WRAPUP 2-US’ Geithner, NY Fed defend actions on AIG payments

(Refiles to change “filing” to “failing” in paragraph 7)

* Geithner denies involvement in AIG disclosures

* Geithner says did not act to aid banks in AIG deal

* NY Fed actively supported AIG confidentiality requests

* Taxpayers unlikely to get back all money pumped into AIG

* Paulson: He, Geithner, Bernanke “acted properly” on AIG

By David Lawder and Glenn Somerville

WASHINGTON, Jan 26 (BestGrowthStock) – U.S. Treasury Secretary
Timothy Geithner denied any role in disclosures about American
International Group’s payments to banks and defended his
decisions as New York Federal Reserve chief to pay full price
to retire AIG credit default swaps.

Geithner, in prepared testimony for a much-anticipated
congressional hearing on Wednesday, said protracted demands for
concessions from banks in late 2008 could have triggered
devastating credit rating downgrades and brought AIG down, with
“catastrophic” consequences for the U.S. economy.

Geithner’s testimony is widely seen as important for his
future as Treasury chief. He has denied acting in the interests
of specific institutions.

“I had no role in making decisions regarding what to
disclose about the specific financial terms of Maiden Lane II
and Maiden Lane III and payments to AIG counterparties,”
Geithner said, referring to Fed investment vehicles that bought
securities from the banks. The remarks were made available late
on Tueday.

Geithner, who ran the New York Fed at the time of the
bailout, faces a grilling by the U.S. House of Representatives
Oversight and Government Reform Committee, which is reexamining
AIG’s (AIG.N: ) payment of $62.1 billion to bank counterparties
to close out trades made before and after the insurer was

Republican lawmakers on the panel have accused the New York
Fed under Geithner of wasting billions of taxpayer dollars by
failing to negotiate concessions from the banks and then trying
to suppress public disclosures about the payments.

“We acted because the consequences of AIG failing at that
time, in those circumstances, would have been catastrophic for
our economy and for American families and businesses,” Geithner

For more details on his testimony see [ID:nN26136186].

Henry Paulson, Geithner’s predecessor at the Treasury, will
will tell the panel that he, Geithner and Fed Chairman Ben
Bernanke “acted properly” in rescuing AIG, according to
testimony released on Tuesday.

“If AIG collapsed, it would have buckled our financial
system and wrought economic havoc on the lives of millions of
our citizens,” Paulson said in the prepared remarks.

The endorsement of Bernanke could help shore up support
among U.S. senators who are wavering in their support of a
second term for the Fed chairman, rattling investors around the
world. [ID:nN2699162].


The New York Fed’s top lawyer said on Tuesday that the Fed
“actively supported” AIG’s regulatory requests to keep its bank
counterparties confidential but did not pressure the bailed-out
firm for secrecy.

General Counsel Thomas Baxter said that the Fed’s sole aim
in keeping some information from public view was to preserve
the value of taxpayer assets.

“Some have suggested that in November 2008, AIG had planned
to disclose the identities of the CDS counterparties and that
the New York Fed pressured or compelled AIG not to,” Baxter
said in his prepared remarks for the hearing. “This is not

Baxter said the New York Fed’s only interest in the
confidentiality requests, particularly for details of
individual securities, was preserving the value of taxpayer
investments in AIG and in securities purchased by a Fed
investment vehicle, Maiden Lane III.

“To be sure, the New York Fed actively supported the idea
of keeping this information confidential, but once again, only
to maximize the value of the Maiden Lane III portfolio for the
benefit of the taxpayer,” Baxter said in the testimony.

He also defended the New York Fed’s decision to pay par
value for the securities underlying the credit default swaps,
despite criticism that it did not try hard enough to wring
concessions from banks, including Societe Generale (SOGN.PA: ),
Goldman Sachs Group Inc (GS.N: ) and Deutsche Bank AG (DBKGn.DE: ).

Neil Barofsky, the special inspector general for the U.S.
bailout program, said in his prepared remarks to the panel that
the French bank regulator had indicated that it was open to
further talks on concessions [ID:nN26129085].


U.S. Rep. Darrell Issa, the committee’s top Republican who
has spearheaded an investigation into AIG’s payments to banks,
has accused the New York Fed of orchestrating a “cover up” of
the payments to avoid public scrutiny.

Issa, a Californian, said in a Republican staff report to
the committee that email traffic showed the New York Fed
directed its attorneys to edit AIG’s filings with the
Securities and Exchange Committee to make them more difficult
to understand.

The Fed “likely wasted” billions of taxpayer dollars by
paying par value to banks for securities backing the AIG
derivative contracts, he charged.

“The secrecy, concealment and lack of transparency in the
Federal Reserve’s actions have important implications for the
continued health of democracy and free markets,” Issa wrote in
his report.

The committee’s majority Democratic staff, however, said
that there was no evidence in any documents to suggest that
Geithner himself knew about AIG’s plans or counseled AIG not to
disclose payments it was making to banks.

But the Democrats added: “We now believe that the NYFRB
should have forced the counterparties to take less than 100
cents on the dollar.”

Stock Market Analysis

(Editing by Kim Coghill)

WRAPUP 2-US’ Geithner, NY Fed defend actions on AIG payments