Geithner: ‘No role’ in decisions about AIG bailout secrecy

Treasury Secretary Timothy Geithner on Wednesday denied he played a role in withholding information about deals that sent billions of taxpayer dollars from the bailout of American International Group to big banks. His claim drew skepticism from lawmakers.

When President Obama nominated the then-New York Fed chief on November 4, 2008, “I withdrew from monetary policy decisions…and day to day management of the New York Fed,” Geithner told a congressional panel.

“Many people, including people of this committee, have a hard time believing Secretary Geithner entered into an absolute cone of silence,” said California Rep. Darrell Issa, the committee’s top Republican.

“It was in the best interest of the Fed and the incoming administration” for him to step down from day-to-day oversight of the Fed once Obama nominated on November 24, 2008, he said. Geithner added: “I don’t think there was a better alternative available.”

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AIG eventually received an aid package from the government of more than $180 billion.

“The consequences would have been catastrophic,” had the government not bailed out AIG, the nation’s largest insurer, Geithner said.

At issue before the committee is the part of this money to repay banks that were its business partners, known as counterparties, and efforts by the government to cover up details of the payments.

“I played no role in those decisions,” Geithner said.

He said that he remained as president of the New York Fed and oversaw a wide range of other complicated dealings during that time.

“I will take complete responsibility for decisions I played a role in shaping,” he said.

But as to the AIG matter, he said, “I was not involved in decisions about what to disclose about the individual transactions or the names of counterparties. But I have enormous trust and confidence in the integrity and judgment of those who were.”

In a sharp exchange, Rep. John Mica, R-Fla., told Geithner “Either you were in charge and did the wrong thing or you participated in the wrong thing.”

Recalling the early controversy over Geithner’s failure to pay some personal income taxes, Mica said: “You gave lame excuses then, you are giving lame excuses now. Why shouldn’t we ask for your resignation as secretary of the Treasury?”

“You have a right to your opinion,” Geithner said.

Meanwhile, Federal Reserve Chairman Ben Bernanke— another target of recent criticism for his role, along with that of Geithner, in bank bailouts — said Wednesday he was “not directly involved in negotiations” involving payments from AIG to its business partners including Goldman Sachs and other Wall Street firms.

Those negotiations were handled primarily by the staff of the New York Fed, he said.

Bernanke also said the financial conditions of those so-called counterparties “was not a factor in the decision regarding the amount paid to the counterparties or whether concessions should be sought from them.”

Bernanke made the comments in written responses to questions posed by Issa. The Fed chief’s letter was handed out at Wednesday’s hearing.

The Fed chief also said he wasn’t involved in discussions with the Securities and Exchange Commission last year about any disclosure issues related to AIG. When AIG went public and released the identities and payments made to its counterparties in March of 2009, Bernanke said he supported that decision.

Although Bernanke and Geithner have taken considerable criticism, the government’s bank rescue effort began under former President George W. Bush and his Henry Paulson, his Treasury secretary.

Paulson, who followed Geithner at Wednesday’s hearing, defended his own role. “An AIG failure would have been devastating to the financial system and the economy,” he said. “AIG could not be effectively wound down.”

Rep. Elijah Cummings, D-Md., asked Paulson if he didn’t realize how angry people were at wealthy bankers and Wall Street barons who he said play golf together and are always “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. 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.

Geithner said bold action was needed to get the nation’s financial system out of the ditch.

“This was the gravest crisis we had seen since the Great Depression. It was not going to solve itself. Many people advocated we should let it burn itself out. But that would have been catastrophic for the economy. We’re still living with the consequences of the damage and the wreckage,” he said.

Geithner said the administration would work with Congress on “fixing this mess and preventing it from happening again.”

“I think every day about things we could have done differently and things we could have done early,” the treasury secretary said.

Lawmakers are concerned with revelations about efforts to keep details of the AIG deals secret. Officials from the Treasury Department and the Federal Reserve Bank of New York worked to keep the public from learning details about those deals and other AIG decisions.

The money went to banks to buy bonds AIG had insured. The banks already had cash AIG had posted as collateral when the bonds’ values declined. In exchange for the money, the banks agreed to tear up AIG’s insurance obligations.

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The effort to conceal information about AIG began with its first bailout in September 2008, according to documents provided by the New York Fed in response to a subpoena from the committee.

They continued through this month, when Treasury representatives made misleading public statements implying taxpayers would not lose money on the AIG bailout, according to prepared testimony by Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program, who also was to appear at Wednesday’s hearing.

In one of the 250,000 pages of documents, a New York Fed employee wrote, “We have specifically told the firm not to disclose” that the other banks were paid in full for the bonds AIG insured.

In an earlier audit, Barofsky found decisions by Geithner and New York Fed officials may have cost taxpayers billions more than necessary because they did not press the banks for concessions. The AIG bailout eventually totaled $182 billion.

The lawmaker who first requested that audit said secrecy at Treasury and the Federal Reserve are undermining President Obama’s effort to shore up the sluggish economy.

“When people start to question whether there is transparency, it’s hard for the public to be 100% on board,” said Rep. Elijah Cummings, D-Md.

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