Geithner and Paulson grilled by Congress over AIG
WASHINGTON (AP) — Democrats and Republicans alike pummelled Treasury Secretary Timothy Geithner yesterday over his role in the $180 billion bailout of insurance giant AIG Inc., venting public anger over Wall Street's return to prosperity while 10 percent of Americans are still jobless.
Geithner, one of the original architects of the government's 2008 response to the financial crisis as president of the Federal Reserve Bank of New York, defended the use of taxpayer money as necessary to head off "potentially catastrophic damage to the economy".
But members of the House Committee on Oversight and Government Reform hammered away at why regulators allowed American International Group to pass on billions of the bailout money to big Wall Street banks that were business partners.
"In effect, the taxpayers were propping up the hollow shells of AIG by stuffing it with money. And the rest of Wall Street came by and looted the corpse," committee chairman Edolphus Towns, a New York Democrat, told Geithner.
Geithner, whose last job was president of the New York Fed, clearly was getting no cover from committee Democrats on the day that President Barack Obama was to give a State of the Union address intended to assure Americans he shares their economic priorities.
Rep. Marcy Kaptur (Democrat, Ohio), suggested Geithner was more beholden to banking interests than to taxpayers when he ran the New York Fed and cut him off abruptly when he tried to deny it.
"You are suggesting that the people involved in this were not acting in the public interest and you are suggesting they were working for the private interest, and that is not true," he told her.
Both Geithner and Federal Reserve chairman Ben Bernanke have recently found themselves on the defensive, both targets of political discontent and rising voter anger sweeping the nation.
Bernanke had to scramble for support for confirmation for a second term. And Geithner faced speculation over whether his influence was fading after Obama reset his economic priorities to go with a far more aggressive attack on Wall Street and large banks and began paying more attention to advice from former Fed Chairman Paul Volcker.
But if Geithner risked being hung out to dry by the administration, it was not obvious in his testimony, in which he tied to deflect repeated congressional criticism and vigorously defended his record.
"Deciding to support AIG was one of the most difficult choices I have ever been involved in, in over 20 years of public service. The steps that were taken were motivated solely by what we believed to be in the public interest," Geithner said.
He also repeated an insistence that he played no direct role in AIG deals with business partners or in withholding information about them from the public.
When Obama picked him for the Treasury post on November 24, 2008, "I withdrew from monetary policy decisions ... and day to day management of the New York Fed," Geithner testified. "I don't think there was a better alternative available."
AIG eventually received an aid package from the government of more than $180 billion. At issue is the part of this money to repay banks that were its business partners, known as counterparties, and alleged efforts to cover up details of the payments.
The committee subpoenaed 250,000 pages of documents from the Fed.
Lawmakers are concerned with revelations about efforts to keep details of the AIG deals secret. Officials from the Treasury Department and the New York Fed worked to keep the public from learning details about those deals and other AIG decisions.