Treasury Sec. Defends AIG Bailout, Himself

An embattled Timothy Geithner faced down a bi-partisan grilling today as lawmakers from the House Oversight Committee investigated the Treasury Secretary’s role in the $180 billion bailout of insurer American International Group (AIG) while he was chair of the New York Federal Reserve Bank. The New York Fed played a large role in the 2008 rescue, of which roughly one third, or $62 billion, went to pay the people to whom AIG owed money, a group that mostly consists of large banks like Goldman Sachs. When word about this got to lawmakers, some called it a backdoor bailout.

More troublesome, however, were reports that the New York Fed pressured AIG to suppress details of this transaction from the public; after being rescued by the federal government, the insurance redacted more than a thousand details from its regular filings with the Securities and Exchange Commission. Possibly it could have something to do with the fact that the New York Fed chose not to negotiate with the banks, potentially causing billions of unnecessary costs.

Congress was investigating whether Geithner’s role as New York Fed chair at the time improperly interfered with the decision to give AIG billions upon billions of dollars to pay off its creditors and also whether there was a wider cover-up regarding the bailout.

During his testimony, Geithner said that he had no role in making decisions regarding what to disclose about the specific financial terms. He further defended the AIG bailout, saying that to do nothing would have imperiled the entire financial system. He noted that he had recused himself from matters regarding the New York Fed in late November 2008 after being chosen by then-President-elect Obama to serve as head of the Treasury.

Lawmakers weren’t buying it, however, one lawmaker not believing that Geithner had recused himself, noting that the secretary still went to the office every day and also that there were no documents saying he had done so. One Republican, meanwhile, called upon the Treasury Secretary to resign. Geithner said in response, though, that he would serve as long as the president wants him to be there.