WASHINGTON BUREAU — A House panel Tuesday ordered the Federal Reserve Bank of New York to produce documents related to its role in shaping American International Group Inc. (NYSE:AIG) counterparty disclosures.
The disclosures focused on AIG's move to pay counterparties to collateralized debt obligation arrangements 100 cents on the dollar on CDO obligations.
Rep. Edolphus Towns, D-N.Y., chairman of the House Committee on Oversight and Government Reform, announced the issuance of the subpoena today.
"To help the committee's investigation of payments made by AIG to its counterparties, I am issuing a subpoena today to the Federal Reserve Bank of New York,". Towns said. "This subpoena will provide the committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout."
The documents described AIG-insured collateralized mortgage obligations that were sold to a New York Fed facility, Maiden Lane III. So far, AIG has only reported through U.S. Securities and Exchange Commission filings the names of the 16 banks that served as the CMO counterparties and the total dollars each bank received in connection with those mortgage-related securities.
The version of the documents filed with the SEC did not include a Schedule A, which could have provided the amounts and the names of the institutions that AIG paid off.
Former AIG Chairman Maurice Greenberg said he believes AIG's debt to the government should be reduced by $62 billion to cover the value of the credit default swaps paid off by AIG, because the value of the mortgage-backed-securities AIG had paid off had a market value far less than the face value of the securities.
Former AIG Chief Executive Edward Liddy testified in March 2009 that, at the time the Fed provided AIG up to $182 billion in support to cover margin calls on the CDS, AIG had $2.77 trillion outstanding in unhedged insurance on CDS arrangements.
Fed e-mails on the drafting of the filings were leaked to the press by Rep. Darrell Issa, R-Calif., the highest-ranking Republican member of the oversight panel.
The names of the counterparties that were made whole were not disclosed until May 2009, after members of the Senate Banking and House Financial Services Committee demanded the information. The SEC privately asked AIG why the full details were not disclosed.
Members of Congress, including Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, and Sen. Richard Shelby, R-Ala., the highest-ranking Republican member of the committee, complained about the lack of details at a March 2009 hearing on the issue.
This week, Sen. Jim Bunning, R-Ky., the highest-ranking Republican on the Senate Banking, Urban Affairs and Housing Committee's Securities, Insurance and Investment Subcommittee, has asked the SEC to conduct a full investigation into the Fed's role on the CDS payment issue.
"Because the information withheld appears to be material information about the financial condition of AIG and the value of the company, these actions may constitute a serious violation of the securities laws," Bunning writes in a letter to SEC Chairman Mary Schapiro.
"The decision by the Fed Bank of New York to effectively pay full value for the securities underlying the derivatives contracts when the market price was substantially less has been a source of significant controversy," Bunning writes.
"While the decision to pay par value may not have been a violation of the securities laws, the controversial nature of the decision provided a strong motive for the apparent cover-up," Bunning writes. "In fact, the identities of the counterparties and the amounts paid to them were only disclosed several months later and might never have been disclosed without significant pressure from Congress."
Other Republicans, including Issa, Rep. Roy Blunt, R-Miss., and Rep. Spencer Bachus, R-Ala., a member of the House Financial Services Committee, also have criticized the Fed's role. They also have asked about the role of Timothy Geithner, who then was head of the New York Fed. New York Fed officials say Geithner was not involved with the drafting of the AIG documents now under scrutiny.
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