Cummings Reacts To SIGTARP Audit Findings

Press Release

Congressman Elijah Cummings reacted Tuesday to a report issued by SIGTARP Neil Barofsky, regarding payments made by AIG, after that organization was rescued via payments from Treasury and the Federal Reserve. AIG made payments to "counterparties" who were owed funds by the company, following various transactions. These claims were paid to improve liquidity at AIG, taking them away from the brink of failure. Claims were paid at near 100 percent of face value, including swap-related claims.

The SIGTARP report reveals that counterparty payments were made after efforts were made by the Federal Reserve Bank of New York, on behalf of AIG, to negotiate "haircuts"; payments made at a lower level than promised.

One company, UBS, agreed to these "haircuts," with the understanding that other counterparties would do the same. Those companies refused, thus all companies were paid full value on their transactions. Cummings was pleased with the work done by the SIGTARP staff, but frustrated with results they revealed.

"Before this audit, the Federal Reserve said taxpayers should not be able to follow their money, because it would harm the market," said Cummings. "With this report, Mr. Barofsky has proven that to be categorically untrue. Congress received answers to some basic questions, and in Mr. Barofsky's words, "the sky did not fall." This is another case of the Fed operating beyond acceptable oversight and further proof that oversight, transparency and accountability must, again in the words of Mr. Barofsky, become our default, not something for which we must beg and plead."

The SIGTARP report was the result of an audit requested in late March by Cummings and 26 other Members. Their letter requested the audit because, "We [wanted] to know if the AIG counterparty payments, as made, were in the best interests of the taxpayers who provided the funding and in the best interests of re-establishing long-term economic stability."

The overarching statement made by results of the audit do not find fault in any particular entity, but do show a disappointing reluctance on the part of Federal Reserve officials to negotiate haircuts for the taxpayers, and a massive lack of transparency and accountability from all parties involved in the transaction.

To address these issues in future cases, Congressman Cummings stresses that any economic reform taken up by the Congress include transparency and accountability for the American taxpayer, in any business in which those taxpayers have equity.

Congressman Cummings is also reaffirming his call to audit the Federal Reserve. Cummings is a co-sponsor of Rep. Kucinich's Federal Reserve Credit Facility Review Act of 2009 (H.R. 2424), and supports ongoing efforts in the House and Senate to provide for such an audit

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