Darrell Issa's Special Report On AIG Could Be The End Of Geithner

Tyler Durden's picture

We are currently going through the recently released Special Report by Darrell Issa: "Public Disclosure As A Last Resort:
How the Federal Reserve Fought to Cover Up the Details of the AIG Counterparties Bailout From the American People," and a cursory perusal indicates that this could be proverbial end for Tim Geithner...and Sarah Dahlgren is, not surprisingly, mentioned rather prominently...as is Davis Polk.

We will post more comments later but this section is critical:


When asked directly if he was involved in the efforts by the FRBNY to prevent disclosure of the AIG counterparty payments, Secretary Geithner responded, “I wasn’t involved in that decision.” On January 8, 2010, FRBNY General Counsel Thomas Baxter wrote Ranking Member Issa to clarify the role of then-President Geithner:


[M]atters relating to AIG securities law disclosures were not brought to the attention of Mr. Geithner …. In my judgment as the New York Fed’s chief legal officer, disclosure matters of this nature did not warrant the attention of the president.


Mr. Baxter reiterated this claim in an interview with Committee staff. Questions of securities disclosure, Baxter said, were “legal stuff,” and Baxter did not bring legal stuff to the attention of then-President Geithner. However, Baxter said that “on significant policy issues, of course I would go” to Geithner.


However, documents received by the Committee suggest that Secretary Geithner was, at a minimum, engaged personally in reviewing what information about the AIG bailout would be revealed to Congress and the public. On November 6, 2008, SarahDahlgren, the FRBNY’s lead staff member in AIG’s operations, e-mailed Geithner with a proposed statement regarding AIG’s upcoming equity capital raise for Geithner’s approval:


[I]n terms of saying something publicly about our intentions, we … think that saying something that conveys the following … makes sense:


It is our (Federal Reserve/Treasury) continued intention to put the company in a sound capital position and exit the facility/preferred securities/common stock ownership as soon as practicable…


[I]f you are good with this, …we would also make sure that the company sticks to this line (echo)…. [emphasis added]


On November 13, 2008, Geithner received a report on AIG’s restructuring that would be sent to Congress, which Geithner had asked to personally review. Sophia Allison, a staff member of the Federal Reserve’s Board of Governors, e-mailed the draft congressional report to several Federal Reserve staff:


Attached is a draft Congressional report for the restructuring package for AIG announced on Monday, November 10. …I tried to take everything in the report from publicly available documents, such as press releases, the prior AIG Congressional Report, and AIG’s most recent 10-Q. If there is anything in the report that you believe should not be publicly disclosed, please specifically point that out. [emphasis added]


Michael Nelson, a staff member of the FRBNY, forwarded Allison’s email to Geithner with the following message:


Tim – this is the draft EESA-required filing on AIG that the Board owes the Hill, as you requested. [emphasis added]


In addition, Secretary Geithner’s meeting logs from his tenure as President of the FRBNY show that he was regularly engaged with top AIG officials and the FRBNY officials directly responsible for AIG’s disclosures to the SEC. Geithner’s schedule shows that he had at least six formal meetings with top FRBNY staff members about AIG-related issues between November 4, 2008, and November 21, 2008. It is unclear whether AIG’s disclosure obligations were discussed in these meetings.


At a minimum, the cover-up of the details about AIG’s counterparty payments began on Secretary Geithner’s watch, and the culture of the FRBNY in which this behavior occurred reflected his leadership. Secretary Geithner needs to explain his role in the cover-up, and if he thinks the behavior of his staff at the FRBNY was appropriate.




Secretary Geithner’s claim to SIGTARP that the backdoor bailout of AIG’s counterparties had nothing to do with the health of AIG’s counterparties also raises questions about why AIG was bailed out in the first place. As the Wall Street Journal notes:


[I]f Mr. Geithner now says the AIG bailout wasn’t driven by a need to rescue CDS counterparties, then what was the point? Why pay Goldman [Sachs] and even foreign banks like Societe Generale billions of tax dollars to make them whole?


