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Report: New York Fed told bailed-out AIG to hush payments to banks

This is a story that could have some legs: Bloomberg is reporting that the New York Fed told AIG not to publicly disclose payments it was making -- with taxpayer money -- to other banks.

This came during the depths of the financial crisis when insurance giant AIG was getting beaten up every day for taking billions in taxpayer money and the government was getting beaten up every day for giving AIG billions in taxpayer money.

AIG's Financial Products division sold more derivatives than could be backed by AIG's insurance side, which would have brought down the company -- and maybe large chunks of the economy -- had the government not stepped in to prop up AIG.

The story, which you can read by clicking here, is based on e-mails obtained by Rep. Darrell Issa (R-Calif.), who has been like a dog with a bone with this story and with the what-did-Paulson-and-Bernanke-tell-Ken-Lewis? story for months.

Quoting from the Bloomberg story:

"AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008."

This makes it appear that the New York Fed was telling AIG not to tell the public that Goldman and others were getting full payment for what their were owed by AIG -- money that was coming from the taxpayers.

Treasury Secretary Tim Geither was head of the New York Fed during this time period but, because he had been nominated to take over Treasury, he had recused himself from dealings with individual companies.

Issa said, according to Bloomberg: “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information."

-- Frank Ahrens
Follow me on Twitter at @theticker

By Frank Ahrens  |  January 7, 2010; 1:07 PM ET
Categories:  Bailout , Corporations , Fed Reserve , The Ticker , Treasury , Wall Street  | Tags: AIG, Bloomberg, Darrell Issa, Goldman Sachs, Tim Geithner  
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