Posted on 28 Jan 2010
Treasury Secretary Timothy F. Geithner pushed back Wednesday against lawmakers upset about his role in rescuing American International Group and defended decisions that allowed the company's trading partners on Wall Street and abroad to walk away with billions in taxpayer dollars as a result of that bailout.
In response to withering rebukes from House members of both parties, Geithner rejected accusations that he and his government colleagues had acted improperly, instead arguing that they had headed off a financial collapse that would have been "catastrophic for our economy and for American families and businesses."
While the House oversight committee hearing focused largely on Geithner's activities as president of the Federal Reserve Bank of New York in 2008, much of the lawmakers' agitation was rooted in the growing discontent on Capitol Hill over the Obama administration's inability to help ordinary Americans as much as it has helped financial firms. Geithner's history as an architect of the federal bailouts, coupled with high unemployment during his tenure as Treasury secretary, has made him a lightning rod for criticism, casting doubt on his standing within the administration.
As Geithner has come under fire, White House officials have repeatedly voiced support for him. After a surprising Democratic loss this month in a special election for a Senate seat in Massachusetts, the administration has confronted a populist backlash on several fronts. It is now moving to shore up congressional support for the renomination of Federal Reserve Chairman Ben S. Bernanke, another architect of the federal bailouts, and to step up the president's offensive against Wall Street.
An angry crowd
The criticism directed at Geithner was on full display Wednesday, as members of the president's own party joined Republicans in lashing out at the Treasury secretary for what they portrayed as actions that benefited large banks such as Goldman Sachs at the expense of taxpayers. The standing-room-only hearing centered on two controversial issues at the heart of the AIG bailout -- the New York Fed's decision to compensate AIG's trading partners for every cent the firm owed them and efforts by Fed officials to limit public disclosures about the identity of counterparties and how much each received.
"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," said the committee chairman, Rep. Edolphus Towns (D-N.Y.), who earlier this month subpoenaed 250,000 documents from the New York Fed related to the AIG bailout.
Geithner -- at times combative, his brow furrowed -- repeatedly said he did not participate in discussions about what details the insurer should disclose regarding payments to its trading partners, saying he recused himself in November 2008 after becoming a candidate for the Treasury post. But he acknowledged supporting the decision to pay the AIG's trading partners at full value, rather than pressing them to accept discounts. He insisted that regulators had little leverage to negotiate concessions when the firms knew that the government had no intention of allowing AIG to go bankrupt.
Geithner's answers left some lawmakers unsatisfied, leading to a handful of testy exchanges and at least one call for his resignation. Some of the harshest words came from the Democratic side of the aisle.
Rep. Stephen F. Lynch (D-Mass.) began a lengthy scolding by telling Geithner his conduct was "not consistently on the side of the American taxpayer" because he had failed to press for more discounts, or "haircuts," from AIG's trading partners.
"It just stinks to high heaven what happened here," Lynch said, his voice growing into a shout. He continued: "The disclosure was not there at the proper time to tell the American people and tell this Congress what was going on. And that is just inexcusable, and it makes me doubt your commitment to the American people."
Geithner countered that government officials faced a "basic, tragic choice. If you are prepared to default, you can impose haircuts. If you can't accept the consequences of default, you do not have any leverage."
Rep. John L. Mica (R-Fla.) took an equally severe approach, saying Geithner never should have been confirmed for his office.
"Why shouldn't we ask for your resignation as secretary of the Treasury?" he asked. "That is your right to that opinion," Geithner replied. "I have worked in public service all my life. I have never been a politician. I have served my country as carefully and ably as I can. And it is a great privilege to me -- for me to work with this president to help repair the damage that was here when we took office."
When Mica accused Geithner of "punting the blame" for bad decisions, Geithner shot back, "Congressman, you don't know me very well."
Rep. Marcy Kaptur (D-Ohio) pressed Geithner about whether he fully withdrew himself from decisions about AIG after Nov. 24, 2008, when President-elect Obama said he intended to name Geithner his Treasury secretary.
"Can you provide for the record a copy of the recusal agreement that you signed when you were at the New York Fed?" she asked.
"I did not sign a recusal agreement," he said. "I withdrew from day-to-day management, operations, policies of the New York Fed, and my colleagues both in Washington and in New York can attest to that."
After Geithner departed, former Treasury secretary Henry Paulson also defended decisions surrounding the AIG bailout.
"The decision to rescue AIG was correct, and I strongly supported it," Paulson told lawmakers, asserting that without the rescue, unemployment could have risen to 25 percent. "An AIG failure would have been devastating to the financial system and the economy."
The New York Fed's general counsel, Thomas C. Baxter Jr., echoed that assertion and pushed back against suggestions that officials were involved in a "coverup" to prevent public disclosure of information about AIG's trading partners and the vast sums of money they received. He argued that regulators had sought only to safeguard the public's interest.
Neil Barofsky, the special inspector general for the government's bailout program, said he shared lawmakers' concerns that the New York Fed's brief attempts to win concessions from AIG's trading partners might have cost taxpayers money. He noted that negotiations with AIG's counterparties were not conducted in person and did not involve top government officials or chief executives of the companies.