It's no secret that many of the top officials at the Federal Reserve and Treasury Department (including former Treasury Secretary Henry Paulson, Treasury Interim Assistant Secretary Neil Kashkari, Treasury Chief of Staff Mark Patterson, New York Fed President William Dudley, and New York Fed Chair Stephen Friedman) were once executives, directors, or lobbyists for Goldman Sachs. But have these officials been exploiting the bailout of AIG to steer billions of taxpayer dollars to their former employer, one of AIG's most prominent counterparties?
That's the question POGO raised in a letter we sent yesterday to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner. We're concerned that the government's unprecedented effort to rescue AIG has been marred by a lack of disclosure and a troubling appearance of favoritism toward Goldman Sachs.
For months now, the press has been revealing that billions of taxpayer dollars passed through AIG and ended up in the hands of Goldman Sachs and other financial institutions that had purchased credit-default swaps from the insurance company. Just this week, The Wall Street Journal and Fortune obtained partial lists of AIG's counterparties, both of which suggest that Goldman Sachs has benefited enormously from the government's exceptional assistance.
In recent weeks, both Bernanke and Geithner have faced direct questions about AIG's counterparties from members of Congress such as Representatives Mike Castle (R-DE), Scott Garrett (R-NJ), and Carolyn Maloney (D-NY), and Senators Ron Wyden (D-OR) and Maria Cantwell (D-WA). But even Congress hasn't been able to get answers to the most basic questions about the AIG bailout. The Fed and Treasury often claim that disclosing more information would dissuade people from doing business with AIG and its counterparties, and would do great harm to the financial system as a whole. (The Fed has used a similar argument in refusing to comply with a FOIA request and lawsuit filed by Bloomberg News to get more details on the terms and recipients of some $1.9 trillion in emergency loans).
POGO would argue that it's the government's stubborn refusal to disclose this information that is eroding public confidence. Both Bernanke and Geithner have pledged to Congress that they will make their agencies more transparent, but actions speak louder than words. The secrecy surrounding the AIG bailout has only fueled suspicions of favoritism, and has made the public more distrustful of the government's actions, thereby undermining one of the most important goals of the bailout.
The best way to restore public confidence is by sharing more information on what the government is doing to stabilize the nation's financial system. We call on Bernanke and Geithner to identify all of AIG's counterparties and to disclose how much taxpayer assistance these companies have received.
-- Michael Smallberg