How The NY Fed, Under Stephen Friedman & Tim Geithner Pressured AIG Officials To Withhold Details Of Payments To Goldman Sachs, Other Counterparties
Originally published in January 2010.
Below is a sentence from an email exchange between NY Fed and AIG officials (originally written by AIG) that was crossed out by Treasury lawyers.
As a result of this transaction, the AIGFP counterparties received 100 percent of the par value of the Multi-Sector CDOs sold and the related CDS have been terminated. ML III has now acquired approximately $[62.1] billion in par amount of Multi-Sector CDOs and has aggregate liabilities resulting from its borrowings from the NY fed of approximately $[___] billion.
I would subtitle this story:
Subpoena the hell out of Stephen Friedman and Timothy Geithner
There are a number of ways to look at this morning's news that the New York Federal Reserve, under the direction of Chairman Stephen Friedman (who served on the board of Goldman Sachs at the same time and who profited millions from an illegal stock purchase of GS shares) and President Timothy Geithner, pressured AIG officials to keep silent about counterparty payments at PAR to Goldman Sachs ($14 B), Societe General ($16 B), Deutsche Bank, Merril Lynch and others.
One way would be to say that there's nothing new here.
Hugh Son disclosed the framework of the allegation in this piece.
We did our part with the The $25 Billion Dollar Secret.
Eliot Spitzer went after Geithner and Friedman, over at Slate.
TARP Inspector General Neil Barofsky in his November report found Tim Geithner and Friedman personally responsible for tens of billions in losses to taxpayers for NOT negotiating with AIG counterparties.
So what's all the fuss about this morning? More details.
It started in October when Rep. Darrell Issa sent a letter to current FRBNY President William Dudley (also a Goldman Sachs alum):
“As you know, in late 2008 American International Group (“AIG”) was attempting to negotiate a haircut for banks that held $62 billion in credit default swaps (“CDS”) from AIG. AIG was reportedly seeking to persuade the banks to accept haircuts of as much as 40 cents on the dollar in order to retire these CDS contracts.”
It is also disturbing that, at the time this secret deal was made, FRBNY Chairman Stephen Friedman, a member of the board of Goldman Sachs, purchased more than 50,000 shares of Goldman Sachs before knowledge of the FRBNY’s bailout of Goldman Sachs and other AIG counterparties became public knowledge. According to news reports, this transaction has earned Mr. Friedman over $5 million in profit.
Finally, according to one AIG executive quoted in news reports, the FRBNY may have attempted to manage public disclosure of its decision to pay AIG’s counterparties at par by pressuring the company not to file pertinent documents with the U.S. Securities and Exchange Commission (“SEC”):
They’d tell us that they don’t think that this or that should be disclosed. They’d say, “Don’t you think your counterparties will be concerned?” It was much more about protecting the Fed.
These allegations raise serious questions about the transparency, accountability and wisdom of the FRBNY’s actions. The American people have a right to know the full details behind the FRBNY’s decision to stop negotiations with AIG’s counterparties and pay them billions of dollars of taxpayer money.
Dudley had replaced Friedman (Goldman director) who resigned after his GS stock purchase (with inside information that GS would be made whole on AIG counterparty payments) was made public.
Tangentially, where is the SEC in all of this? Friedman should be investigated, and subpoenaed for 2 things: his GS stock profits and his role in securing GS 100 cent countrparty payouts.
Back to the story. Today Issa released the emails (below) he received from Dudley and AIG in response to his letter.
- Representative Issa’s Oct. 30, 2009 letter to William Dudley of the New York Fed »
- Set 1 of A.I.G.-N.Y. Fed Communications about the Swaps »
- Set 2 of A.I.G.-N.Y. Fed Communications about the Swaps »
- Set 4 of A.I.G.-N.Y. Fed Communications about the Swaps »
- Set 5 of A.I.G.-N.Y. Fed Communications about the Swaps »
- Set 6 of A.I.G.-N.Y. Fed Communications about the Swaps »
- Set 7 of A.I.G.-N.Y. Fed Communications about the Swaps »
The emails demonstrate what Hugh Son wrote back in November, that officials (mostly lawyers) from the NY Fed did in fact PRESSURE AIG officials NOT to disclose any of these details in required 8-k filings to the SEC.
Moreover, the pressure continued for no disclosure at the same time as SEC officials were demanding that these same details in fact BE DISCLOSED.
(This must have been a NEW experience for SEC officials, so accustomed to reacting ONLY after laws have been broken, and after they've been tipped.)
Asked to comment this morning on Son's article and Issa's release of the emails, the New York Fed admits it's guilt but puts the blame on AIG officials for following their advice.
- "Our position has always been that if AIG's securities lawyers determine that AIG is legally obligated to make a particular filing or disclosure, then that is what AIG must do," Thomas Baxter, the New York Fed's general counsel, said in a statement. "It was appropriate as a party to the Maiden Lane III transactions for the New York Fed to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG's securities counsel."
In other words, "Sorry. You shoudn't have listened to us. It was your decision not to disclose to the SEC, not ours. We were merely offering our opinion."
Issa's reaction this morning:
- “It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information. Taxpayers deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.”
In this case, the cover-up is equal to the crime. The next step is simple. Two subpoenas for Stephen Friedman (one from Congress and one from the SEC for his Goldman stock swindle) and 1 fat subpoena for Tim Geithner and a text from President Obankster's Blackberrry, letting Tim know that his services are no longer required at Treasury.