- The Washington Times - Tuesday, March 17, 2009

WASHINGTON (AP) - Once again, a bailout became more transparent.

And once again, the sky didn’t fall.

For months, government and company officials refused to say who was benefiting from the $173 billion bailout of the crippled insurance behemoth American International Group Inc. They reversed course this weekend, revealing the names of companies that had received billions of AIG’s dollars in transactions meant to wind down the business.

The effect on markets was notable only for its absence. Despite predictions of global financial calamity, there has been no visible impact on AIG, or on the banks it did business with.

And judging by the howls issuing from Capitol Hill, the news was overshadowed by reports that AIG is paying out $165 million in bonuses _ one-fiftieth of what the French bank Societe Generale received through the bailout, and only one-one thousandth of the overall cost of AIG’s bailout.

But calls for transparency have only grown louder.

“When people feel information is being withheld from them, they become even more skeptical, and their trust beings to wane,” said Rep. Elijah Cummings, D-Md., who for months has demanded greater transparency from AIG.

Cummings said trust is critical, if administration efforts are to succeed.

Regulators say they need to balance demands for transparency with concerns that revealing too much could hurt the fragile financial system. But many recent claims of impending disaster have proved to be exaggerated.

“If we started revealing lists of names of people who did transactions with companies who later came under government protection … people just wouldn’t want to do transactions with companies,” Federal Reserve Vice Chairman Donald Kohn told the Senate Banking Committee this month.

Ten days later, AIG started revealing lists of names.

Edward Liddy, the government’s hand-picked chairman and chief executive for AIG, explained the move in a written statement: “Our decision to disclose these transactions was made following conversations with the counterparties and the recognition of the extraordinary nature of these transactions.”

AIG intends to keep other, presumably less-extraordinary, transactions secret.

“Revealing proprietary information that involves third parties is something you don’t do every day,” AIG spokeswoman Christina Pretto explained.

But experts said more reversals _ from secrecy to disclosure _ are inevitable as regulators attempt to satisfy the competing demands of businesses, which expect confidentiality, and taxpayers, who want to know what’s happened to their money.

“There’s a tendency to just try to be careful and assume information will work against you if it’s out there,” said Douglas Elliott, a former banking executive who’s now a scholar at the Brookings Institution, a think tank. He said banks fear losing clients as they absorb waves of political criticism.

Regulators said that’s what happened to IndyMac Bank in July, when Sen. Chuck Schumer, D-N.Y., warned them publicly that the bank was on the brink of failure. John Reich, then director of the Office of Thrift Supervision, blamed Schumer’s comments when depositors withdrew their cash, forcing the government to seize control of IndyMac.

Regulators have since acknowledged that they already were preparing to take over the troubled thrift, which issued risky mortgages.

More recently, Treasury has practiced the same dance steps in defending its oversight of the $700 billion financial system bailout.

Following complaints that his predecessor had said too little about where the bailout money was going, Treasury Secretary Timothy Geithner made early moves to increase transparency, including posting the banks’ contracts with Treasury online.

In a prepared statement, Treasury spokesman Isaac Baker said, “We’re proud of the administration’s commitment to a new level of transparency and openness.”

Once again, calls for greater transparency picked up steam. Angry lawmakers and transparency advocates said Geithner’s new financial stability program was announced too slowly and without detail while officials struck backroom deals with Citigroup Inc., AIG and others.

The push and pull between lawmakers demanding transparency and financial officials saying it’s too risky will play out again Wednesday, when Liddy is scheduled to testify before a House panel.

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