fed. These are e-mails and decisions made by officials at an independent regulatory agency."

Thomas Baxter, the New York Fed's general counsel, said on Friday matters of securities law involving AIG disclosures were not brought to Geithner's attention. He has maintained that the disclosures were accurate and did not mislead the public.

The calls for Geithner to testify were joined by one Democrat on Friday. Elijah Cummings, a Maryland Democrat who has been critical of the AIG bailout, called for a full investigation into the matter.

"It is critical that we understand if the FRBNY did request the withholding of information and what the extent and nature of the pressure exerted by the FRBNY on AIG may have been," Cummings wrote in a letter to Towns requesting a hearing.

"If evidence indicates that the FRBNY did indeed ask that AIG withhold information from its SEC filings, I believe the Committee should examine the specific nature of the information that the FRBNY allegedly asked AIG to withhold as well as the relevant statutory and regulatory disclosure requirements that applied to AIG at that time," wrote Cummings, of Maryland. (Reporting by David Lawder; Editing by Andrew Hay)