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.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

“It appears that the New York Fed deliberately pressured AIG to restrict and delay the disclosure of important information,” said Issa, a California Republican. Taxpayers “deserve full and complete disclosure under our nation’s securities laws, not the withholding of politically inconvenient information.” President Barack Obama selected Geithner as Treasury secretary, a post he took last year.

One would think, given these revelations, that Secretary Geithner would be cleaning out his desk now, but this administration’s commitment to transparency, and honest government I wouldn’t hold my breath…As Jim Geraghty notes:

AIG’s liquidity crisis hits in September 2008. The Federal Reserve comes in to rescue them with a credit line of $85 billion, and the big, powerful banks received full cash for their credit-default swaps. But because that aspect of the rescue would be a giant p.r. headache, suggesting that the taxpayer was stepping in to make sure Goldman Sachs and the others didn’t lose anything in their deal, Geithner and his team chose to simply not disclose it to the public.

Bottom line Congressional Democrats and the media have invested a fair amount of time in demonizing AIG and its management and criticizing their bonuses. What we’re slowly learning though is that the problem wasn’t AIG, it was the sneaky and underhanded way that  Geithner and the Federal Reserve Bank of New York decided to cover their tracks by using AIG as a money-laundering device to bailout politically-connected private institutions.

Snowballing frustration about the economy burst into a political fracas Thursday, with several lawmakers calling on Treasury Secretary Timothy Geithner to resign over angst about unemployment and Wall Street bailouts.

The criticism came largely from House Republicans, who have long been critics of the Treasury secretary. Mr. Geithner’s job status doesn’t appear to be in serious jeopardy and several Democrats at a congressional hearing leapt to his defense.

But joining the anti-Geithner chorus in increasing numbers are more liberal Democrats who say the White House’s economic policies haven’t done enough to boost job growth. The degree of venom aimed at Mr. Geithner is also unusual, as was his willingness to fire back.

During a Joint Economic Committee hearing on Capitol Hill, Rep. Kevin Brady (R., Texas) told Mr. Geithner “the public has lost all confidence in your ability to do the job.”

Mr. Geithner traded barbs with the Republicans, occasionally raising his voice to the point of shouting. “What I can’t take responsibility is for the legacy of crises you’ve bequeathed this country,” he told Mr. Brady.

Rep. Peter DeFazio (D., Ore.) a vocal liberal who called on Mr. Geithner to resign this week, said in an interview that the Treasury secretary’s policies are too closely geared to Wall Street. “Quite frankly, all the gambling on Wall Street is doing nothing to put people back to work in America and rebuild our economy,” he said.

I’m not sure the President can save Sec. Geithner this time, frankly given his tax troubles he never should have never been confirmed as Treasury Secretary in the first place,  but that’s an aside. What’s happening here is the effects of 10.2 percent unemployment and the election results in New Jersey and Virginia are starting to take hold.

Democrat’s on Capitol Hill are starting to worry about the 2010 mid-terms and are trying distance themselves from the White House’s economic policies. Second Republican’s are no longer scared of the White House… At least not so far as the economy is concerned. If they were they wouldn’t be calling for Sec. Geithner’s resignation, particularly to his face.

You can read the full the Special Inspector General’s report on on the AIG bailout Special Inspector General here (PDF).

Related

• Geithner under fire over AIG payments – Financial Times
• Pressure mounts for Geithner to resign – Washington Times
• Liberal Democrat Calls For Geithner’s Resignation – The Public Record

Last October, then-Treasury Secretary Henry Paulson ordered nine banks that the Treasury Department described as “healthy” financial institutions to surrender ownership interests to the government or else face regulatory action that would force them to surrender ownership interests to the government, according to an internal Treasury Department document.

Paulson’s extraordinary threat culminated in one of the most sweeping government intrusions into the free-enterprise system in the history of the United States.

Judicial Watch, a nonpartisan watchdog organization, used the Freedom of Information Act to obtain a copy of the internal Treasury Department “talking points” that were prepared for Paulson to use at his Oct. 13, 2008 meeting with the chief executive officers (CEOs) of the nine banks.

At the meeting–to which the bankers were called at short notice–Paulson made a conspicuous display of potential government regulatory power.

Paulson was flanked by Federal Reserve Chairman Ben Bernanke; current Treasury Secretary Timothy Geithner (who was then president of the Federal Reserve Bank of New York); Federal Deposit Insurance Corporation (FDIC) Chairman Sheila Bair and Comptroller of the Currency John C. Dugan.

While none of these regulators have responded to inquiries by CNSNews.com, the talking points mention each by first name.

