Startling (to me) new evidence demonstrates that the government and the financial industry colluded together against American taxpayers.

The Federal Reserve Bank of New York, then led by Timothy Geithner, told American International Group Inc. to withhold details from the public about the bailed-out insurer’s payments to banks during the depths of the financial crisis, e-mails between the company and its regulator show.

AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee.

The New York Fed took over negotiations between AIG and the banks in November 2008 as losses on the swaps, which were contracts tied to subprime home loans, threatened to swamp the insurer weeks after its taxpayer-funded rescue. The regulator decided that Goldman Sachs and more than a dozen banks would be fully repaid for $62.1 billion of the swaps, prompting lawmakers to call the AIG rescue a “backdoor bailout” of financial firms.

I'm a die-hard capitalist, but this sort of collusion is not capitalistic and completely undermines the ideals of the a free market economy -- both in perception and in reality. In order for a free market to function successfully, every participant must have access to accurate information and no one can be allowed to secretly benefit from government intervention on their behalf. Everyone involved in this atrocity should be tarred, feathered, and exiled to North Korea, where the economic society may be more to their liking.

(HT: MM.)

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