New York Fed Refused Power On AIG Bailout

An auditor with the Troubled Asset Relief Program said that the argument for banking secrecy being key to bank stability is bogus.

NEW YORK CITY, N.Y. — An auditor with the Troubled Asset Relief Program said that the argument for banking secrecy being key to bank stability is bogus.

“The default position, whenever government funds are deployed in a crisis to support markets or institutions, should be that the public is entitled to know what is being done with government funds,” said  Neil M. Barofsky, the special inspector general for TARP.

Moreover, the Federal Reserve Bank of New York didn’t just drop the ball during the negotiations of American International Group’s bailout last year.

According to Barofsky’s government report, the Fed failed to play ball.

The Fed “refused to use its considerable leverage,” he wrote,

The man at the helm of the New York Fed at the time was Timothy F. Geithner, the current Treasury secretary.

Barofsky’s report emerged earlier this month after he testified before the House Committee on Oversight and Government Reform.

Barofsky wrote that the way the Fed considered itself in the negotiations doomed the process to failure.

The Fed, he said, acted not like a regulator but as a creditor seeking “voluntary” concessions, a role different from the government during the auto industry’s restructuring.

The Fed, Barofsky added, feared foreign retaliation, so therefore foreign banks were treated differently than their American counterparts.

Geithner, however, denied in interviews that any foreign bank refused to concede ground.