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By Hugh Son

Jan. 8 (Bloomberg) -- Treasury Secretary Timothy Geithner should testify before Congress about efforts by the Federal Reserve Bank of New York to limit American International Group Inc.’s disclosures of payments to banks, a House Democrat said.

Representative Elijah Cummings of the Oversight and Government Reform Committee called for an investigation and hearing into what information was withheld from the public at the New York Fed’s request in 2008, when Geithner led the regulator. E-mails obtained by Congress include New York Fed requests that the bailed-out insurer withhold documents from public filings and delay disclosures about payments to banks to retire credit-default swaps, Bloomberg News reported yesterday.

“It is essential to know what knowledge or involvement now-Secretary of the Treasury Geithner had in the decisions made by New York Fed officials to exclude information” from AIG’s regulatory filings, Cummings wrote yesterday to committee Chairman Edolphus Towns, a New York Democrat. It is “critical” that Geithner testify before Congress, Cummings wrote.

The demand adds to pressure on Geithner to justify his handling of New York-based AIG’s bailout, which was $85 billion when he helped orchestrate the first rescue in 2008 and swelled to $182.3 billion. Representative Darrell Issa, a California Republican on the oversight committee, has called payments to AIG trading partners a “backdoor bailout” because banks got 100 cents on the dollar for swaps tied to subprime mortgages.

Retention Awards

Cummings, a Maryland Democrat, was among the first lawmakers to question AIG’s plans to pay $1 billion in retention bonuses. A firestorm of criticism about the awards prompted President Barack Obama to demand payments be blocked or recovered. Cummings last year demanded the resignation of then- AIG CEO Edward Liddy, who stepped down in August.

“Secretary Geithner played no role in these decisions,” Meg Reilly, a Treasury spokeswoman, wrote in an e-mail late yesterday. “He was recused from working on issues involving specific companies, including AIG,” after his nomination by Obama for Treasury secretary on Nov. 24, 2008.

Before the Fed took over negotiations late in 2008, AIG tried to persuade banks to accept so-called haircuts of as much as 40 cents on the dollar, according to people familiar with the matter. The Fed’s decision to pay the banks in full may have cost taxpayers $13 billion, or 40 percent of the $32.5 billion paid to retire the swaps.

‘Wasted Taxpayer Dollars’

Representative Roy Blunt, a Missouri Republican, wrote to Geithner about five weeks ago asking him to discuss “$13 billion in wasted taxpayer dollars” from when AIG made to payments to banks including Goldman Sachs Group Inc. and SocieteGenerale SA. Senator Chuck Grassley, an Iowa Republican, wrote a letter to Geithner questioning whether taxpayers gained in December by accepting units from AIG in exchange for reducing the insurer’s debt by $25 billion.

Thomas Baxter, general counsel for the New York Fed, said this week it was appropriate for the regulator, as party to deals outlined in the filings, “to provide comments on a number of issues, including disclosures, with the understanding that the final decision rested with AIG’s securities counsel.”

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net