The Fed and AIG, Day Two

All too often the press seems to want to downplay stories broken by a competitor.

So it’s good to see The New York Times and The Wall Street Journal follow up in a big way on a Bloomberg scoop yesterday that the Federal Reserve told AIG to conceal details of its bailout from the public.

Alas, while the Times at least nods to Bloomberg for being first, the Journal is stingy with the credit. Not cool. Yes, the e-mails in question were leaked by Congressman Darrell Issa to Bloomberg, but they got them first. That’s how it goes.

The Journal doesn’t add much with its second-day story, which reads like a first-day one. The Times does better on that front, spinning it forward somewhat by interviewing experts on whether the Fed and AIG broke the law by withholding material information from public shareholders.

But the NYT does a poor job of giving readers basic info here: who those experts are. It twice paraphrases “others” who take the view that the Fed and AIG did nothing wrong, but doesn’t identify the sources beyond saying “one securities lawyer said” in one instance. That’s not good enough.

In other words, it doesn’t fully back up its promising lede:

New revelations that the government stopped the American International Group from revealing information about its bailout had securities lawyers and policy makers buzzing on Thursday about whether the information had to be disclosed under federal securities law, and if so, what to do about the lack of compliance.

But compare it to the WSJ’s, which tries to make it seem like the story isn’t already a day old (emphasis mine):

The Federal Reserve Bank of New York told American International Group Inc. not to disclose key details of their agreements to make big payouts to banks in the insurer’s regulatory filings in late 2008, according to a set of email exchanges released Thursday.

The Times is good to put this quote up high:

Joel Seligman, a historian of the Securities and Exchange Commission, said the disclosure rules were supposed to apply to all public companies, with only a few narrow exceptions for things like trade secrets and national security. There was no exception for “too big to fail” companies on federal life support, he said. Companies are supposed to disclose all information that could be material, though that term is not clearly defined.

“When an organization is troubled, it actually makes disclosures of this kind more important,” Mr. Seligman said.

It’s watered down, though, by the he-said/she-said of one of the “others” paragraphs:

Others disagreed, saying that bank and insurance regulators normally keep their discussions with struggling financial institutions private, to keep from inciting runs. There has always been tension, one securities lawyer said, between banking regulators, who want to resolve problems behind closed doors, and the federal securities laws, which compel disclosure.

Okay, but what does that have to do with whether this act actually broke the law? We all know the Fed’s inclined to secrecy.

The Times, near the bottom of the story, also reports this:

More recently, attempts by the New York Fed and A.I.G. executives to soften pay restrictions included references to the company’s condition that some thought should have been disclosed to shareholders.

The officials argued that the executives would resign if they were paid in company stock, citing projections showing that the stock might be worthless — something the taxpayers, as shareholders, might like to know — according to people with knowledge of the analysis.

Those discussions were disclosed on Sunday in an article in The New York Times Magazine.

That’s good context for this story, as it shows yet another example of the Fed and AIG withholding information, or at least not putting disclosure at the forefront.

And there’s another angle to the chicanery here. Bloomberg’s Jonathan Weil cleverly built off that NYT scoop in his column the other day:

Here’s what AIG’s balance sheet has shown for the past two quarters: Common shareholder equity, also known as book value or net worth, was $14.7 billion as of June 30 and $5.1 billion as of Sept. 30, according to the company’s filings.

If AIG’s executives believed the shares were worthless, it’s hard to imagine how they could justify filing balance sheets that showed the company still had a positive book value. It wouldn’t make sense for them to believe AIG’s common equity was greater than zero if they thought the common stock had no value.

Lots of questions for AIG and for the Federal Reserve. And it looks like we might see powerful people have to attempt to answer them: Bloomberg just flashed a headline reporting that Democrat Elijah Cummings is “demanding” Geithner testify about the AIG/Fed emails his Republican colleague Issa uncovered.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.