Putting aside for the problems associated with the Federal Government bailing out failing private enterprises… Government officials should not under any circumstances be forcing healthy institutions to surrender ownership stakes to the government. It wreaks of socialism!

In short the report says that although Congress limited the Treasury Dept. to spending only $700 billion on TARP  the program’s partnerships with the Federal Reserve and the Federal Deposit Insurance Corporation could bring the total cost 2.9 trillion:

(CNSNews.com) – For many Americans, the $700-billion financial bailout was a tough pill to swallow, but the cost to taxpayers could reach $2.9 trillion – nearly on par with the entire federal budget – according to the watchdog agency charged with oversight of the Troubled Assets Relief Program (TARP).

Although the Treasury Department is only authorized to spend the $700 billion approved last year by Congress and signed by the president, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) will invest up to $1 trillion each in partnering with the Treasury Department’s TARP.

So the “total projected funding” for TARP is estimated to be between $2.47 trillion and $2.97 trillion, according to the TARP special inspector general’s report released on April 21. That’s not so much less than the Obama administration’s proposed federal budget for fiscal year 2010 of $3.6 trillion.

Related

• TARP: The Looming Debacle – John Hinderaker, Power Line

Treasury Secretary Timothy F. Geithner is set to argue for the new powers at a hearing today on Capitol Hill about the furor over bonuses paid to executives at American International Group, which the government has propped up with about $180 billion in federal aid. Administration officials have said that the proposed authority would have allowed them to seize AIG last fall and wind down its operations at less cost to taxpayers.

The administration’s proposal contains two pieces. First, it would empower a government agency to take on the new role of systemic risk regulator with broad oversight of any and all financial firms whose failure could disrupt the broader economy. The Federal Reserve is widely considered to be the leading candidate for this assignment. But some critics warn that this could conflict with the Fed’s other responsibilities, particularly its control over monetary policy.

The government also would assume the authority to seize such firms if they totter toward failure.

Besides seizing a company outright, the document states, the Treasury Secretary could use a range of tools to prevent its collapse, such as guaranteeing losses, buying assets or taking a partial ownership stake. Such authority also would allow the government to break contracts, such as the agreements to pay $165 million in bonuses to employees of AIG’s most troubled unit.

The Treasury secretary could act only after consulting with the president and getting a recommendation from two-thirds of the Federal Reserve Board, according to the plan.

The government has a legitimate interest in regulating banks partly because of the public/private partnership in controlling monetary policy. And secondarily, as result of the banking collapse during the Great Depression, as a guarantor of deposits within certain limits through the FDIC. Insurance companies and hedge funds are another matter, people don’t deposit their cash in them, they invest in them, and in doing so they accept certain risks.

What the Obama administration wants to do is socialize investment risks by making the government a guarantor of sorts for the investors. Call me crazy but I suspect this type risk socialization will have a detrimental effect on the economy, while government is spending more money on regulatory activity I suspect we’ll see a decline in capital investment… Less risk means less potential reward and I suspect investors will be more cautious than they have in the past.

Related

• Obama seeks broad power to regulate risk – American Thinker
• Tim Geithner, Secretary of Nationalization – Red State
• Empty Treasury wants power to confiscate firms – Hot Air

The deal is contingent on the companies’ showing that they’re financially viable by March 31, 2009, if they can’t the loan will be called and all funds returned to the Treasury.

Autos Bailout Fact Sheet

The following is a release from the Bush administration detailing its bailout for the car industry:

Fact Sheet: Financing Assistance to Facilitate the Restructuring of Automobile Manufacturers to Attain Financial Viability

Purpose: The terms and conditions of the financing provided by the Treasury Department will facilitate restructuring of our domestic auto industry, prevent disorderly bankruptcies during a time of economic difficulty, and protect the taxpayer by ensuring that only financially viable firms receive financing.

Amount: Auto manufacturers will be provided with $13.4 B in short-term financing from the TARP, with an additional $4 B available in February, contingent upon drawing down the second tranche of TARP funds.

Viability Requirement: The firms must use these funds to become financially viable. Taxpayers will not be asked to provide financing for firms that do not become viable. If the firms have not attained viability by March 31, 2009, the loan will be called and all funds returned to the Treasury.

Definition of Viability: A firm will only be deemed viable if it has a positive net present value, taking into account all current and future costs, and can fully repay the government loan.

