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Bernanke Seeks to Defuse Criticism Over AIG With Call for Audi By Scott Lanman and Vivien Lou Chen Jan. 20 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke sought to defuse allegations that the central bank tried to conceal details about the $182.3 billion bailout of American International Group Inc., calling for a review of Fed actions by congressional auditors. In a letter yesterday to the Government Accountability Office, Bernanke pledged “all records and personnel necessary” for an audit. Separately, the New York Fed provided 250,000 pages of documents to a U.S. House committee in response to a Jan. 12 subpoena demanding all materials related to the decision to fully reimburse banks that bought protection from AIG. Bernanke’s moves coincide with preparations by Senate Democrats to hold a vote this week on whether to confirm him to a second four-year term. Lawmakers stepped up inquiries about the Fed’s oversight of AIG after e-mails released this month showed that the New York Fed asked the company to withhold information from the public about payments to banks. “Bernanke wants to do everything possible to dispel any doubt of any inappropriate actions related to AIG,” former Fed Governor Robert Heller said in an interview. An invitation to audit “will clear the air” and allow Bernanke to say “‘I’ve asked for a full GAO investigation,’” Heller said. Chuck Young, a spokesman for the GAO in Washington, said the agency will review Bernanke’s request “in the context of our future work priorities,” including requests from congressional committees. ‘Backdoor Bailout’ Representative Darrell Issa of California, the ranking Republican on the House Committee on Oversight and Government Reform who obtained e-mails showing the New York Fed asked AIG in 2008 to withhold information from public filings, has called federal aid to AIG a “backdoor bailout” of Goldman Sachs Group Inc. and other banks. The Fed chairman “seems unapologetic and unrepentant when it comes to the fact that he spent $62 billion of your tax dollars when $15 billion would have probably bought the paper on the street,” Issa said yesterday in a Bloomberg Television interview, referring to the payouts. The New York Fed said the documents it turned over to the committee show that the bank’s actions “assisted AIG in ensuring the accuracy of its disclosures and protected important U.S. taxpayer interests.” The New York Fed reiterated that Timothy F. Geithner, then its president and now Treasury secretary, had no role in or knowledge of the disclosure matters. One sentence about full-value payouts was marked by Fed attorneys for suggested deletion because it wasn’t “precisely accurate,” the New York Fed said. ‘Deflect Criticism’ “The timing suggests a very obvious attempt to deflect criticism” of Bernanke, said Lee Hoskins, former president of the Cleveland Fed and now senior fellow at the Pacific Research Institute in San Francisco. It’s also “a way to look like you’re not stonewalling,” Hoskins said. Mark Williams, a former Fed bank examiner who’s now a finance professor at Boston University, said Bernanke is aiming to head off legislation that could interfere with interest-rate policy. “He’s realizing he’s got to give a little,” Williams said. “If not, some drastic changes could be pushed down.” The House passed a bill last month that would remove a ban on GAO audits of monetary policy. The GAO gained authority to audit the AIG rescue in a law that went into force in May. Geithner agreed to testify Jan. 27 before the House oversight panel on the bailout. He said last week on CNBC that he wasn’t involved in the decision to limit disclosures. ‘Comprehensive Response’ Bernanke, 56, said in yesterday’s letter that a GAO audit would “afford the public the most complete possible understanding of our decisions and actions in this matter,” and “provide a comprehensive response to questions that have been raised by members of Congress.” “The Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG,” Bernanke said in the letter to Gene Dodaro, the GAO’s acting head. The bailout, which began with an $85 billion Fed loan in exchange for a stake of almost 80 percent in the New York-based insurer, was revised three times to prop up AIG. The rescue now includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion to buy mortgage-linked assets owned or backed by the insurer. The assistance included “significant conditions and protections for the taxpayers,” Bernanke wrote in the letter. That included new management for AIG and a government stake that “materially diluted existing shareholders of AIG,” he said. Value of Securities The market value of securities acquired by the Fed in the rescue has climbed to $45 billion from $29.6 billion, giving the Fed paper profits, the Financial Times reported, citing people familiar with the portfolio it didn’t identify. Bernanke may be acting because the AIG controversy is becoming distracting and time-consuming for him and other Fed officials, said Douglas Lee, who runs Economics from Washington, a consulting firm in Potomac, Maryland. “That kind of stuff can chew up an awful lot of time, and if you could head it off by simply saying, ‘Send in the GAO and audit us,’ that’s probably a good thing to do,” said Lee, a former congressional economist. To contact the reporter on this story: Scott Lanman in Washington at [email protected]; Vivien Lou Chen in San Francisco at [email protected]. [Non-text portions of this message have been removed]
