The Reason Why AIG Got Away With Its ‘Backdoor Bailout’ of Other Wall Street Firms « The Washington Independent
Yesterday, it was revealed that officials at the New York Federal Reserve — then headed by now-Treasury Secretary Tim Geithner — asked AIG to keep quiet about tens of billions of dollars the insurance giant made to other Wall Street firms after AIG had received $85 billion in federal bailout money. The revelation has sparked some outrage on Capitol Hill, where some lawmakers are calling the strategy a “backdoor bailout” to the firms AIG paid, well, through the back door — many of which had already received federal bailout funds of their own.
We speculated this morning that Geithner’s close ties to Wall Street might have been behind the decision to shield those firms from the scrutiny that would have surely followed had those payments been made public. And some Republicans are already calling on Geithner to testify about the episode. But the more influential figure might have been Marshall Huebner. Who’s Marshall Huebner? Good question. He’s the high-powered Wall Street lawyer who went, literally, from representing JPMorgan Chase one minute to leading the AIG bailout the next.
Last April, American Lawyer explained the switch like this:
Of course, Huebner had JPMorgan’s blessing. Indeed, he was in the New York Federal Reserve building, representing JPMorgan Chase, when the request came. “It was pretty wild,” says Huebner. “JPMorgan released us as counsel in about one hour, [and minutes later] “I literally went upstairs with our new clients” — the Federal Reserve Bank of New York and the U.S. Department of the Treasury. The government had turned to Huebner to lead the $152.5 billion rescue of insurance giant American International Group, Inc.
Before morphing into a G-lawyer, Huebner had represented JPMorgan Chase in its attempt to complete a private rescue of AIG in September. But soon after taking on that assignment, it became apparent that AIG needed more cash than the private markets could muster. That’s when the big guns, including then-Treasury secretary Henry Paulson, Jr., and then-New York Federal Reserve president Timothy Geithner, turned to Huebner.
And wouldn’t you know that Huebner’s former client, JPMorgan Chase, was one of the firms doing business with AIG. Here’s, former New York Gov. Eliot Spitzer warning the world about AIG’s backdoor payments 10 months ago.
And who were AIG’s trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.
No matter. The country at the time was preoccupied with $165 million in bonuses AIG was paying its executives. Who had time to worry about the bank-door transfer of more than $60 billion from the taxpayers to Goldman Sachs and JPMorgan?