Secretary Geithner now claims that the point of AIG’s bailout was to protect AIG’s insurance policy holders:


AIG was providing a range of insurance products to households across the country. And if AIG had defaulted, you would have seen a downgrade leading to the liquidation and failure of a set of insurance contracts that touched Americans across this country and, of course, savers around the world.


However, as the Wall Street Journal further explains:


Yet, if there is one thing that all observers seemed to agree on last year, it was that AIG’s money to pay policyholders was segregated and safe inside the regulated insurance subsidiaries. If the real systemic danger was the condition of these highly regulated subsidiaries – where there was no CDS trading – then the Beltway narrative implodes.


Secretary Geithner’s inconsistent statements and apparent contradictions raise important questions about the decision to not only funnel billions of taxpayer dollars to AIG’s counterparties, but also the decision to bail out AIG itself.

And, at long last, Davis Polk is accused of interference with the disclosure process

The FRBNY and its attorneys at Davis Polk interfered with AIG’s securities disclosures in several ways. They edited AIG’s SEC filings in ways that made it more difficult for investors and the public to understand the ML3 transactions. They contacted the SEC directly and pressured it to treat AIG’s filings differently from other companies’ filings. In addition, they appear to have forced AIG to cancel a compensation-related filing that it was required to make. The FRBNY’s edits of AIG’s filings and the FRBNY’s pressure on the SEC were intended to serve the Fed’s interests by obscuring embarrassing details about the FRBNY’s backdoor bailout of AIG’s counterparties. Investors cannot be protected by a disclosure system that only requires full transparency when the Federal Reserve’s embarrassment is not at stake. The special SEC procedures established via FRBNY pressure also demonstrate that bailouts lead to enforced favoritism.

The conclusion

Finally, the secrecy, concealment, and lack of transparency in the conduct of the Federal Reserve have serious implications for the continued health of democracy and free markets. The Federal Reserve’s payment of par to AIG’s counterparties and the subsequent cover-up of information about these payments raise concerns about the accountability of the unelected bureaucrats within the Federal Reserve System. The fact that a quasi-government agency, unaccountable to the American people, likely wasted billions of taxpayer dollars and went to great lengths to prevent Congress and the American people from learning about these actions demonstrates the threat that the Federal Reserve poses to basic principles of American democracy.

Full Special Report

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RoastingBankers's picture

woo hoo


....wait a min, they will just replace him with an even bigger hack....

Cursive's picture

One at a time, RB, one at a time.

Anonymous's picture

My goodness... Has Timmy G. sold he NY residence yet? What is plastered into his walls? Wonder what the broadcast range is?

Anonymous's picture

Amen....It would have been a lot smarter for GS to have paid in some money regarding AIG....

It is going o get a lot more expensive for them....unless
of course without the payment in full there was a chance that GS would have been another Lehman....

And so what....

Ex Bear Stearns, Lehman, etc...just need to form another company ....and move forward....

Why not ?

Why not start a better business model securities company ?

L_Gobbo's picture

"The fact that a quasi-government agency, unaccountable to the American people, likely wasted billions of taxpayer dollars and went to great lengths to prevent Congress and the American people from learning about these actions demonstrates the threat that the Federal Reserve poses to basic principles of American democracy."

The single greatest sentence from a pol since this whole mess started!

End the Fed!

Audit it. Do the perp walk with BB and Timmay (for starters). And then END IT!

Harbourcity's picture

They'll spin it... they were expecting a worse report so this one is still good news.

Anonymous's picture

LOL. That was hilarious!

deadhead's picture




Daedal's picture


Hopefully this fiasco will pave the way to auditing the Fed once and for all.

Mrmojorisin515's picture

The bold effort the present (central) bank had made to control the government ... are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.

I am one of those who do not believe that a national debt is a national blessing, but rather a curse to a republic; inasmuch as it is calculated to raise around the administration a moneyed aristocracy dangerous to the liberties of the country.

Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.

You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.

