The Federal Reserve Bank of New York pressured AIG not to release details of massive payments it made to banks after it was bailed out, email exchanges released yesterday reveal. The insurer paid banks, including Goldman Sachs, in full for securities linked to subprime mortages, a move critics say amounted to a government-backed "backdoor bailout" of $62 billion.
The NY Fed decided the banks should be paid in full for the soured securities, but decided the parties shouldn't be identified for fear of further destabilizing financial markets. The details were eventually released amid pressure from Congress. A Treasury spokeswoman says that "consternation" about the intrigue is overshadowing the fact that the government expects to be paid back for the funds it provided. She stressed that Tim Geithner, head of the NY Fed at the time, wasn't involved in the negotiations.