WASHINGTON – Treasury Secretary Timothy Geithner drew sharp criticism from Democrats and Republicans alike Wednesday for his role in the $180-billion-plus taxpayer bailout of insurance giant American International Group, with some challenging his claim that he played no role in withholding information about AIG deals with business partners.
When President Barack Obama picked the then-New York Fed chief on November 24, 2008, "I withdrew from monetary policy decisions...and day to day management of the New York Fed," Geithner told a congressional panel.
But one member after another lit into Geithner, venting rising public frustration over bank bailouts and bonuses as Wall Street firms recovered from the recession but unemployment remains at 10 percent.
Rep. Stephen Lynch, D-Mass., told Geithner: "It just stinks to the high heaven what happened here. The disclosure was not there at the proper time to tell the American people and tell this Congress what was going on."
Rep. Marcy Kaptur, D-Ohio, told Geithner he was more beholden to banks than he was to taxpayers when he ran the New York Fed and cut him off abruptly when he tried to deny it.
"The consequences would have been catastrophic," had the government not bailed out AIG, the nation's largest insurer, Geithner said.
"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 him, he said. Geithner added: "I don't think there was a better alternative available."
AIG eventually received an aid package from the government of more than $180 billion. 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. "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."
"Many people, including people of this committee, have a hard time believing Secretary Geithner entered into an absolute cone of silence," California Rep. Darrell Issa, the committee's top Republican, told him.
In a particularly 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 as well as Geithner's role in rescuing AIG. "An AIG failure would have been devastating to the financial system and the economy," he said. "AIG could not be effectively wound down."
As Geithner and Bernanke had done, Paulson told the committee "I was not involved in any of the decisions" involving AIG's payments to its business partners. "I had no involvement whatsoever."
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.
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 Barack 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 percent on board," said Rep. Elijah Cummings, D-Md.