* U.S. House panel subpoenas AIG documents from NY Fed
* U.S. Senators press SEC to open probe
* Controversy keeps pressure on U.S. Treasury's Geithner
(Updates with comment from New York Fed spokeswoman,
By Glenn Somerville
WASHINGTON, Jan 12 U.S. lawmakers moved on
Tuesday to force release of documents that may show whether the
New York Federal Reserve pressured insurer AIG to limit
discussions about payments to banks when current Treasury
Secretary Geithner led the New York Fed.
The Democrat who heads the House of Representatives
Oversight Committee, Rep. Edolphus Towns of New York, issued
the subpoena to the New York Fed saying it "will provide the
committee with documents that will shed light on how and why
taxpayer dollars were used for a backdoor bailout."
Late on Tuesday the New York Fed pledged cooperation.
"We will work with the committee to provide relevant
information as appropriate," New York Fed spokeswoman Deborah
Congressional ire had been fanned by the refusal of the
inspector general for the government's bailout fund, the
Troubled Asset relief Program or TARP, to release material on
AIG's payments to banks because the Federal Reserve asked them
not to make them available to the public.
"Just when you think that these outrageous abuses of
taxpayers' trust can't get any worse, they do," Republican Rep.
Roy Blunt of Missouri said, adding "Secretary Geithner's New
York Fed deliberately counseled AIG to muddy the waters and sit
on information the taxpayers deserved to know relating to the
disbursement of billions of dollars in bailout funds."
Geithner headed the New York Fed until being nominated in
late 2008 by President Obama to become Treasury Secretary. The
Obama administration and the New York Fed have said Geithner
was unaware of any emailed advice by Fed lawyers to limit
disclosures, but U.S. lawmakers are pressing for Geithner to
testify at a hearing next week.
The Treasury has not yet specified whether Geithner will
Separately on Tuesday, Senator Jim Bunning of Kentucky, a
Republican member of the Senate Banking Committee, called on
the Securities and Exchange Commission to investigate whether
laws were broken when American International Group failed to
disclose details on its derivatives counterparties (AIG.N) in
public securities filings.
Email exchanges released last Thursday showed the New York
Fed advised AIG to withhold the information.
"Because the information withheld appears to be material
information about the financial condition of AIG and the value
of the company, these actions may constitute a serious
violation of the securities laws," Bunning said in a letter to
SEC Chairman Mary Schapiro.
The SEC declined to comment.
Bunning said the regional Fed bank's actions "are likely to
have caused and continue to cause losses to private investors
and undermine the credibility of the U.S. financial and
The email exchange continues to stir controversy,
especially in an atmosphere of public anger about the fact big
banks that got taxpayer-supplied bailouts are getting ready to
award their executives with big bonuses.
Many banks have paid back their bailout money but that has
not appeased taxpayers who still face tight credit and a weak
economy while bankers award themselves bonuses.
The emails show AIG initially proposed disclosing to the
SEC in early December 2008 that it would pay counterparties 100
cents on the dollar to liquidate credit default swaps it sold
AIG received a $180 billion bailout from the government.
Its decision to pay Goldman Sachs Group Inc (GS.N), Societe
Generale AG (SOGN.PA) and other global banking firms in full
with taxpayer funds was not disclosed by AIG until March 2009.
At the time, it was revealed that a total of about $62
billion had been paid to banks to settle derivatives contracts,
a sum that helped stoke public rage over the government's
bailout of the insurer.
The email exchange between lawyers for the New York Fed and
AIG made public last week implied that the regional Fed bank
pressured AIG to limit disclosure about the payments.
Geithner was president of the New York Fed last year but
had become the U.S. Treasury secretary by March 2009 and he
allowed AIG to pay $165 million in bonuses to top executives of
the division that nearly caused its collapse.
Bunning, a sharp-spoken critic of many Fed and Treasury
policies, is the ranking Republican on the Securities,
Insurance and Investment Subcommittee. He urged Schapiro to
investigate "actions taken by employees and agents of the
Federal Reserve Bank of New York and government officials" with
respect to AIG.
(additional reporting by Mark Felsenthal and David Lawder
and Kristina Cooke in New York)
(Reporting by Glenn Somerville)