Geithner defends role in AIG bailout
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Treasury Secretary Timothy F. Geithner today denied any impropriety in the multibillion-dollar bailout of American International Group Inc. and defended the government’s actions to save the insurance giant.
“Deciding to support AIG was one of the most difficult choices I’ve ever been involved in over 20 years of public service,” Geithner told the House Oversight and Government Reform Committee. “The steps that were taken were motivated solely by what we believed to be in the public interest.
“We acted because consequences would have been catastrophic for the economy,” he said.
AIG eventually received an aid package of more than $180 billion in taxpayer funds, a sore point for the Obama administration as the political climate has shifted against government help to Wall Street while Main Street still feels the economic pain of the recession.
The committee is looking at the flow of the money from AIG to banks, paid at full value, and whether the government tried to hide details of the payments.
“I played no role in those decisions,” Geithner told the committee.
Geithner was head of the New York Fed when he was nominated to become Treasury secretary, at which time he withdrew “from monetary policy decisions...and day-to-day management of the New York Fed,” he said.
But that claim was greeted by Republicans with skepticism.
“Many people, including people of this committee, have a hard time believing Secretary Geithner entered into an absolute cone of silence,” said Rep. Darrell Issa, (R-Vista).
Geithner defended the policy of bailing out AIG and allowing the payments to the banks, in the form of contracts paid off at full value, despite the firm’s financial difficulties.
“It was a difficult choice,” Geithner told the committee, adding that the government had taken the most prudent course.
“If we had broken those contracts, if AIG had not paid them in full, if we had threatened default if we had imposed haircuts,” he said, “that would have brought about a downgrade in its rating, the firm would not have been able to operate and it would have collapsed.”
Geithner faces criticism from the House oversight committee for decisions that might have cost billions more than necessary. A bailout watchdog says Geithner should have demanded concessions from banks when he was president of the New York Fed. Lawmakers are concerned about e-mails that show New York Fed officials demanding the deals be kept secret.
Geithner also blamed insurance regulators for allowing AIG to take larger risks than necessary, jeopardizing the entire financial system.
AIG “strayed well beyond traditional insurance business,” Geithner said. “AIG should never been allowed to take risks, but it was.”
--Michael Muskal
