Geithner in the Crosshairs

Bloomberg has broken a story that puts Secretary Geithner in the crosshairs.

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

This story is technical but here's a summary. Prior to the initial time that AIG borrowed money from the taxpayers, they worked closely with the Federal Reserve Bank in New York. As you might imagine, there's all sorts of paperwork that must be filed before such a transaction can be finished. One of those pieces of paperwork, according to Bloomberg, was going to disclose that AIG would use its government funds to pay back Goldman Sachs 100 cents on the dollar for everything Goldman Sachs was owed in credit default swaps transactions. That, of course, wasn't the only thing but that was one thing.

Everyone can imagine how toxic such a disclosure would be. So, again according to Bloomberg (in emails they received), Geithner's people advised AIG to remove that disclosure.

Now, legally, there's a very important distinction. If Geithner made the Treasury aware, he's all right legally. If this was hidden from Treasury, he faces criminal problems. From a publicity level, it merely comes down to how much this story is covered. This looks horrible and if there's enough publicity, Geithner is through.