Binding Terms and Conditions: The binding terms and conditions established by the Treasury will mirror those that were voted favorably by a majority of both Houses of Congress, including:

• Firms must provide warrants for non-voting stock.
• Firms must accept limits on executive compensation and eliminate perks such as corporate jets.
• Debt owed to the government would be senior to other debts, to the extent permitted by law.
• Firms must allow the government to examine their books and records.
• Firms must report and the government has the power to block any large transactions (> $100 M).
• Firms must comply with applicable Federal fuel efficiency and emissions requirements.
• Firms must not issue new dividends while they owe government debt.

Targets: The terms and conditions established by Treasury will include additional targets that were the subject of Congressional negotiations but did not come to a vote, including:

• Reduce debts by 2/3 via a debt for equity exchange.
• Make one-half of VEBA payments in the form of stock.
• Eliminate the jobs bank.
• Work rules that are competitive with transplant auto manufacturers by 12/31/09.
• Wages that are competitive with those of transplant auto manufacturers by 12/31/09.

These terms and conditions would be non-binding in the sense that negotiations can deviate from the quantitative targets above, providing that the firm reports the reasons for these deviations and makes the business case to achieve long-term viability in spite of the deviations.

In addition, the firm will be required to conclude new agreements with its other major stakeholders, including dealers and suppliers, by March 31, 2009.

Putting aside the obvious question of why are the taxpayers being asked to throw good money after  bad yet again… Key provisions of this deal, wage concessions, changes in work rules and the elimination of the jobs bank are non-binding. Second there’s nothing in this deal about the legacy costs and/or the government regulations that are choking these companies.

This is nothing more than an expensive joke on us the tax payers.

Senate Republicans rightly stopped the auto industry bail last night and today the Bush Administration decides to use TARP funds to throw a life line to GM and Chrysler.

From FoxBusiness:

Despite the abrupt death last night of bailout legislation in Congress, it seems the Big Three car makers will still get billions of dollars in rescue funds from Washington.

The Treasury Department said Friday it will provide an unspecified amount of money to the cash-strapped industry, Fox Business Senior Washington correspondent Peter Barnes has learned from a source close to the discussions. It was not immediately clear from which funding source Treasury would get the money.

Still, industry experts are deeply skeptical that emergency cash is the answer to the myriad ills plaguing the industry.

“They’ll get the money, but it’s a very dangerous proposition. It’s a very complicated mess,” said David Magee, author of How Toyota Became #1.

In the wake of the failure of a $14 billion bailout bill in the Senate Thursday night, the Treasury Department said Friday it was prepared to step in and prevent a collapse until Congress takes up the issue again. Read the rest…

It’s a sad reality but  Billions in taxpayer dollars aren’t going to save the Big 3… They need to drastically restructure, bankruptcy is the only way for them get that done in the time frame required.

Update: Larry Kudlow posting at the Corner says there’s no deal yet:

Media reports and Wall Street investors are now assuming the Treasury will put up $15 billion in TARP money to keep the Detroit carmakers out of bankruptcy. But my sources tell me that the TARP deal is not done — not by a long shot.

At a minimum, it’s going to take the Treasury several days to walk through the financial numbers and gather all the facts before it takes any action. The Treasury wants to see the cash-flow data and get to the truth about GM and Chrysler. (Ford doesn’t need the money.) And nothing will happen until these numbers are properly crunched. And the Treasury may well want to arrange for a built-in monitor — something that might even look like a car tsar — if any TARP money is dispersed.

Senate sources tell me that any TARP-money allocation might include the very same conditions proposed by Tennessee Sen. Bob Corker in legislation that broke down in a marathon session in the Senate list night.

So folks shouldn’t count their TARP eggs before they’re hatched. And nothing is expected to be announced today.

Assuming Kudlow is right this is good news.

The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup by moving to guarantee close to $300 billion in troubled assets weighing on the bank’s books.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection — 8% for the first few years — than it has charged to dozens of other banks now borrowing money under the government’s the $700 billion rescue package approved by Congress last month.

Here’s my prediction: It’s not going to work…  Sure it’ll make everyone feel good and stocks will rise in the short term but once the euphoria wears off and reality sinks in we’ll be right back where we started.

Michelle Malkin says:

Crap Sandwich 2.0 is morphing again.

We’ve gone from the toxic assets purchase plan to the capital injection plan to the throw-it-all-against-the-wall-and-whatever-the-hell-sticks-sticks non-plan plan.

And there in lies the problem, at least from my perspective… We rushed into this bailout business without really understanding the full scope of the problem and are now groping around in the dark trying to find a way out.

Former House Majority Leader Dick Armey (R-Texas) said that the Bush administration’s plan to buy $250 billion in stock in U.S. banks should be challenged in federal court as unconstitutional.

