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AIG Scandal: Noose Tightens around Tim Geithner's Neck

Emails from late 2008 between the insurance giant AIG and the Federal Reserve Bank of New York may well make U.S. Treasury Secretary Timothy Geithner the first member of the Obama cabinet to fall. The incriminating emails, obtained by ranking member of the House Oversight and Government Reform Committee, Representative Darrell Issa, show that the New York Fed, which was headed at the time by the same Timothy Geithner, told the bankrupt company to withhold details from the public about the AIG's payments to different banks – which was a clear violation of the law.

The huge Wall Street/London insurance company, with multiple links to Goldman Sachs, has been "bailed out" with at least $180 billion of taxpayers' money since that time. In fact, the terms of the mega-bailout package have been rewritten four times to the advantage of AIG, which is also heavily linked to HMOs (health care insurers) through its reinsurance activities.

Among other things, the emails reveal that AIG said in a draft of a regulatory filing, that it paid banks and non-banks, including Goldman Sachs, 100 cents on the dollar for the credit-default swaps they bought from the firm. The New York Fed crossed out that reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. Such AIG payments amounted to a total of $100 billion, and the bank that benefitted the most was... Goldman Sachs, with 12 billion dollars paid.

Paying 100% of the face-value on those credit-default swaps was far more than the counterparties would have received from a cash-strapped AIG, but the New York Fed demanded it be paid, and supplied the money to do so, while keeping the identities of the beneficiaries secret.

In a March 2009 disclosure, AIG stated it had made more than $27 billion in payments, but without identifying the securities tied to the swaps or listing the value of individual purchases by each bank. The New York Fed suggested, in the mails, that the company refrain in a filing from mentioning so-called synthetic collateralized debt obligations, which bundled derivative contracts rather than actual loans.

Lyndon LaRouche immediately called for the entire AIG and HMO apparatus to be put into bankruptcy, and the money returned to the taxpayers. He also supported former New York Governor Eliot Spitzer's called for the release of all AIG emails and documents for the past ten years, and of all all emails and documents of the New York Federal Reserve relevant to the AIG case.

On Jan. 12, House Oversight and Government Reform Chairman Edolphus Towns, a Democrat from New York State, issued a supoena upon the N.Y. Federal Reserve, requiring it to produce for Congress documents related to the AIG bailout swindle, in order to "shed light on how and why taxpayer dollars were used for a backdoor bailout."

Towns did so, after Special Inspector General for the TARP bailout Neil Barofsky informed Rep. Darrell Issa that to his regret, "the Federal Reserve has directed us not to provide you with the documents that it has provided to us," relating to the bailout!

"What's wrong with the system, that the New York Fed can hand out your tax dollars in these quantities and not think its particularly important to make sure it's the right amount?" Rep. Issa asked in a Bloomberg Television interview. "I think the American people deserve somebody's head on a platter."

That head may well belong to Tim Geithner. Calls for his removal are going "viral" on the Internet, while Treasury officials stonewall as to whether he and NY Fed legal counsel Thomas Baxter will show up for the Oversight Subcommittee hearings scheduled for next Monday, Jan 18.

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