Image: Edolphus Towns, D-N.Y.
Manuel Balce Ceneta  /  AP
Rep. Edolphus Towns said he will subpoena the New York Fed for documents related to the bailout of failed insurer AIG.
updated 1/12/2010 5:12:30 PM ET 2010-01-12T22:12:30

Treasury Secretary Timothy Geithner came under increased scrutiny Tuesday when a key congressman said he would subpoena the Federal Reserve Bank of New York about bailout decisions made on Geithner's watch.

Rep. Edolphus Towns, a New York Democrat, said Tuesday he will subpoena the New York Fed for documents related to the bailout of failed insurer American International Group Inc.

Towns chairs the House Oversight and Government Reform Committee. The committee is investigating deals that diverted billions of AIG bailout dollars to banks including Goldman Sachs Group Inc.

Geithner was president of the New York Fed when it managed the bailout. The AIG deals might have cost taxpayers billions more than necessary because Geithner did not demand concessions from the banks, an earlier watchdog report said.

The committee has been investigating e-mails from New York Fed lawyers telling AIG not to disclose details about the deal. The e-mails were released last week by California Rep. Darrell Issa., the committee's top Republican.

Issa asked Towns to subpoena the New York Fed after the Fed blocked a separate request for documents.

Administration officials have defended Geithner in the AIG matter by saying he wasn't involved in the e-mails released last week. But the planned subpoena makes clear that the committee probe involves separate decisions Geithner made.

White House spokesman Robert Gibbs told reporters Friday that Geithner "wasn't on the e-mails that have been talked about and wasn't party to the decision that was being made."

Treasury said he recused himself from decisions about AIG after being appointed Treasury secretary.

New York Fed General Counsel Thomas Baxter wrote to Issa that Geithner "played no role in, and had no knowledge of, the disclosure deliberations and communications referenced in those e-mails."

Spokesmen for Treasury, the Federal Reserve and the New York Fed would not comment on the expanded probe.

In a statement Tuesday, Towns said the subpoena will "shed light on how and why taxpayer dollars were used for a backdoor bailout."

The "backdoor bailout" refers to money being funneled to banks including Goldman, Societe Generale and Deutsche Bank.

Issa's office had asked the bailout watchdog, Neil Barofsky, for documents he used to prepare the report on AIG's payments to other banks. Barofsky replied Tuesday that the Fed "has directed us not to provide you with the documents that it has provided to us."

That prompted Issa to call for the subpoena. A spokeswoman for the special inspector general would not elaborate on that office's letter to Issa.

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