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NY Fed Told AIG to Hide Details of Swaps Payouts to Banks

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This latest revelation confirms the Fed’s commitment to secrecy and, although troubling, at this point should come at no surprise. The most important element is that AIG itself determined it should provide information about its swaps transactions (the ones it settled at 100 cents on the dollar at the New York Fed’s instigation and approved by Geithner) because it was an SEC required disclosure. Thus the Fed required AIG to violate SEC regs. The clear intent was to hide the extent of the subsidies that flowed from the Fed and Treasury to the recipient banks (recall AIG also received TARP funds). Charming.

From Bloomberg:

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

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.

Yves here. And it gets even better:

AIG’s Dec. 24, 2008, filing was challenged privately by the U.S. Securities and Exchange Commission, which polices the adequacy of disclosures by publicly traded firms. The agency said in a letter to then-CEO Edward Liddy six days later that AIG should provide a Schedule A, which lists collateral postings for the swaps and names the bank counterparties that purchased them from the company. The Schedule A was disclosed about five months later in a filing.

And then we get patent rubbish from the Fed:

“Our position has always been that if AIG’s securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do,” said Jack Gutt, a spokesman for the New York Fed, in an e- mailed statement.

Sure looks like a bald faced lie to me. AIG did include correspondence with outside counsel, but the Bloombers story does not indicate what it said. The Fed’s defense here may be that outside counsel did not “determine,” as in issue a formal opinion on the matter. If so, this verges on prevarication (to my knowledge, companies never get opinion letters on routine SEC filings (the only reason I can think of would be to create a paper trail as to why it was OK to withhold disclosure).

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26 comments

  1. Brick

    There is bending the law and then there is breaking the law. In the first instance you better have a pretty good excuse why and in the second you should be at the very least fined and removed from a public position. I know which side of the line I think this falls on.

  2. Tailwind

    It would appear to me what we have here is a well contemplated failure to supply all material facts. In a financial transaction of this magnitude, I believe one can make an excellent argument for fraud. But hey…can’t waste a good crisis now can we?

  3. joebek

    It is difficult not to imagine that several officials at the New York Fed will end up in prison. And isn’t it perhaps time for Congress to conduct a full investigation of the activities of the New York Fed?

  4. eric anderson

    Who would have standing to bring a lawsuit here? AIG shareholders? Surely someone has grounds for some kind of suit.

    These guys need to be sued and then criminally prosecuted and locked away.

  5. Nun

    I’m confused… because I saw the top 10 payouts in a chart when this was happening. So the info was out there. I was a little surprised at the time that the MSM did not publicize this at all. Something like 7 of the top 10 beneficiaries were European. The headline should have read “US Bails Out Europe.”

  6. avrymann

    You are all forgetting that there are 2 sets of laws in the US – One for the elite and one for the rest of us. A small business would be fried for this type of behavior, but the elite are immune. Always keep in mind that the laws on the books do not apply to the uber rich, only to us suckers.

    1. Francois T

      Absolutely right!
      Moreover, if you happen to know that those uber-elites are cheating and flouting the law, don’t you dare doing something about it

      This could very well happen to you too.

    2. Anonymous Jones

      As anyone familiar with the criminal legal system knows, the system applies differently for the poor and the rich. It does not matter if the charge is DUI, fraud, drug possession, or 1st degree murder, the studies overwhelmingly show higher and harsher penalties are inversely related to wealth.

      1. gnv477

        Funny, it is the opposite in the visigoth law – about 500 ad – the higher the wealth the higher the penalty

  7. Blurtman

    @Nun,

    The late Mark Pittman broke this story on September 29, 2008. It did not get picked up by the MSM until about six months later. I was outraged when I read this story, and FWIW, was actively posting it on blogs at the time (Robert Reichs’ for sure, and likely even Naked Capitalism.)

    Of course, just because a writer publishes a story, that does not make the details true.

    It would be more interesting to go back and examine Geithner’s Congressional testimony earlier in 2009 to see if he perjured himself on this and also on when he knew about the AIG bonuses. It the latter case, he testified that in spite of the bonus info having been out on the Web for several months, he first learned about the bonuses from his staff after the fact.

    I think he can likely be indicted for at least perjury, IMHO.

    Pittman: http://www.bloomberg.com/apps/news?pid=20601087&sid=aTzTYtlNHSG8&refer=home

  8. JLS

    “Something like 7 of the top 10 beneficiaries were European. The headline should have read “US Bails Out Europe.””
    It’s normal. It’s the money AIG owe to these banks.

  9. par4

    I suggest reading Gaetano Salvemini.It’s going to get lots worse before it ever might get better.

  10. Meli

    I have always been perplexed with the NY Fed’s operations. They are so opaque, operating like an ‘old boys club’ with Wall Street. Other major central banks have much more transparent and democratic interactions with the financial markets.

  11. Dave

    Heist of the Century!

    It’s like watching a real-time documentary of a failed state, the treasury robbed by oligarchs, the people helpless to stop it.

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