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The Fed Fights Back

I made the point earlier today that Treasury and the White House probably wanted to avoid antagonizing the Fed by scapegoating it for the bonus fiasco, since the Fed was in a position to fight back with damaging leaks. At the time, though, I hadn't seen Massimo Calabresi's piece in Time, which suggests this is well underway:

Although Treasury Secretary Timothy Geithner told congressional leaders on Tuesday that he learned of AIG's impending $160 million bonus payments to members of its troubled financial-products unit on March 10, sources tell TIME that the New York Federal Reserve informed Treasury staff that the payments were imminent on Feb. 28. That is 10 days before Treasury staffers say they first learned "full details" of the bonus plan, and three days before the Administration launched a new $30 billion infusion of cash for AIG.

"Treasury staff was informed about the new bonuses in a Feb. 28 memo that the March 15 [bonus-payment] date was upcoming," a Federal Reserve source tells TIME. A Treasury Department source, speaking on background, confirmed the e-mail memo and its contents, saying, "Everybody knew that [AIG] had a retention issue." [emphasis added.]


--Noam Scheiber