January 28, 2010

Tim Geithener testified yesterday morning in front of the House Committee on Oversight and Government Reform, and I still don't know why we should give Geithner the benefit of the doubt. We shouldn't question him because we don't know how much worse it would be if he hadn't done all these things, right?

WASHINGTON — In heated questioning that at times took on the air of a cross-examination, Treasury Secretary Timothy F. Geithner on Wednesday defended his role and the government’s actions in bailing out the American International Group, saying Washington did what was necessary to prevent “a second Great Depression.”

But Mr. Geithner, who led the New York Federal Reserve Bank at the time, said he was not involved in the decision not to release information about deals that sent billions of taxpayer dollars from the bailout of A.I.G., the insurance giant, to big banks.

“I withdrew from monetary policy decisions,” Mr. Geithner said, “and day-to-day management of the New York Fed.”

The committee called Mr. Geithner, former Treasury Secretary Henry M. Paulson Jr. and other officials to explain, once again, the confounding results of an $85 billion rescue loan made to A.I.G. in September 2008. The loan sheltered big banks from any losses, but saddled A.I.G. with a debt so crushing that the Treasury soon had to step in and provide even more rescue money.

The questions aimed at Mr. Geithner focused almost immediately on his role in the A.I.G. bailout and why those negotiating on behalf of the taxpayers did not push the banks to make concessions, like returning the collateral to A.I.G. or accepting less than full value for their contracts with the insurer.

Throughout the morning, Mr. Geithner tried to persuade lawmakers that the government acted “in the best interests of the American people,” and not in the interests of big banks, in particular, as many lawmakers asserted, Goldman Sachs. Mr. Geithner, while keeping his composure throughout the questions, was forceful in his defense.

“I think the commitment to Goldman Sachs trumped the responsibility that our officials had to the American people,” Representative Stephen F. Lynch, Democrat of Massachusetts, told Mr. Geithner. His voice rising, his finger pointed at Mr. Geithner, Mr. Lynch expressed his frustration at the financial bailouts, and the bonuses now being paid by banks. “It stinks to the high heavens what happened here,” Mr. Lynch said. “I don’t like the obfuscation. And to top it all off, the disclosure was not there.”

In his comments, Mr. Geithner called for better controls on risk-taking by large financial institutions, and pointed out that more than a year after the near-collapse of A.I.G., the government still had no systems in place to cope with such failures. At times, the hearing took on a scolding, even berating, tone. One lawmaker, Representative John L. Mica, Republican of Florida, called upon Mr. Geithner to resign.

“I believe either you made a bad decision there, or there was the attempt to cover up one of the biggest bailouts, backdoor bailouts, in history,” Mr. Mica said. “Now, you’ve tried to frame it as you did it in the interest of the people and the failure of the system, I’m telling you, these are lame excuses. You were in the charge and did the wrong thing, or participated in the wrong thing.”

He added: “You give lame excuses then, and you’re giving lame excuses now.”

“Why shouldn’t we ask for your resignation as secretary of the Treasury?” Mr. Mica asked.

Mr. Geithner, who kept his composure, responded: “That is your right, to that opinion. I have worked in public service all my life. I have never been a politician.” (Later, Representative Michael Turner, Republican of Ohio, told Mr. Geithner: “I want to assure you from your answers today that you are absolutely a politician.”)Representative Dennis J. Kucinich, Democrat of Ohio, excoriated the New York Fed’s decision to pay 100 cents on the dollar to A.I.G.’s counterparties, including $2.5 billion to Goldman Sachs.

“Isn’t it true that the New York Fed gave Goldman Sachs a better deal than it could have ever expected from A.I.G. or any other market player?” Mr. Kucinich asked.

Mr. Geithner replied: “Under the laws of the land, we did not have the ability. So we faced a very simple choice: Let A.I.G. default, or prevent it. And there was no way — financial, legal or otherwise — we could have imposed haircuts, selectively default on any of those institutions, without the risk of downgrade and default.”

Mr. Kucinich scoffed at the answer. “If that doesn’t illustrate what the New York Fed was working for — or who it was working for — I don’t know what it does,” he retorted.

Mr. Geithner added that the negotiating position of A.I.G. was weak. With the ability to threaten default or allow A.I.G. to restructure in bankruptcy, negotiators were not in a position to make banks to take less on their contracts.

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