Andrew Jackson

Orly's picture

Your boy Jackson had some huevos; Lincoln and Kennedy, the same.  They all got ruined in one way or another contemporaneously and for generations to come.  Only now are we beginning to understand why these men were such true heroes.  Only now do we understand exactly what they saw nearly a century and a half later.

Scary.  Even more scary: now, we have "lasers."

Shortbus Bully's picture

Lincoln not so much.  From an Anti-federalist perspective he is probably the worst president the nation has ever had.

Mrmojorisin515's picture

ricky pass me some jalapano chips before lahey has the shit hawks after us

Joe Sixpack's picture

Proclamation on the Federal Reserve System of the United States of America
March 2008

WHEREAS, Article I, Section 8 of the Constitution of the United States of America authorizes Congress "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures";

WHEREAS, on December 23rd, 1913 the US Congress enacted the Federal Reserve System;

WHEREAS, the Federal Reserve System is considered an independent agency within the federal government, with oversight of Congress and containing appointed public officials on its board of directors;

WHEREAS, the Federal Reserve System Controls the Federal Reserve Note, the official currency of the great nation of the United States of America;

WHEREAS, there may be controversies regarding the legality and constitutionality of the Federal Reserve System, it is recognized that the said system has operated continuously as the central banking system of the United States since the inception of the Federal Reserve Act of 1913;

WHEREAS, the Constitution of the United States of America granted Congress the authority to create the current Federal Reserve System, it also does grant Congress the authority to modify or revoke the Federal Reserve System;

WHEREAS, the actions of the Fedreral Reserve System represent the credit and currency of the United Stated of America to the citizens of this great nation and to the world;

WHEREAS, the Federal Reserve System, acting independently within the federal government allowed, supported, and even promoted parasitical and non-productive uses of the money and credit of the United States of America;

WHEREAS, the United States and likely the entire world's financial system is undergoing massive de-leveraging of the said parasitical and non-productive uses of the credit and money of the United States of America (as well as other nations' currencies);

WHEREAS, the US dollar, the "Federal Reserve Note" is declining in value due to these parasitical activites, as well as potentially other causes;

WHEREAS, it is recognized that the citizens of the United States and other nations did willingly participate at some level in the creation and propogation of said parasitical activities;

WHEREAS, it is also recognized that the United States of America, a sovereign nation, has the legal, moral, and God given authority to take actions to benefit its citizens and to protect its good name, credit and money in times of difficulty;

WHEREAS, it is recognized that the current time is such a time of great difficulty;

WHEREAS, it is recognized the parasitical financial institutions and their activities are at odds with citizens of the United States of America and the good credit and money thereof;

WHEREAS, the current indications are that the Federal Reserve System is acting to preserve the financial system currently flooded with the parasitical activities;

WHEREAS, the current indications are that the neither the Federal Reserve System, nor the Congress of the United States, nor the people of the United States have access to the books of the institutions being preserved by the Federal Reserve, and therefor the degree of inter-connectivity and risk associated with the institutions and other entities cannot be determined;

WHEREAS, the Federal Reserve System is accepting non-performing assets as collateral for credit with ultimate taxpayer responibility to entities not under its legislative mandate;

IT MUST BE CONCLUDED, that the Federal Reserve System is not acting to the benefit of the people of the United States of America, its credit, money, and good name;

WHEREAS, it is recognized that the political will and capability of the government of the United States of America may not be up to the task of prosecuting this proclamation ; It is also recognized that this may be the only hope for the continued survival of the United States of America as the great nation as it has historically existed.

NOW THEREFORE, it is PROCLAIMED by those supporting this Proclamation that the Congress of the United States of America FULLY NATIONALIZE the Federal Reserve System, and take full control of the credit and money of our great nation; The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the effect of the parasitical financial activities which led to the current crisis; The Congress of the United States of America must reorganize, replace, or terminate the Federal Reserve System as appropriate; or otherwise devise a system for creation of the national currency.

