House panel wants Geithner to testify about New York Fed and AIG

By Brady Dennis
Washington Post Staff Writer
Saturday, January 9, 2010

The chairman of the House oversight committee turned the spotlight Friday once again on the government's much-maligned bailout of American International Group, saying he would ask Treasury Secretary Timothy F. Geithner to testify about whether company executives were told to withhold key details about how they were spending taxpayer money.

Rep. Edolphus Towns (D-N.Y.), chairman of the House Committee on Oversight and Government Reform, said he will hold a hearing later this month to examine the Federal Reserve Bank of New York's role in advising AIG to limit its disclosures about billions of dollars it paid to other firms during the height of the financial crisis. Geithner was head of the New York Fed at the time.

"More than one year after the first federal bailout of AIG, the American people continue to question where their tax dollars were really sent when the government rescued this company," Towns said in a statement. "I continue to believe that a comprehensive review of the rise and fall of AIG and the involvement of counterparties can provide a useful vehicle to understanding how inadequate regulations, cheap money, risky business deals, and in some instances, corruption led to the current economic crisis."

He called for the hearing after the release this week of e-mails showing that the New York Fed had asked AIG to refrain from disclosing details about payments it had made to trading partners in the wake of its $85 billion initial federal bailout in late 2008. AIG transferred more than $62 billion to a number of large domestic and foreign banks, including Goldman Sachs and Société Générale, paying those obligations at full value.

Treasury officials have said Geithner played no role in the decisions because he was a candidate for the Treasury post at the time and had recused himself. In addition, New York Fed general counsel Thomas Baxter said this week that the company's disclosures at the time complied with the law and that there was no effort to mislead the public. He added in a statement Friday that "matters of AIG securities law disclosure were not brought to the attention of the president of the Federal Reserve Bank of New York."

White House spokesman Robert Gibbs on Friday defended Geithner, saying he "was not involved in any of these e-mails" between the New York Fed and AIG. "These decisions did not raise to his level at the Fed," he said.

Asked if Geithner still had President Obama's full confidence, he replied, "Of course."

Towns said the hearing will take place the week of Jan. 18. He said he will seek testimony from both Geithner and Baxter. A Treasury spokeswoman declined to comment when asked whether Geithner would testify at the hearing.

"It is critical that we understand if the FRBNY did request the withholding of information and what the extent and nature of the pressure exerted by the FRBNY on AIG may have been," Rep. Elijah Cummings (D-Md.), wrote in asking Towns to investigate further. "In all cases, the money provided by the FRBNY to AIG came from U.S. taxpayers and taxpayers had the right to know at the time the money was being provided how it was to be used."

Rep. Darrell Issa (R-Calif.), the ranking minority member of the oversight committee, who obtained the e-mails, also urged Towns to summon Geithner. "Secretary Geithner's appearance before this committee is long overdue," Issa wrote, adding that Geithner should be compelled to testify "as soon as possible, by subpoena if necessary."

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, also told reporters that he was troubled by the New York Fed's apparent actions regarding AIG's disclosures and would support hearings on the issue.

The issue of AIG's payouts to its trading partners -- and why they were paid at 100 cents on the dollar -- has remained as one of the most controversial elements of the insurance giant's federal rescue. These questions have hounded Geithner and other officials over the past year, as lawmakers continue to fume about the "backdoor bailouts" that flowed from the U.S. government through AIG and to its counterparts.

The latest set of e-mails show lawyers for the New York Fed advising AIG officials in late 2008 to hold off on disclosing certain details to the Securities and Exchange Commission, including disclosures that would have revealed names of banks receiving payments.

The SEC and members of Congress continued to press the company to disclose more about the recipients. In mid-March 2009, AIG released the names of dozens of trading partners, saying the disclosure was made after consulting the Federal Reserve. By then, however, the company was embroiled in another public controversy involving bonuses to employees at AIG Financial Products, the unit whose faulty credit derivatives had nearly wrecked the insurer.

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