WASHINGTON — In the weeks before Timothy Geithner's confirmation as Treasury secretary, his underlings at the Federal Reserve Bank of New York directed American International Group to delay publicly disclosing that tax dollars were used to pay in full $62 billion in insurance-like bets it owed to major U.S. and foreign banks.
The New York Fed's efforts to delay disclosure of its payment terms coincided with the nomination of Geithner, its president, and with his two-month campaign for Senate confirmation. It's not clear, however, whether a desire to protect Geithner or other reasons related to the nation's financial crisis, which was roiling at the time, drove the push for secrecy.
However, the lack of disclosure spared Geithner from having to defend the Fed's actions during confirmation hearings that already were clouded by his underpayment of federal income taxes.
E-mails between the Fed and AIG made public Thursday reveal a months-long disagreement over how much the public should be told about what ultimately became a back-door bailout of AIG by taxpayers.
One series of e-mails describes how a lawyer for the Fed scratched out language from a regulatory filing prepared by AIG saying it had paid "100 percent of the par value" to satisfy the exotic bets, called credit-default swaps.
The payments, including $13.9 billion to Wall Street behemoth Goldman Sachs, have been a flashpoint for controversy. A special inspector general tracking the use of bailout money recently criticized the New York Fed for overriding AIG's attempts to settle the swaps for lesser sums.
The lack of disclosure came over the objections of lawyers and officials from AIG and from the Securities and Exchange Commission after the insurer made a sketchy regulatory filing.
A Treasury Department spokeswoman, Meg Reilly, said that Geithner formally withdrew from participating in matters affecting AIG and major banks as soon as he was nominated on Nov. 24, 2009.
"Secretary Geithner played no role in these decisions," she said.
The first e-mail resisting disclosure by Brett Phillips, an attorney in the New York Fed's general counsel's office, was sent hours after President Obama announced Geithner's nomination to the Cabinet post.