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Thursday, Jan 7, 2010 4:08 PM UTC

Geithner and AIG: The mess gets messier

How low can this go? The Fed told AIG to keep mum on who got paid off with taxpayer dollars

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Topics: Bank Bailouts, Valentines Day, How the World Works, Timothy Geithner, Federal Reserve, Goldman Sachs, Wall Street, Bolivia,

How much worse can the handling of the AIG “backdoor bailout” of late 2008 begin to smell? Bloomberg has a new story reporting that representatives of the Federal Reserve Bank of New York, which at the time was helmed by Timothy Geithner, told AIG not to reveal the names of the counterparties that the insurance company owed billions of dollars to — debts that ended up getting made good at 100 cents on the dollar with taxpayer money. Even worse, Bloomberg has e-mails in which AIG noted to the Fed that their understanding of SEC regulations required them to make the names public, and the Fed still told the company to keep quiet.

Unamused commentators are rightfully scornful of the response provided to Bloomberg by 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. Gutt said it was appropriate for the New York Fed, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”

Horse-pucky. Remember — the justification for bailing out AIG’s swap debts to the likes of Goldman Sachs and others was based of the premise of preventing further shocks to an already reeling financial system. Fair enough, and given the widespread panic in the fall of 2008, and the huge time pressures that everyone was working under, some mistakes can be forgiven. But what seems clear from the Bloomberg report is that the Fed knew that there would be negative political fallout if the identities of AIG’s counterparties were made public, and it explicitly encouraged AIG to, at the very least, skirt the edges of legality. That’s no mistake.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

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  • The protests take on a festive element as police forces move out of the park and square. Wearing a gas mask, this young man dances to traditional Turkish music in front of Taksim Square’s Ataturk Monument.

  • In Gezi Park since March 31st, this protester, originally caught off-guard by the Government’s teargas and water cannons, went out and bought a Russian army mask from WWII, preparing for what was to come.

  • This rambunctious boy seems to be enjoying the chaos. After taking this picture he threw a stone at the already destroyed building in the background.

  • Forming a line, the police face off directly with protesters in Taksim Square. After a while, they retreated and there was a general cheer – a back-and-forth dance that has been common since the beginning of this protest.

  • An elderly woman in Gezi Park reads the news. The tent community occupying the park was violently destroyed on June 16th.

  • Many different groups had set up booths to promote their cause in Taksim Square and Gezi Park. Standing in front of one, this man waves his flag while posing with conviction.

  • Many home-remedies are used to minimize the effects of tear gas. This woman has put a milky solution on her face, removing her mask after the tear gas dissipated. Before sunrise, the police came again for another round of teargasing.

  • People capitalize on the uprising -- selling flags, beer, gas masks, sky lanterns and spray paint to name just a few of the popular items.

  • On Monday morning, June 11, the police execute a strong offensive. Many plain-clothed police officers, like the ones seen here, clash with protesters in the side streets away from the main stand-off in Taksim.

  • The authorities seem to be most aggressive in the night, pushing protesters away from the square and park. After being teargassed this young woman catches her breath with other protesters on Siraselviler Street.

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