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Geithner's Fed Urged AIG To Conceal Swap Terms

The Federal Reserve Bank of New York ordered bailed-out AIG not to disclose the details of bank payments.

The Federal Reserve Bank of New York, then under the direction of Timothy Geithner, ordered bailed-out American International Group not to disclose the details of bank payments during the peak period of economic turmoil, reports Bloomberg. Darrell Issa, a ranking member of the House Oversight and Reform Committee, uncovered the omission of key information regarding credit-default swap payments made by AIG in e-mails between the insurer and government regulators.

The NY Fed took over negotiations between AIG and banks, such as Goldman Sachs and Societe Generale, after CDS losses threatened to ruin the U.S. insurance giant. In what was later called a “backdoor bailout,” the banks were fully repaid $62.1 billion for the swaps. According to Issa, “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information.” In an e-mail to lawyers for the regulators, AIG Deputy General Counsel Kathleen Shannon offered the assurance that there would be “no mention of synthetics in connection with this transaction,” referring to a request from regulators that synthetic collateralized debt obligations be concealed.

Treasury Spokeswoman Meg Reilly said Geithner, who took the Treasury job last January, was “officially recused from matters dealing with specific companies” at the New York Fed after his Treasury Secretary nomination on Nov. 24, 2008. Meanwhile, according to Bloomberg, the move to pay the banks in full, or 100 cents on the dollar for CDS, may have cost AIG, and in turn the taxpayers, roughly $13 billion according to the discount AIG originally sought.

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