Judicial Watch Sues Fed for Records Detailing AIG Bailout
From the very outset of the financial crisis, we were told if the federal government did not “invest” massive amount of taxpayer funds to bail out failing companies, the entire world economy would grind to a halt. And what was the evidence that the government used to support this claim? What calculations did they use to justify the unprecedented seizure of large swaths of the private economy by the federal government? We don’t know. But it’s certainly not for lack of trying.
Judicial Watch launched a comprehensive investigation to determine under what legal authorities and lawful rationales the federal government initiated the Wall Street bailouts. Judicial Watch has filed a number of lawsuits to get answers for the American people. That effort continues full steam ahead.
On July 18, 2012, we filed a Freedom of Information Act (FOIA) lawsuit against the Board of Governors of the Federal Reserve System (the Board) seeking records related to the government bailout of American International Group, Inc. (AIG). We filed our lawsuit on behalf of Vern McKinley, a former employee of the Board of Governors of the Federal Reserve and the Federal Deposit Insurance Corporation and author of Financing Failure: A Century of Bailouts.
Here’s what we’re after pursuant to our original May 15, 2012, FOIA request:
…Copies of any and all records of the Board located at the [Federal Reserve Bank of New York] concerning, regarding, or relating to the proposition that ‘the disorderly failure of AIG was likely to have a systemic effect on financial markets that were already experiencing a significant level of fragility.’ Such records include, but are not limited to…detailed meeting minutes, meeting notes, supporting memoranda, communications, and electronic messages and attachments.
The Board acknowledged receiving Judicial Watch’s request on May 15, 2012, and requested an extension to issue its response, yielding a deadline of June 27, 2012. However, as of the date of Judicial Watch’s lawsuit, the Board has failed to respond in accordance with FOIA law.
The Obama administration’s secrecy regarding the AIG loan, while not surprising, is wholly indefensible. We are talking about a massive bailout. And we believe if there was a meeting to discuss how and why these funds were handed over to AIG. The American taxpayer, who paid the bill, deserves a seat at the table.
Here’s what we know right now.
On September 16, 2008, the Board decided to extend an initial $85 billion loan to insurance giant AIG, which it claimed “faced the imminent prospect of declaring bankruptcy.” According to minutes from the September 16, 2008, meeting: “Board members agreed that the disorderly failure of AIG was likely to have a systemic effect on financial markets that were already experiencing a significant level of fragility and that the best alternative available was to lend to AIG to assist it in meeting its obligations in an orderly manner as they came due…” (CNN reports the total cost committed to AIG is now $182 billion.)
The Board’s “sky is falling” claim – that the failure of major corporations would spread a contagion throughout the financial system – has been used repeatedly to justify the bailouts. However, the government has failed to back up this claim.
While we don’t know under what authority the Fed gave all of this money to AIG, we do know that government officials did not believe taxpayers would recoup their investment, a fact they tried to conceal from the American people.
Judicial Watch uncovered a series of presentation slides detailing the terms of the AIG bailout. Included among the items is a slide entitled “Investment Considerations.” On the slide the words, “The prospects of recovery of capital and a return on the equity investment to the taxpayer are highly speculative” are crossed out by hand.
And we also know that AIG executives, thanks to the Obama administration, used quite a bit of this money to stuff their own pockets.
In March 2009, AIG disbursed $165 million in taxpayer-funded TARP funds to its top executives, prompting a massive public backlash. Obama officials reportedly lobbied Congress to insert legislative language allowing the AIG bonus payments and then apparently lied about their knowledge of the payment scheme. As then-head of the New York Federal Reserve, current Treasury Secretary Timothy Geithner helped craft the original AIG deal.
On February 25, 2010, we filed a FOIA lawsuit against the Obama Treasury Department to obtain documents regarding meetings involving Kenneth Feinberg, special master for executive compensation under the Troubled Asset Relief Program (TARP); AIG Chairman Robert Benmosche; and New York Federal Reserve Bank President William Dudley. Feinberg, also known as the Obama administration’s “pay czar,” is the federal official responsible for setting compensation guidelines for the seven largest firms, including AIG, using funds from TARP.
Here’s the bottom line. We are now trillions of taxpayer dollars into these financial bailouts and the government refuses to answer basic questions about the government’s radically intrusive response to the financial crisis. The American people are tired of the Obama administration’s stonewalling and they want answers. The Fed should obey Freedom of Information Act law and respond immediately to our request.
om Fitton is president of Judicial Watch and author of The Corruption Chronicles, on sale now.