Geithner slammed over role in saving AIG
Defends using taxpayer funds; Panel blasts deals to banks
WASHINGTON - Democrats and Republicans alike pummeled Treasury Secretary Timothy Geithner yesterday over his role in the $180 billion bailout of insurance giant AIG Inc., venting public anger over Wall Street’s return to prosperity while unemployment stands at 10 percent.
Geithner, one of the original architects of the government’s 2008 response to the financial crisis as president of the Federal Reserve Bank of New York, defended the use of taxpayer money as necessary to head off “potentially catastrophic damage to the economy.’’
But members of the House Committee on Oversight and Government Reform hammered away at why regulators allowed
“In effect, the taxpayers were propping up the hollow shells of AIG by stuffing it with money. And the rest of Wall Street came by and looted the corpse,’’ Edolphus Towns, a New York Democrat and the committee chairman, told Geithner.
Geithner received little cover from committee Democrats on the day President Obama was to give a State of the Union message intended to assure Americans he shares their economic priorities.
Representative Marcy Kaptur, Democrat of Ohio, suggested Geithner was more beholden to banking interests than to taxpayers at the New York Fed and cut him off abruptly when he tried to deny it.
Kaptur later called Geithner’s performance weak and said it showed that “he shouldn’t have been appointed in the first place.’’
She said in an interview that he should go, “but removing him would be an empty change without eliminating the revolving door between Washington and Wall Street.’’
Both Geithner and Ben Bernanke, Federal Reserve chairman, have found themselves on the defensive, both targets of political discontent and rising voter anger over bailouts and bonuses.
Bernanke was scrambling for support for confirmation for a second term.
And Geithner faced speculation over whether his influence was fading after Obama reset his economic priorities to go with a far more aggressive attack on Wall Street and large banks that had been recommended by Paul Volcker, former Fed chairman.
Geithner remained calm against the withering criticism.
“Deciding to support AIG was one of the most difficult choices I have ever been involved in, in over 20 years of public service. The steps that were taken were motivated solely by what we believed to be in the public interest,’’ Geithner said.
He also repeated an insistence that he played no direct role in AIG deals to pay back banks that were business partners or in withholding information about them from the public.
Once Obama picked him for the Cabinet post on Nov. 24, 2008, “I withdrew from monetary policy decisions . . . and day-to-day management of the New York Fed,’’ Geithner testified.
AIG eventually received an aid package from the government of about $180 billion.
The committee subpoenaed 250,000 pages of documents from the Fed.
Lawmakers want to know why so many bailout dollars were funneled to big banks that had deals with AIG and why officials from the Treasury Department and the New York Fed worked to keep the details of such decisions from the public.
“I played no role in those decisions,’’ Geithner said. But lawmakers expressed skepticism.
Representative Stephen F. Lynch, Democrat of South Boston, told Geithner, “It just stinks to the high heaven what happened here.’’
Lynch said later that Geithner’s reputation “has been hurt greatly.’’
Although Bernanke and Geithner have taken the most heat, the government’s bank rescue effort began under former president George W. Bush and Henry Paulson, his Treasury secretary.
Paulson defended his role. “An AIG failure would have been devastating to the financial system and the economy,’’ he told the committee.
Representative Elijah Cummings, Democrat of Maryland, asked Paulson whether he understood the anger that ordinary people were feeling toward Wall Street barons who play golf with one another and are “looking out for themselves’’ while the rest of the country suffers.
“I’m not a golfer but I sure know that’s how people feel,’’ Paulson said.
“Congressman, you’ve got it. People are very, very angry. And rightfully so . . . They don’t recognize that what was done wasn’t done for the banks,’’ but to save the nation’s financial system and economy.