Barney Frank is now calling for hearings on the New York Federal Reserve’s role in instructing AIG to hide information from federal regulators. His effort at protecting Tim Geithner comes with claiming that he was just a stooge for the Bush Administration.

Representative Barney Frank said the Federal Reserve Bank of New York’s 2008 order to American International Group Inc. (AIG) to suppress disclosures of bank payments is “troubling” and he supports hearings on the issue.

Frank, interviewed from Newton, Massachusetts, said he has confidence in Geithner, nominated Nov. 24, 2008, by Barack Obama, then president-elect, to be Treasury secretary. He was “officially recused” from dealing with specific companies after his nomination, said Meg Reilly, a Treasury spokeswoman.

“This was a previous administration and he was acting not independently but as part of the Bush administration approach,” Frank said.

I fail to be reassured that the US Treasury Secretary acted as recently as a year-plus ago as a stooge for the Bush Administration.

Chuck Grassley wants hearings, too:

Senator Charles Grassley, an Iowa Republican, said he would seek a Finance Committee hearing on the bank rescue, including an examination of actions disclosed in the e-mails released by Issa that led to delays in disclosing the AIG payments.

It will be interesting to gauge the relationship between this scandal and financial regulatory reform. The only recourse for people like Frank is to say that this will “never happen again.”

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

“Did they have the authority to tell AIG to pay less than 100 percent or not?” Frank said. “That’s an interesting debate. But the important point to make is that we are making sure that that debate will never happen again.”

And to that end, he’s now arguing in favor of reinstating Glass-Steagall, although he says it will be “difficult” because companies have been built up under its repeal, and breaking them down would be “disruptive.” I would add “necessary,” if we want to avoid another crisis.

The Wall Street Journal also has a story up. The financial press is on fire about this revelation.