Geithner faces grilling over AIG bailout secrecy

US treasury secretary Timothy Geithner is to face a congressional grilling about suppressed details about deals that funnelled billions to big investment banks while he was president of the Federal Reserve Bank of New York.

Politicians reacted angrily yesterday to revelations in emails sent in late 2008 and early 2009 between lawyers for the New York Fed and insurance giant American International Group (AIG).

The exchanges show the New York Fed wanted AIG to withhold information about deals that sent billions from the taxpayer bailout of AIG to Goldman Sachs, Societe Generale and other major banks.

“The lack of transparency and accountability is disturbing enough, but the outstanding question is why the (New York Fed) didn’t fight for a better deal for the American taxpayer,” said Rep Darrell Issa, the top Republican on the House of Representatives Committee on Oversight and Government Reform, who first obtained the emails.

Democratic committee chairman Rep Edolphus Towns said the emails would prompt a review of AIG’s rise and fall and its relationships with the banks that benefited from its bailout.

He set a hearing for the week of January 18 and requested appearances by Mr Geithner and New York Fed general counsel Thomas Baxter.

AIG has become a byword for Wall Street excess – and a political liability for Mr Geithner.

The US Treasury and the New York Fed say Mr Geithner was not involved in or aware of the matters raised by the emails. Yet questions about the company have dogged him since long before the emails were released this week.

Last year, politicians lambasted Mr Geithner after it was revealed that millions in bonuses would go to employees in the AIG division that was most responsible for the company’s needing a €126.7bn bailout.

A November watchdog report showed Mr Geithner quickly approved a decision to send billions in bailout dollars from AIG to Goldman and other banks that helped elect him president of the New York Fed.

Mr Geithner’s decision might have caused the US government to overpay banks that had since returned to profitability and lavish pay practices, the report said.

Mr Geithner and the Federal Reserve also initially refused to name the banks that benefited from AIG’s “backdoor bailouts”.

In a March 4 Finance Committee hearing, Mr Geithner refused to explain why the treasury would not name the banks.

“People really do want to understand the specifics behind that particular bailout,” Democatic senator Maria Cantwell told him.

Fed officials argued that month that identifying the banks could upend the still-shaky financial markets. But that argument eroded 10 days later, when the markets barely reacted to the Fed’s disclosure of which banks had received the money, and how much they got.

Those earlier controversies were not addressed by the financial filings discussed in the emails released on Thursday.

That led treasury officials to complain that politicians and reporters were mixing the emails with the other issues and misrepresenting Mr Geithner’s role.

Members of both parties say the emails raise broader questions about whether Mr Geithner rushed to aid and protect Wall Street while failing to act as quickly on unemployment and the housing crisis.

“People at the grass roots are reckoning with the realities of a battered economy every day, so arguments that clearly benefit the big banks ought to be studied,” said Senator Charles Grassley, the top Republican on the powerful Senate Finance Committee.

White House spokesman Robert Gibbs said yesterday that Mr Geithner had President Barack Obama’s full confidence.

“He wasn’t on the emails that have been talked about and wasn’t party to the decision that was being made,” he said.