Treasury Secretary Timothy Geithner will face a congressional grilling later this month 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 Friday 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, a Democrat, said Friday that the e-mails would 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 questions about the company have dogged Geithner 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 failure.
A 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."
In a March 4 Finance Committee hearing, Geithner refused to explain why Treasury wouldn't name the banks. "People really do want to understand the specifics behind that particular bailout," Democratic Sen. Maria Cantwell told him.
Fed officials argued in March that identifying the banks could upend the still-shaky financial markets. The Fed did reveal which banks had gotten the money, and how much they got, 10 days later. There was little market reaction.
Those earlier controversies were not addressed by the financial filings discussed in the e-mails released Thursday. Treasury and the New York Fed insist Geithner wasn't even aware of the issues discussed in the e-mails.
Treasury officials complain that lawmakers and reporters have been conflating the e-mails with the other issues and misrepresenting Geithner's role.
Lawmakers from both parties say the e-mails speak 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. Grassley said Thursday that his committee also should hold hearings on the
In a statement, Grassley questioned Fed and Treasury Department claims that the details of the bailout had to be kept secret so that the country would be spared bank runs and other economic problems. He said the Finance Committee should hold hearings about the $700 billion financial bailout Congress passed at the peak of the financial crisis.
Baxter has said the matters discussed in the e-mails "were not brought to (Geithner's) attention."
Treasury spokeswoman Meg Reilly said Geithner "played no role in these decisions" because he had recused himself from dealing with individual companies after his November 2008 appointment as Treasury secretary.
White House spokesman Robert Gibbs said Friday that Geithner has President Barack Obama's full confidence.
"He wasn't on the e-mails that have been talked about and wasn't party to the decision that was being made," Gibbs told reporters.