IT IS FURTHER PROCLAIMED, that the Congress of the United States of America in cooperation with the Executive of the United States of America contact allied nations and any other nation willing to participate in the overhaul of the failing and parastical financial sytem currently in operation and create new treaties and alliances as necessary to create a sane and productive system of finance with the express goal of supporting a productive national, and by extension and through voluntary cooperation, world economy;

FURTHERMORE, it is PROCLAIMED that it should be the goal of such an international effort to maintain fair international trading practices allowing for protection in national interest of labor, resources, and productive capabilities;

WHEREAS, it is recognized that such a move on the part of the United States of America may result in the necessity of an isolationist policy IF the other developed nations do not follow our lead; If such occurs, so be it.


illyia's picture

Okay, okay, I'll click the link...

Like Tyler hasn't given me enough homework today...

illyia's picture

Also, fourth paragraph from the bottom:

The Congress must take whatever action necessary to seperate out, sequester, disown, or otherwise neutralize the

The word is sepa rate. Please advise the author. Credibility issue.

Orly's picture

Grammar cop. 

Thanks for spanking my buzz.



Number 156's picture

Geithner was put in his position precisely because of this fact: He is crooked.

He was not put there so he can come out and tell everyone that he discovered all sorts of impropriety. He is a crook, working with a band of crooks. 

Darrel Issa should be thanking Zero Hedge and others, because most of the mainstream media will never let this story see the light of day.

Geithner will not be fired because of what he did, but only when he becomes a really foul smelling, rotting albatross around someones neck. 

Crab Cake's picture

Zerohedge is the light of day.

I think you are dead wrong. Geithner will be fired, and he already is an albatross.

Things are about to get real bad, just like we've been hoping for, that's my bet.

How long was it after the '29 crash till they figured out it was a depression? 

Things are about to get historic, things are moving (should I say falling) faster now.  The status quo is loosening at a near daily pace. 

Tearing off a bandage and finding gangrene, and the realities such a diagnosis warrants, is just the first step. 

Number 156's picture

Oh were on the same page alright. He will be fired because he's an albatross. That's the only excuse that matters in Washington.

Now the question is, can Zero Hedge and the rest of the blogosphere make that albatross even more unbearable?

Miles Kendig's picture

Every day and in every way.  And as time goes on I am certain that we and others will find ways to assist the stank of rotting flesh emanating from Geithner to publicly infect as many others around him as possible.  As that process continues I suspect at some point Geithner will crack.  After all, his primary attribute is rapidly becoming a liability.

Miles Kendig's picture

Look at how long Agnew lasted...  Since government has not only lost all sense of propriety, but the need for discretion as well it is possible for Geithner to last quite a bit longer.  The administration is stuck in a deer in the headlights moment.  If they fire Geithner it will look like they did it for expediency and they are culpable.  If they don't fire him then it looks like they are not running the country, the federal reserve is.  One thing is certain, those in charge most likely have a strong desire to keep Geithner under close supervision and control and firing him may well create a malcontent.  Especially since Geithner's head has been getting filled with the; "You are a hero and you saved the world" crap and he will believe it as long as he is treated like it.

Naturally, anyone that has been paying attention knows that this administration, just like the previous one will do whatever the fed tells them to, regardless of the consequences.  Once more the unbridled tone deafness of our political class and the financial sector that is holding its leash and checkbook reflects a government and its society that finds itself more than 300% of GDP in debt not counting unfunded future obligations.  It has been generally acknowledged that nations with debt to GDP ratios in excess of 300% are klepocracies in their final throes.  One of the only things remaining is for government officials to sell the infrastructure, public lands and everything else it can in the name of "stability" before the kleptocrats depart.  The big difference this time is that what is left behind will be far more than some angry farmers armed with machetes....  

Problem Is's picture

"How long was it after the '29 crash till they figured out it was a depression?"

Since the market bottomed Oct. 1929 and you analysts can tell me if I am off here, there was a 45% bear market rally in 1930.

