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The Honolulu Advertiser
Posted on: Saturday, January 9, 2010

Geithner under congressional fire


By Daniel Wagner
Associated Press

Hawaii news photo - The Honolulu Advertiser

Timothy Geithner, who testified to Con-gress on another issue in December, is now on the hot seat for his earlier role as president of the Federal Reserve Bank of New York.

ASSOCIATED PRESS FILE PHOTO | December 2009

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WASHINGTON Trea-sury Secretary Timothy Geithner will face a congressional grilling about the suppression of details on deals that funneled billions to big investment banks while he was president of the Federal Reserve Bank of New York.

Lawmakers reacted angrily yesterday to revelations in e-mails sent in late 2008 and early 2009 between lawyers for the New York Fed and American International Group Inc. 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 Group Inc., 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 Committee on Oversight and Government Reform, who first obtained the e-mails.

Committee chairman Rep. Edolphus Towns, D-N.Y., said yesterday that the e-mails will prompt a review of AIG's rise and fall and its relationships with the banks that benefited from its bailout. He scheduled a hearing for the week of Jan. 18 and requested appearances by Geithner and New York Fed general counsel Thomas Baxter.

AIG has become a poster child for Wall Street excess and a political liability for Geithner.

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

Last year, lawmakers lambasted 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 $182 billion bailout.

A November watchdog report showed that 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. Geithner's decision might have caused the government to overpay banks that have since returned to profitability and lavish pay practices, the report said.

Geithner and the Federal Reserve also initially refused to name the banks that benefited from AIG's "backdoor bailouts."

At a Finance Committee hearing March 4, Geithner refused to explain why Treasury wouldn't name the banks. "People really do want to understand the specifics behind that particular bailout," Sen. Maria Cantwell, D-Wash., told him.

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

Those earlier controversies were not addressed by the financial filings discussed in the e-mails released Thursday. That's led Treasury officials to complain that lawmakers and reporters are conflating the e-mails with the other issues and misrepresenting Geithner's role.

Lawmakers from both parties counter that the e-mails raise broader questions about whether 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 Sen. Charles Grassley, the top Republican on the powerful Senate Finance Committee.