Rep. Darrell Issa comes out guns blazing once again, alleging that the Fed provided a selective response to the subpoena to provide all documents relating to the AIG bailout, and asks Edolphus Towns, Chairman of the House Committee on Oversight and Government Reform, to hold Fed officials responsible for this act, in contempt.
First, the FRBNY's production does not include documents related to the FRBNY's knowledge of AIG's credit default swap counterparty exposure before AIG was bailed out in September 2008. The Committee needs to understand AIG's counterparty exposure and the FRBNY's knowledge of the potential problems at AIG before federal officials thought it became necessary to spend billions of taxpayer dollars to bail out the company.
Second, the FRBNY's production does not include documents related to the counterparty payments after May of 2009, including but not limited to the FRBNY's response to Congressional and press inquiries, such as this Committee's investigation. As you know, has stonewalled this Committee's investigation at every turn since I initially requested information from FRBNY in October of 2009. It is crucial that this Committee understand the full extend of FRBNY's efforts to cover up the counterparty payments and to prevent and delay other efforts to bring details about these transactions to the public.
Dear Congressman Issa, while we are on this topic, and since you are requesting additional information from the FRBNY, we were hoping to provide some suggestions on incremental disclosure which should be critical in your ongoing investigation, and that should be opened up to the public's interest immediately.
As you will recall, AIG was bailed out not once, but twice. As Zero Hedge disclosed at the time, in late February, at about the time the market was probing decade lows, and ahead of AIG's announcement of a record $60 billion loss, CNBC's David Faber announced that AIG had retained bankruptcy law firm Weil Gotshal to advise it on its imminent bankruptcy.
Furthermore, subsequent to a Fox Business FOIA of the FRBNY (one of the few that did not end up in the trash, unlike the one sent out by Zero Hedge staffers), it became known that in late January the NY Fed was being advised by Davis Polk as legal counsel, and by Morgan Stanley as financial advisor, on the decision of whether or not to file AIG, as can be gleaned from one of the few unredacted emails below:
A few days ago, Fox Business published emails it has received as part of a FOIA request to the Federal Reserve. What the email (below) indicates is that not only was an AIG bankruptcy a viable option for the Fed, but that [Davis Polk lawyer] Marshall Huebner was in fact presenting to an extensive audience of Fed members on the merits (or lack thereof) of such.
This coincides perfectly with unconfirmed rumors swirling in late January that AIG had retained TBTF law firm Weil Gotshal to advise it in advance of a bankruptcy filing. Instead, the Fed, for some reason, flipped and decided not only not to file AIG, but to throw several tens of billions of extra dollars at it, which led to the March Barney Frank AIG witch hunts (which by the way have still to lead to even one public questioning of Joe Cassano).
Here is the issue - as the Fed has lately been spinning its transparency with and without the use of recently retained lobbyists, it is critical that all the documentation that was presented at this meeting, and all tangential materials, be made public immediately. And this means not merely Huebner's presentations that had been put together as part of the above meeting (which as the e-mail indicates did take place, and there is undoubtedly information that the Davis Polk lawyer presented), but any discussion materials, memoranda and e-mails, between the Fed and all its legal and financial advisors: in this case, most notably, one Morgan Stanley, which was the financial advisor in the AIG situation. And just so readers recall the incest that is going on between the Fed and its financial advisors, here are some of the firms engaged by the Fed in its ongoing efforts to vacuum any and every available security out there: in the Fed's $500 billion MBS program, retained financial companies are BlackRock Inc., Pimco, Wellington Management Co. and... Goldman Sachs. In another program, it is JP Morgan which is overseeing $540 billion in disbursements to money market mutual funds... and then there are the TALF advisors... and the list goes on and on.
Absent knowledge of the decision-making process of the second AIG bailout, and without an understanding of the recommendations that Morgan Stanley provided to the NY Fed and AIG, it would be impossible to generate a complete picture of all the forces that determined the fate of AIG, which survived not one but two near-death experiences. Of course, had the FRBNY responded to our FOIA request, after their initial notification that they needed an extended period of time to gather all the required information, all this information would have been public already a long time ago.
Which is why we suggest you request the following additional disclosure:
- All documentation, reports, presentations, phone records, voice mails, facsimiles and all other relevant information between AIG, the Federal Reserve and Weil Gotshal, alleged bankruptcy counsel to AIG
- All documentation, reports, presentations, phone records, voice mails, facsimiles and all other relevant information between AIG, the Federal Reserve and Davis Polk, legal advisor to NY Fed
- All documentation, reports, presentations, phone records, voice mails, facsimiles and all other relevant information between AIG, the Federal Reserve and Morgan Stanley, financial advisor to NY Fed
- All documentation, reports, presentations, phone records, voice mails, facsimiles and all other relevant information between AIG, the Federal Reserve and Simpson Thacher, legal advisor to AIG Board
- All documentation, reports, presentations, phone records, voice mails, facsimiles and all other relevant information between AIG, the Federal Reserve and Sullivan & Cromwell, legal advisor to AIG
Only after all this information has been compiled and disclosed can you and your committee hope to make an informed decision on all the conflicts of interest inherent in the decision leading to the AIG bail out and that of its counterparties.