Since we crashed in Sept. 08 and bottomed March 09, we are now in an up 60% rally...

I guess that puts us roughly at the end of 1930. That means we have the following to look forward to:

Nov.-Dec 1930 = 806 Bank Failures

April-Aug 1931 = 573 Bank Failures

Sept-Oct 1931 = 827 Bank Failures

June-July 1932 = 283 Bank Failures

Feb-Mar 1933 = BANK HOLIDAY!! Hurahhh!


And we got us a Barry Fucking Hoover in the White House if ever I have seen one.

Except the banks don't fail, we all fail and the banks still get the holiday in the Hamptons.

Hephasteus's picture

Fibanocci sequence is about a bitch when you apply it to the time space continuum as well. So you can look forward to having that nov 1930 to march 1933 all crammed into this year.

Anonymous's picture

hey, he cheated on his taxes, we know that he is an ethical vacuum. why all the shock? Reminds me of a business week cover in the late 90's on Jack Grubman. In the article it was revealed that Grubman had lied on his resume. Yet telecom was hot and a cash-machine, so nobody cared. Yet, people were shocked when Grubman's real character was revealed post the worldcom collapse. Geithner is no different.

Orly's picture

Technically, he didn't cheat on his taxes. 

No one in the IRS or in Treasury knows for sure when to declare what as income vs. out-go when someone works for a semi-quasi-globalist-entity such as the International Monetary Fund.  He hired a housekeeper and did not remit her social security taxes, even though she was Honduran and flying under a Panamanian flag at and IMF-owned property or something.

I praise the day we didn't go after this guy for that gnarly wad.  I am glad we can get him on substance, instead.

The best part about it is that, as the ancient story tells, the weakest link of the chain will bring everything to a grinding halt.  Who knows what will fall to the waysde.  Paulson?  Higher?

Let us pray they get their just desserts.

Anonymous's picture

technically he did cheat on his taxes which is
why he made a late last minute amends knowing
that the senate confirmation committee might
be interested - even if only on a pro forma

tax cheating is substantive....and was a leading
indicator of the rest of his sordid dealings...

waterdog's picture

I think the operative words are "cover up".

Nixon died because of a cover up, not because of a crime.

Bernake will not die because of a crime, he will die from the cover up of the crime.

Americans do not mind being fucked, they mind being told they are loved when in fact they are not.


Anonymous's picture

Who will be the one who can and effectively communicate this treason to the masses and has the courage to do so?


Anonymous's picture

It doesnt matter anymore. They are all part of the new organization. Greed has turned our whole government into Humanoids. Just think of Invasion of the Body snatchers. Wall-street and the Government were all reborn from the Pods and we are the ones yelling, THERE COMING!!! THERE COMING!!! Geitner is not going anywhere. He is one of them.

Anonymous's picture

Maybe you meant ... "They're coming..."? Your grammar screams is so loud is hard to hear what you are saying.

msjimmied's picture

Every morning I wake up thinking today maybe it ends...in the meantime ratchet up the pressure. Now, this is funny! Hitler's take on the situation.


Anonymous's picture

OMG i think i just peed my pants laughing!!

Orly's picture

God, where do y'all get this stuff?


Thanks, ZeroHedge!  Where would we be without you?  Seriously.  Where?

Anonymous's picture

Bill Gross seems to know that Geithner is already gone.

Watch how he distances himself on Bloomberg. Gross defends Bernanke and then is asked if we need to keep Geithner?

"I don't think we need to go that far."


It's at 4:25

Anonymous's picture

Just after he professes his love for Bernanke, too.

Anonymous's picture

Whether Geithner personally engineered the cover-up is beside the point. He was head of the FRBNY at the time, and the buck stopped at his desk. He needs to take his lumps and step down.

Miles Kendig's picture

Ahhh, someone that actually is aware of the ancient concept of command responsibility.  Too bad the only aspect of leadership our political class, or financial services class is aware of (with some notable exceptions) is of demanding respect rather than commanding it.

