Geithner acted properly in AIG bailout

Timothy Geithner acted properly in the 2008 bailout of AIG and the subsequent disclosure of payouts from the insurance giant to major banks.

US Treasury Secretary Timothy Geithner told lawmakers Wednesday he acted properly in the 2008 bailout of AIG and the subsequent disclosure of payouts from the insurance giant to major banks.

Geithner, facing increasing heat over his role in the bailout when he was president of the New York Federal Reserve, said the actions were aimed at financial stability and that authorities ''did not act to help foreign banks.''

- Congress granted the Federal Reserve emergency authority precisely so that the government had some capacity to act to contain a systemic financial crisis - he said in testimony prepared for delivery to a congressional panel.

- Not to have used that authority at that time would have been deeply irresponsible - he added.

Geithner also maintained that he was not involved in a decision to withhold information about AIG's payouts that some have called a ''backdoor bailout'' of those firms including Goldman Sachs and a number of foreign banks.

- I had no role in making decisions regarding what to disclose about the specific financial terms of... payments to AIGs counterparties - he said.

Geithner: ''We did not act because AIG asked for assistance.''

Overall, Geithner offered an impassioned defense of the role of the central bank and other authorities to rescue AIG in the face of what appeared to be a financial system meltdown in September 2008.

- We did not act because AIG asked for assistance - he said.

- We did not act to protect the financial interests of individual institutions. We did not act to help foreign banks. We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses - he added.

Geithner's remarks were prepared for delivery to the House of Representatives Government Oversight Committee on his role -- when he was president of the New York Federal Reserve -- in the controversial AIG bailout.

The Fed provided a loan of 85 billion dollars to AIG in September 2008 in what would be the first portion of a staggering bailout worth some 180 billion dollars.

Committee chair Edolphus Towns highlighted the concern among lawmakers and the public over the AIG bailout and secrecy surrounding the subsequent payouts.

- In effect, the taxpayers were propping up the hollow shell of AIG by stuffing it with money, and the rest of Wall Street came by and looted the corpse - he said in his opening statement at the hearing.

- The circumstances surrounding the payments to the counterparties has created an air of suspicion and distrust among the American people, starting with the New York Fed's initial refusal to name the counterparties - he said.

Neil Barofksy, the special inspector general for the Troubled Asset Relief Program passed by Congress, told the panel meanwhile he had ''initiated an investigation into whether there was any misconduct related to the disclosure or lack thereof'' in the payouts.

Barofsky said he would report to Congress later on the findings of the probe, but expressed concern that some of the 250,000 pages of documents provided to lawmakers were not provided to his staff for review.

The inspector general also said that while some of the US investments in AIG would be repaid with a profit, the government was likely to lose more than 30 billion dollars, based on Treasury estimates.

Barofsky also addressed the issue of assertions from the Fed that it had no ability to impose ''haircuts'' or reductions in the payouts of AIG contracts to big banks, including foreign institutions.

He said the New York Fed ''made several policy decisions that severely limited its ability to obtain concessions.''

Only one bank, Swiss-based UBS, was willing to accept a reduction, and that was just a cut of two percent of the value, he said.

Barofsky added that France's banking regulator ''was open to further negotiations'' in payments to Societe Generale and other French firms even though it had asserted that any reduction might violate French laws.

But he noted that the French agency had indicated that any reduction ''would likely have required universal agreement among counterparties.''