Timmay To AIG: Disclosure? We Don’t Need No Steenkin’ Disclosure

January 7th, 2010 by alyx · 1 Comment · Timmay

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In a disclosure that probably surprises absolutely no one,  there’s been some emails unearthed that show that the Federal Reserve Bank of New York – under Tim Geithner at the time – didn’t want it revealed that the bankrupt insurer was paying some of our favorite too-big-to-fail financial institutions full value for their swaps, you know, just because Timmay couldn’t bear to see Lloyd sad:

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

Bloomberg broke this story several months ago, which prompted Issa to start looking for a paper trail. You might remember that Neil Barofsky, the TARP-spector general, took the Fed’s handling of the AIG failout to task as well:

“Federal Reserve officials provided AIG’s counterparties with tens of billions of dollars they likely would have not otherwise received,” Barofsky wrote in a Nov. 17 report. “The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds.”

This article slaps a $13 billion number on the difference between the discount AIG was expecting and the full value that the Fed had them cough up, which I keep forgetting is a lot of money because that $700bn number they’ve been bandying about for the last year makes everything look like small potatoes. Anyway, with as much as Timmay apparently liked to meddle I guess the next e-mails to be released will say something about him bringing cookies to Robert Willumstad’s office and complaining about how he’ll never meet a good bank this way, so at least those will be fun to read.

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