Anonymous's picture

The problem with any corporation like AIG having a single division rack up huge losses is exhibit A as to why any company is only as good as it's weakest [division] link .

Merrill Lynch which had a thriving Wealth Management division with over 1.3 Trillion dollars of customer assets, was sold to BoA because of their Mortgage losses.

Letting Lehman Ho's fail was the single cause for the Credit Market freeze (remember that breaking the buck thing?)

Letting AIG go bankrupt as a result of the casino mentality of the FP division would have caused many European banks to not be able to meet their Capital requirements. You can't legally operate your car on the road tomorrow if your insurance company goes bankrupt tonight.

Bank Failure friday which has been on going for more than 2 years now is because these failing banks don't meet the Capital requirement ratios because of losses on their portfolios. The FDIC is stepping in as the insurer of last resort.

Many "innocent" people would have been hurt by an AIG bankruptcy, and that some people (GS etc..) benefitted while outrageous is the sad reality of how Wall Street works

Miles Kendig's picture

Too bad so many of those that did business with AIGFP did so with side letters with the sole purpose of regulatory arbitrage or pumping a quarterly number.  If firms were doing what they were supposed to be doing in the first place rather than spending so much time in fraudulent activity there would have been hardly any problems worth mentioning....

faustian bargain's picture

...except for all that zero-interest-rate, quantitative-easing stuff.

Anonymous's picture

"I tried to take everything in the report from publicly available documents, such as press releases, the prior AIG Congressional Report, and AIG’s most recent 10-Q."

this is a perfect example of the plausible deniability technique and baffle them with bullshit technique....

rather than provide substantive, first hand, original information about the transaction and situation at aig the legal staff committed a fraud and hoax on the congress by dredging up public information which had no relecant value and for which it could deny accountability....it made no attempt to find facts or obtain material information as the new fiduciary overlord - instead it passed along hearsay in a cowardly craven display of deceitfulness....

Anonymous's picture

the days of the buck stopping at the top are clearly a distant hazy memory.....geithner's lawyers are protecting him from the most important financial events in over a century and he is not in the loop?? please tell that horse crap to someone else.....

i have worked many many years in the corporate world and some time in the military as a manager / leader and i can assure you that there are times when staff meetings would center on how many times so and so went to the bath room or when several people had to agonize and get permission over a 250 usd expense in a million dollar budget....

this crap about not being plugged in or being shielded from details is total god damned bullshit.....

geithner is a piece of shit....

Anonymous's picture

Someone in congress needs to ask Paulson/Geithner why Lloyd Blankfein was sitting in meetings with Paulson discussing the fate of AIG.

Thalamus's picture

Clinton's immorality was glossed over and he ended up selling U.S. defense secrets to the Chinese, now Geithner, the unethical tax cheat, is allowed to shaft the American people for billions.  Tell me character isn't important in a leader?  What will Obama bring us that isn't brought to light yet?

Pedro's picture

Great job again Zero Hedge

For those wanting Rep Issa to know we are behind him and encourage not to give in to the big money.

Congressman Darrell Issa
1800 Thibodo Road, Suite #310

Vista, CA 92081
Phone: (760) 599-5000
Fax: (760) 599-1178

Andrei Vyshinsky's picture

It is no more likely that the ruling class will abandon Geithner than they will Bernanke. Even today, the contrived "bank populism" of last week is jettisoned in favor of statements of support for the three main players in Obama's financial rogues gallery. That is not to say, of course, that the chicanery isn't easily enough seen through, it is, its just that Obama's clear aversion to any nascent moral impulse renders moot any discussion of prosecution in this or in any other similar case. Mr. Obama, you see, reserves his anger for wedding parties in Af/Pak and kids with stones in the Gaza Ghetto.

bluelou's picture

Can someone explain to me what the initial motive was for the AIG counterparty bailout terms if they were so egregious as to require a "cover-up"?  I mean the ZH argument isn't that FRBNY accidentally gave away too much money and then suddenly realized they made a mistake and tried to hide it?  Is it?