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.