U.S. lawmakers turn up heat on Geithner over AIG

By Reuters Staff
January 27, 2010

By Glenn Somerville and David Lawder

WASHINGTON, Jan 27 (Reuters) – U.S. lawmakers turned up the heat on U.S. Treasury Secretary Timothy Geithner over his role in the bailout of insurer AIG, challenging his claim he did not influence a decision to keep quiet AIG payments to big banks.

Both Democrats and Republicans questioned whether Geithner, who led the New York Federal Reserve Bank at the time, could have been in the dark over the decision not to disclose details of $62 billion AIG paid to banks to settle swaps contracts.

One Republican said he should resign.

Geithner held firm to his defense that he had withdrawn from decisions by the New York Fed after he was nominated to the Treasury post in late 2008. He forcefully defended his role in helping rescue American International Group Inc.

“For the first time since the Great Depression you were seeing a full-scale run on the financial system,” Geithner said, with his temper occasionally flaring at the close questioning.

“People were taking their savings out of the banks, they were wondering if a dollar was a dollar … There was a basic calamitous breakdown in the fabric of our system.”

Anger over the eventual $180 billion of taxpayer money poured into AIG prompted the U.S. House of Representatives Oversight Committee to hold the hearing and colored the tone of the questioning.

All members of the House face re-election in November and are aware of voter disgust over huge bailouts of U.S. banks and big bonuses paid to bankers.

Lawmakers are particularly incensed that AIG paid counterparty banks 100 cents on the dollar to settle the swaps deals after the insurer received taxpayer funds and that details were not publicly disclosed for several months.

“Why shouldn’t we ask for your resignation as secretary of the Treasury?” Florida Republican John Mica demanded. “I think you’re punting the blame … I believe we’re not getting the whole story. We’re getting a lame story and a monumental backdoor decision of bailout for which the American taxpayer will stay on hooks for huge amounts of money.”

For a link to Reuters Insider coverage of the hearing, please click on: http://link.reuters.com/dud26h

Geithner said he served at the call of President Barack Obama and added: “I will do so as long as he asks me to do so.” The White House has issued several statements of support for Geithner in recent weeks as questions about the AIG bailout have swirled.

The committee’s top Republican, Representative Darrell Issa of California, has accused the New York Fed of trying to “cover up” details on the payments to banks.

Democratic staff members said they had found no evidence in hundreds of thousands of pages of documents subpoenaed by the committee to suggest Geithner was directly involved in decisions on the bank payments.

Rep. Dan Burton, an Indiana Republican, said it “stretches credulity” to believe Geithner was not aware AIG was keeping mum about payments at par to banks for months.

Committee Chairman Edolphus Towns, a New York Democrat, vividly described why the AIG bailout made taxpayers see red.

“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.

Both Geithner and Ben Bernanke, chairman of the Federal Reserve — the U.S. central bank — have felt the backlash of public ire at the amounts involved.

The spillover of anger threatened for a time to derail Bernanke’s bid for a second term as Fed chief, though support appeared to be in place and an initial Senate vote on his nomination has been set for Thursday.

(Editing by Andrew Hay)

((glenn.somerville@thomsonreuters.com; Tel: +1-202-898-8377; Reuters Messaging: glenn.somerville.reuters.com@reuters.net))

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