Lawmaker presses NY Fed on AIG payment details

WASHINGTON Sun Jan 10, 2010 11:44pm EST

Kenneth Feinberg (L), special master for executive compensation under the Troubled Asset Relief Program at the Treasury Department, talks to Rep. Darrell Issa (R-CA) before the House Oversight and Government Reform committee holds a hearing on ''Executive Compensation: How Much is Too Much?'' on Capitol Hill in Washington October 28, 2009. REUTERS/Yuri Gripas

Kenneth Feinberg (L), special master for executive compensation under the Troubled Asset Relief Program at the Treasury Department, talks to Rep. Darrell Issa (R-CA) before the House Oversight and Government Reform committee holds a hearing on ''Executive Compensation: How Much is Too Much?'' on Capitol Hill in Washington October 28, 2009.

Credit: Reuters/Yuri Gripas

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WASHINGTON (Reuters) - A U.S. lawmaker said on Sunday he is seeking more information from the New York Federal Reserve Bank about its controversial emails on insurer AIG's bailout, saying he was shocked that the disclosures were never brought to then-bank president Timothy Geithner's attention.

U.S. Rep. Darrell Issa, the California Republican who last week distributed email exchanges over AIG's decision not to disclose specific payments to banks in a December 24, 2008 Securities and Exchange Commission filing, released a letter from the New York Fed responding to the controversy.

In the letter, New York Fed general counsel Thomas Baxter said Geithner, now U.S. Treasury Secretary, had no involvement in the deliberations about the disclosures -- consistent with statements he made last week.

"In my judgment, as the New York Fed's chief legal officer, disclosure matters of this nature did not warrant the attention of the president," Baxter wrote in the letter dated Friday. "Further, Mr. Geithner played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those emails," Baxter wrote.

In the $180 billion AIG bailout engineered by the New York Fed, the Federal Reserve Board in Washington and the U.S. Treasury in September 2008, the New York Fed created a special purpose vehicle known as Maiden Lane III, which liquidated credit default swaps sold by AIG to banks for around $62 billion in taxpayer funds.

The emails in question pertain to whether specific payments made to banks under a $16 billion tranche would be disclosed and whether it would contain an explicit reference to the fact that the banks were to receive 100 percent of par value for their swaps.

Details of the payments in full to global banking giants, including Goldman Sachs, Societe Generale and Deutsche Bank, were not disclosed until March, 2009, helping to stoke more public outrage over the AIG bailout.

"It's a staggering admission by Mr. Baxter that he felt strong enough that Secretary Geithner wanted him to limit AIG's disclosures on counterparty payments to the SEC that he says he didn't even feel a need to bring the details to his boss' attention," Issa said in a statement. "This letter raises more questions on the inner-workings of the New York Fed during one of the most pivotal periods in our nation's history."

At the time most of the email exchanges started -- late November 2008 -- Geithner had been nominated by then-president-elect Barack Obama to be Treasury Secretary. The Treasury also has said he was not involved in the AIG disclosure discussions and had been recused from dealings with specific companies due to his nomination.

Spokespersons for the New York Fed and the Treasury were not immediately available for comment.

A spokesman for Issa, Kurt Bardella, said Issa would like the New York Fed to produce all documents related to the AIG counterparty payments deal, including emails, memos, phone logs, and other exchanges from the Fed, AIG and the bank counterparties.

"At this point, taking people at the word isn't going to cut it," Bardella said, adding that the Treasury's responses so far "look more like political salvaging."

Bardella also said Issa has asked Baxter to agree to an interview with investigators who are looking into the matter, adding that it was difficult to believe that Geithner did not know about the counterparty disclosure details.

"If what Baxter says is true, then there had to have been some understanding that Geithner didn't want to be involved or know the details -- which is troubling."

The U.S. House of Representatives Oversight and Government Reform Committee has asked Geithner and Baxter to testify at a hearing on the matter next week, but it is unclear whether they will accept the invitation.

(Reporting by David Lawder; Editing by Muralikumar Anantharaman)

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