The emails obtained by Cong. Darryl Issa (R-CA), which I have seen and reviewed, reveal a conspiracy among lawyers for AIG and the NY Fed to conceal from the SEC the nature and extent of AIG's true indebtedness and its stated intention to pay certain vendors (among them the publicly-hated Goldman Sachs) one hundred cents on the dollar. While I have not heard any defense of this nefarious informal agreement, it does raise serious concerns. These emails are now to be the subject of scheduled hearings in the House and now requested hearings in the Senate.

It is a federal crime to falsify documents involved in a loan from a federally-insured bank, unless the matter was immaterial to the loan. Thus, if one intentionally gave a false address on an application to purchase a $1000 savings bond, one could be prosecuted; but if one inadvertently left off a zip code, a prosecution would be highly unlikely. This was a case involving a revolving movement of nearly $185 billions between and among the Treasury, the NY Fed, JPMorgan Chase, and AIG. Leaving out the name, amount, and intended payment to a creditor of $13 billions would surely satisfy the material misrepresentation requirement of the statute that criminalizes such omissions. The fact that "the government told me to do it" is not only not a defense, but may (and should) implicate whoever in the government counseled in favor of such omissions.

Though we do not know, and I have not seen evidence of, any personal knowledge of any of this by the senior official at the NY Fed at the time, current Treasury Secretary Timothy Geithner, it is difficult to believe that he would not have known of any of this. It is clear that senior personnel in the legal department of the NY Fed did know of it. The lawyers would no doubt say, in their own defense, that they were the bank's lawyers, they and the bank knew of AIG's intentions with respect to Goldman Sachs, and thus that fact did not need to have been in writing. Since the Fed knew well where its money was going, there was no harm and thus no foul. Unfortunately for the Fed's lawyers and AIG's lawyers and executives, the surreptitious revelation through word of mouth of that which the law requires to be stated in writing does not fulfill the statutory requirements.

Could it be that the single largest federal bailout in history was procured by fraud--fraud in which the feds themselves participated--and the government actually counseled IN FAVOR OF CRIMINAL BEHAVIOR? Only in America. But don't hold your breath expecting any federal prosecutions here. We might, however, just see an affirmation of federalism; since the acts complained of here--alleged fraud in the procurement of a loan--are a violation of New York State law as well as federal law, and the conspiracy--if such it was--occurred here in New York, and since New York has a politically ambitious Attorney General who wants to live in the Governor's Mansion (where he once resided as a child), who doesn't give a hoot what the feds think, he just might seek some state indictments of federal officials.