Federal Reserve Chairman Ben S. Bernanke invited congressional auditors to conduct a “full review” of the central bank’s aid to American International Group Inc. after lawmakers accused the Fed of trying to conceal information about the bailout.
“The Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG,” Bernanke said today in a letter to Gene Dodaro, acting head of the Government Accountability Office, that was released by the Fed.
Some of this little known scandal is wrapped in boring financial paperwork and filings. Others are very easy to understand. AIG was required by law to file a series of disclosures effectively about what it was going to do with tax payer money. It never disclosed the fact that some of the money wouldn't merely go to paying back debts owed based on positions it took against Goldman Sachs but that it would pay Goldman Sachs 100 cents on the dollar. Effectively, we would be giving AIG a bailout then so that Goldman Sachs could be paid back for risky positions that it took.
The reason that AIG didn't make this filing is because it was encouraged not to by then New York Fed Chairman Tim Geithner. It may or may not be illegal but it absolutely looks awful. So far, Geithner has remained relatively quiet about the story. So far, the story has been relatively quiet. Once the news cycle clears, watch for this story to take a front seat. Then, both Bernanke and Geithner will have a lot to answer for.