Fed Asked TARP Inspectors to Withhold AIG Documents From Congress

The Federal Reserve has instructed federal investigators to withhold from Congress certain documents related to the Fed’s payments to AIG counterparties, according to a recent letter from Neil Barofsky TARP inspector general, to Rep. Darrell Issa (R-Calif.). The letter, available here, was published on Issa’s site.

“The Federal Reserve has directed us not to provide you with the documents that it has provided to us, and that it will instead respond to your request directly,” Barofsky wrote in the Jan. 12 letter. “While we regret the Federal Reserve’s position in this matter, production of the requested documents absent the consent of the Federal Reserve in these circumstances could severely limit our ability to receive documentation from the Federal Reserve and other agencies in the future.”

The Fed’s relationship with AIG has been under a microscope since last week, when Bloomberg News reported that more than $60 billion in federal bailout funds intended for the beleaguered AIG were diverted instead to other Wall Street giants. The revelation that Fed officials then urged AIG not to disclose those payments has caused a storm on Capitol Hill, where a number of lawmakers — including Issa, the senior Republican on the House Oversight and Government Reform Committee — want an explanation for the Fed’s shielding of those “backdoor bailouts.”

Barofsky’s recent letter indicates that lawmakers might not get all the information they’re after — but probably also explains why Rep. Edolphus Towns (D-N.Y.), chairman of the oversight panel, subpoenaed the Fed for those documents yesterday. Towns plans to hold a hearing on the AIG scandal next week.