“I think that it is subject to a serious constitutional challenge,” Armey said in a conference call with reporters on Tuesday. “It is very important that this challenge be made. We had challenges of this nature against Roosevelt. I think it is extremely healthy that we challenge this, and it should be challenged.”

Freedom Works, the organization headed by Armey, is researching the possibility of a challenge to the plan.

President Bush announced Tuesday that the Treasury Department will utilize a little-known provision of the $700 billion bailout package approved last week by Congress to spend $250 billion to buy non-voting shares of stock (equity stakes) in nine of the country’s largest banks.

Never mind President Bush’s plan to buy bank stocks… What about the whole $700 billion Bush/Bernanke/Paulson bailout plan… Is it Constitutional?

One of the things that bothered me about the rush to ram that crap sandwich down taxpayers throats was the lack of debate. We never got answers to the most fundamental question is this plan Constitutional?

Update: from the Washington Post…

Smaller Banks Resist Federal Cash Infusions

By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, October 15, 2008; Page A01

Community banking executives around the country responded with anger yesterday to the Bush administration’s strategy of investing $250 billion in financial firms, saying they don’t need the money, resent the intrusion and feel it’s unfair to rescue companies from their own mistakes.

But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.

The government also said yesterday that it will guarantee up to $1.4 trillion of private investment in banks. The combination of public and private investment is intended to refill coffers emptied by losses on real estate lending. With the additional money, the government expects, banks would be able to start making additional loans, boosting the economy.

H/T: Hot Air.

“My top responsibility as an elected official is to protect the families and people who trusted me to represent their interests in Washington. I do not take lightly the critical nature of the credit crisis that our capital markets face today and the grave situation that every American will face should our credit markets freeze and remain frozen. Inaction has never been an option, but the Paulson plan should have never been the only option.

“In my heart and in my mind, I believe that this plan is fraught with unintended consequences, would force generations of taxpayers to pick up the tab for Wall Street losses, and could permanently and fundamentally change the role of government in the American free enterprise system. Once the government socializes losses, it will soon socialize profits. If we lose our ability to fail, we will soon lose our ability to succeed. If we bail out risky behavior, we will soon see even riskier behavior.

“I also believe that this Congress, in a rushed effort to provide stability to a troubled credit market, did not adequately discuss or investigate potential alternatives that would have constituted a work out and not a bail out. Even at this moment, it still remains more important for Congress to do it right than to do it fast. I stand ready, as do many of my colleagues, to stay here for as many days as it takes to do this right.

“For the last week, House conservatives have fought to protect innocent taxpayers from an unprecedented government raid on their wallets to bail out Wall Street from their bad decisions and financial losses. Principled Republicans like Paul Ryan and Eric Cantor helped improve the legislation before us by adding increased taxpayer protections and additional Wall Street accountability. But mere improvement is not the test for support. The test is whether, after weighing both the good and the bad, you believe that the plan ultimately leads America in the right direction. Using that test, I cannot in good conscious support this legislation.”

The Bad: Just were did the Treasury Department come up with that $700 Billion bailout figure? They made it up… From Forbes:

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

Presumably they picked a frighteningly large number in order to scare Congress into acting quickly without thinking the matter through.

The Ugly: From Today’s New York Post:

O’S DANGEROUS PALS
BARACK’S ‘ORGANIZER’ BUDS PUSHED FOR BAD MORTGAGES

By STANLEY KURTZ, New York Post, September 29, 2008

WHAT exactly does a “community organizer” do? Barack Obama’s rise has left many Americans asking themselves that question. Here’s a big part of the answer: Community organizers intimidate banks into making high-risk loans to customers with poor credit.

In the name of fairness to minorities, community organizers occupy private offices, chant inside bank lobbies, and confront executives at their homes – and thereby force financial institutions to direct hundreds of millions of dollars in mortgages to low-credit customers.

In other words, community organizers help to undermine the US economy by pushing the banking system into a sinkhole of bad loans. And Obama has spent years training and funding the organizers who do it.

THE seeds of today’s financial meltdown lie in the Commu nity Reinvestment Act – a law passed in 1977 and made riskier by unwise amendments and regulatory rulings in later decades.

CRA was meant to encourage banks to make loans to high-risk borrowers, often minorities living in unstable neighborhoods. That has provided an opening to radical groups like ACORN (the Association of Community Organizations for Reform Now) to abuse the law by forcing banks to make hundreds of millions of dollars in “subprime” loans to often uncreditworthy poor and minority customers.

Any bank that wants to expand or merge with another has to show it has complied with CRA – and approval can be held up by complaints filed by groups like ACORN.

I wish I had something intelligent to say but the only words that come to mind all contain four letters and are not generally used in polite company.