House panel to subpoena N.Y. Fed over AIG

by Jennifer Liberto, senior writer


NEW YORK(CNNMoney.com) -- The House Oversight Committee will issue subpoenas Tuesday to the Federal Reserve Bank of New York to get its correspondence with rescued insurer American International Group.

The subpoenas are the latest tit-for-tat in an ongoing controversy about the $180 billion bailout to AIG (AIG, Fortune 500). They follow reports earlier this month that the New York Fed, the regional bank charged with oversight of monetary policy and financial institutions, suggested in 2008 that the troubled insurer should withhold some details of its bailout deal from the public.

Should banks be taxed to refund the government for the TARP bailout?
  • Yes
  • No

"This subpoena will provide the committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout," Rep. Ed Towns, D-N.Y., the committee chairman, said in a statement.

But the issuing of the subpoenas is more of a mud-in-your-eye move for the House panel.

The House Oversight panel noted the reports of withholding information and announced it planned to hold a new hearing on the issue some time next week, on a date still to be determined.

As a part of the panel's fact-finding research for the hearing, Rep. Darrell Issa, R-Calif., asked for copies of correspondence between the Fed and AIG that happened to be in the possession of the special inspector general for the $700 billion bailout, known as SIGTARP.

As the special inspector general, Neil Barofsky used that information to release a report in November criticizing federal regulators for not getting a better deal and negotiating more concessions from business partners of the troubled insurer.

But Barofsky wrote Issa on Tuesday saying he couldn't hand over a copy of the records because the Fed told him not to share them.

"The Federal Reserve has directed us not to provide you with the documents that it has provided us, and that it will instead respond to your request directly," Barofsky wrote.

Barofsky wrote that "while we regret the Federal Reserve's position," that handing over the records "could severely limit our ability to receive documentation" from the Fed in the future. And, he added, some of the records are now being used in ongoing investigations.

A SIGTARP spokeswoman declined to comment.

So that's when the House committee took matters into its own hands and released a statement saying the subpoenas would be on the way to the New York Fed.

The New York Fed pledged to "work with the committee to provide relevant information as appropriate," spokesman Jack Gutt said.

"The FRBNY's clear intent is to prevent this committee's oversight of the AIG counterparty payments for as long as possible," Issa, the panel's ranking Republican, said in a statement.

The records promise to be interesting. They prompted Barofsky's office to report that some $62.1 billion of taxpayer and AIG funds were essentially funneled to 16 banks, which were counter parties to AIG insurance contracts.

The banks got paid 100% of what they were owed, the full-dollar amount of the underlying assets that the counter parties had insured through AIG.

The reports that AIG had been instructed to obscure counter party data has caused a new stir on Capitol Hill, with many criticizing Treasury Secretary Tim Geithner, who was running the New York Fed at the time.

However, Geithner was not in the loop on the decisions, since he had recused himself from issues involving AIG while he was under consideration for the Treasury job, officials have said.

However, Geithner, along with Fed chief Ben Bernanke and former Treasury Secretary Henry Paulson, are considered key architects of the federal response to the economic meltdown of 2008.

The New York Fed has said the final decision about disclosures always rested with AIG, which since September 2008 has been propped up by multiple infusions of taxpayer funds. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 2:31pm ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
Apple Inc 111.78 -0.87 -0.77%
General Electric Co 25.62 0.48 1.91%
Intel Corp 36.37 -0.65 -1.76%
Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

Sections

New York Magazine reporter Jessica Pressler, who has been caught up in controversy this past week, will not be moving on to a new job at Bloomberg News. More

Investors beware: These 5 global crises are likely to rattle the stock market and world economy. More

Forums in dark corners of the web sell the kinds of hacks that befell Sony. More

Unilever sued Hampton Creek over its egg-free mayonnaise spread Just Mayo. But the company behind Best Foods and Hellman's mayonnaise has now dropped the lawsuit. More

The income of the top 1% jumped significantly in 2012, far outpacing inflation. Not only did this group make a larger share of the country's income, their share of total taxes also jumped from 35% to 38%. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.