NEW YORK (CNNMoney.com) — Treasury Secretary Timothy Geithner is set to tell lawmakers Wednesday that he had no involvement in an apparent attempt by government regulators to withhold crucial information about AIG's bailout from the public.
AIG and the Federal Reserve Bank of New York have become targets of multiple federal investigations into whether the overseer instructed AIG (AIG, Fortune 500) not to disclose more than a dozen controversial counterparty transactions to the Securities and Exchange Commission.
"I had no role in making decisions regarding what to disclose about the specific financial terms of Maiden Lane II and Maiden Lane III (the companies established by the New York Fed to buy AIG's troubled assets), and payments to AIGs counterparties," Geithner will say, according to a copy of prepared testimony.
The New York Fed, one of the primary overseers of AIG's $181 billion bailout, was headed by Geithner when the counterparty transactions in question were made.
Geithner, former Treasury Secretary Henry Paulson, Special Inspector General for the $700 billion bailout Neil Barofsky and the lead attorneys for the New York Fed and AIG are all slated to testify at Wednesday's House Oversight Committee hearing.
Federal Reserve Chairman Ben Bernanke, who is not testifying Wednesday, told Committee Ranking Member Darrell Issa, R-Calif., in a letter that he was also not involved in any decision instructing AIG not to disclose information to the public. But he added that he was aware of the decision.
"I was not directly involved in the discussions with AIG related to this decision," Bernanke said in the letter. "I understand that the Federal Reserve staff and its outside advisors supported AIG's initial application to the SEC to have the names of the … counterparties that sold [assets] to Maiden Lane III remain confidential in public disclosures."
Bernanke also noted that he "fully supported AIG's decision" to make all of the transaction information public in March 2009.
Paulson, who was secretary of the Treasury at the time of AIG's bailout, had a different supervisory role over AIG than the Fed, and was not involved in the New York Fed's decision making. According to his prepared testimony, he is set to offer support of the government's bailout of AIG.
"The decision to rescue AIG was correct, and I strongly supported it," Paulson will say, according to a copy of his prepared testimony. "An AIG failure would have been devastating to the financial system and the economy."
Lawmakers at the hearing were skeptical about the transparency offered by the government regulators, and Committee Chairman Edolphus Towns, D-N.Y., called the facts of the case "murky."
"The circumstances surrounding the payments to the counterparties has created an air of suspicion and distrust among the American people, starting with the New York Fed's initial refusal to name the counterparties," Towns, D-N.Y, said at the hearing. "The New York Fed argued that disclosing the counterparties would somehow injure AIG. In fact, when the information was finally released under pressure from Congress, nothing happened."
AIG's bailout has incited furor among lawmakers and the public, as the troubled insurer has come to symbolize the corporate greed, risky behavior and lack of regulation that many believe caused the Great Recession.
One of the most contentious issues related to the bailout was a decision by the New York Fed to pay counterparties 100 cents on the dollar for the underlying assets that AIG has insured through so-called credit default swap agreements. As a result, $62.1 billion of taxpayer and AIG funds were essentially funneled to 16 banks that were counterparties to AIG insurance contracts.
In November, SigTARP Barofsky released an audit of the New York Fed's decision that found the regulator failed to use its clout to negotiate concessions from AIG's business partners.
The House Oversight Committee, subpoenaed the New York Fed for the documents Barofsky used in his audit and recently received 250,000 pages of e-mails and other correspondence. The documents reveal that the New York Fed had urged AIG not to make any reference in its SEC filing that the counterparties had received the dollar-for-dollar value.
According to his prepared testimony, Geithner is set to acknowledge that he was involved in the decision to offer full-value for the underlying assets on the credit default swaps, and he will defend the decision to do so. But regarding any decision not to disclose those transactions, Geithner will argue that he had recused himself from the day-to-day operations of the New York Fed before those decisions were made.
"On Nov. 24, President-elect Barack Obama announced that he intended to nominate me to be Secretary of the Treasury," Geithner will say. "Starting on Nov. 24, I withdrew from involvement in monetary policy decision, policies involving individual institutions, and day-to-day management of FRBNY
