Fed Knew of AIG Bonuses 5 Months Before Storm

Geithner's New York Fed planned for controversy in Sept. '08
By Jason Farago,  Newser Staff
Posted May 13, 2009 7:01 AM CDT
Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before the House Financial Services Committee hearing on AIG.   (AP Photo/Susan Walsh)
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(Newser) – Senior officials at the New York Federal Reserve knew about AIG's plans to pay large bonuses more than 5 months before controversy erupted, according to documents seen by the Washington Post. Correspondence and phone records show that the central bank was working with AIG, lawyers, auditors, and PR firms to prepare for a firestorm of opposition, but they did not alert the Obama administration until late February.

After the initial $85 billion bailout of AIG in September 2008, the New York Fed—unaccustomed to dealing with insurance companies—began to discuss compensation plans for its troubled financial products division. By October members of Congress were requesting information, and the New York Fed was providing regular updates to Washington. While the New York Fed was headed by Tim Geithner at the time, the documents do not include his name, and he is said to have been only vaguely aware of the bonus issue; Ben Bernanke is said to have learned of it in March 2009, by which time it was too late to act.
(Read more AIG stories.)