UPDATE 1-U.S. bailout watchdog probes NY Fed on AIG disclosure

(Adds quotes, details from testimony)

WASHINGTON, Jan 25 (BestGrowthStock) – A U.S. bailout watchdog has
launched two new investigations into the New York Federal
Reserve Bank’s actions on insurer AIG’s (AIG.N: ) disclosure of
payments to banks after its 2008 rescue, excerpts of prepared
congressional testimony showed on Monday.

Neil Barofsky, the special inspector general of the
Treasury’s $700 billion Troubled Asset Relief Program, said he
would launch a probe into whether there was any misconduct
relating to public disclosure of the $62.1 billion paid to
retire credit default swaps with banks.

Barofsky announced the investigation in excerpts of
prepared testimony to the U.S. House of Representatives
Oversight and Government Reform Committee. The excerpts were
obtained by Reuters.

Barofsky is among witnesses due to testify on the AIG
matter before the panel on Wednesday.

Also appearing at the hearing will be U.S. Treasury
Secretary Timothy Geithner, who ran the New York Fed at the
time of the American International Group bailout in 2008, and
Thomas Baxter, the New York Fed’s general counsel.

Barofsky said he would also launch a second probe into the
New York Fed’s level of cooperation with a prior audit
conducted by his office into the AIG payments to U.S. and
foreign-owned banks.

The probes follow the disclosure of email exchanges between
Fed and AIG lawyers which some U.S. lawmakers say show pressure
by the New York Fed under Geithner’s tenure to suppress
information about the payments.

The payments for securities from a Fed rescue vehicle
called Maiden Lane III have been labeled a “back-door bailout”
for Goldman Sachs (GS.N: ), Societe Generale (SOGN.PA: ), Deutsche
Bank (DBKGn.DE: ) and other big global banks.

“As has been widely reported, these newly disclosed
documents, among other things, relate to discussions about the
public disclosure by AIG of the Maiden Lane III transactions in
filings with the Securities and Exchange Commission,” Barofsky
said in the testimony.

“In light of these documents, we have initiated an
investigation in to whether there was any misconduct relating
to the disclosure or lack thereof concerning the Maiden Lane
III transactions,” he wrote.


The New York Fed has argued that it did not attempt to
mislead the public about the AIG payments. But the bank did
support AIG’s request to the SEC to keep secret some details
about the individual transactions to acquire underlying assets
to retire the derivatives and preserve their value for U.S.

The new probes are likely to keep attention focused on the
AIG payments controversy, which has dogged Geithner for nearly
his whole first year in charge of the Treasury. The New York
Fed and the Treasury say he was never involved in decisions
about AIG disclosures, and was recused from dealings with
specific companies on November 24, 2008, when he was nominated
for the Treasury job.

“If anyone at the Fed thought that this investigation will
stop after Wednesday’s hearing, they are completely mistaken,”
said U.S. Rep. Darrell Issa, the top Republican on the House
Oversight and Government Reform Committee.”

“There has been a widespread effort by officials at the NY
Fed to thwart transparency and we will continue to pursue this
investigation for as long as it takes to get the truth,” Issa

Stock Today

(Reporting by David Lawder; Editing by Neil Fullick)

UPDATE 1-U.S. bailout watchdog probes NY Fed on AIG disclosure