NY Fed worked steadily with AIG to avert bailout disclosures

By David Lawder and Mark Felsenthal, Reuters

WASHINGTON — The New York Federal Reserve Bank actively worked with bailed-out insurer AIG to build a case against disclosing details of AIG’s payments to banks just days after the insurer considered making them public, documents released late on Saturday showed.

Lawyers for the New York Fed, which had taken over a pool of AIG assets as part of a $180 billion government bailout of the insurer in 2008, advised that AIG maintain a “confidential treatment request” from the Securities and Exchange Commission, according to emails provided by U.S. Rep. Darrell Issa, a U.S. lawmaker probing the matter.

A separate batch of emails made public this month showed that the New York Fed had advised AIG not to disclose the payments in a securities filing in late 2008.

The email traffic has raised questions about the role of Treasury Secretary Timothy Geithner, who ran the New York Fed at the time of the AIG bailout and the insurer’s payment of some $62.1 billion to banks to liquidate credit default swaps it had sold to them.

Geithner is among those due to testify on the AIG payments and efforts to limit public disclosures about them at a Jan. 27 hearing of the House of Representatives Oversight and Government Reform Committee. Former Treasury Secretary Henry Paulson also has been asked to appear before the panel.

Geithner has said Fed officials had no choice but to allow AIG to pay the banks in full, but has denied any involvement in discussions to suppress disclosures. He reclused himself from matters involving AIG after being nominated for Treasury Secretary in November 2008.

The latest emails show a proposed letter to the SEC requesting the withdrawal of the confidential treatment request around March 10, 2009, after some information on payments was reported by media, but the letter was never sent to the SEC.

Instead of withdrawing the confidentiality request, the emails show further exchanges between the New York Fed and AIG lawyers that led to the insurer days later submitting a new confidentiality request. A draft of the request shows AIG asked the SEC to keep secret details about specific securities, their notional values, collateral posted against them, and mark-downs in their market values.

AIG argued in the request that the assets held in a New York Fed investment vehicle called Maiden Lane III that was managed by BlackRock Inc. could lose value if the information was disclosed.

“If market participants acquired information as to the composition of ML III’s securities portfolio or if the prices paid by ML III were known to market participants, BlackRock’s efforts to effectively manage ML III’s portfolio of securities would be seriously undermined,” AIG said in the confidentiality request.

By this time, AIG had already been under some pressure by the SEC to disclose the counterparty payments, and on March 15 the company disclosed gross sums paid to individual banks, including posted collateral and direct payments totaling $62.1 billion, for 100 cents on the dollar — a disclosure that stoked public rage about the AIG bailout.

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