Reporting from Washington — Treasury Secretary Timothy F. Geithner took a political beating Wednesday for his role in the controversial bailout of American International Group Inc., but he didn't waver in defending the actions he and other government officials took to rescue the insurance giant.
A feisty Geithner described the moves as distasteful but necessary to prevent a financial catastrophe in fall 2008, when he was president of the Federal Reserve Bank of New York. He was backed up on that point by former Treasury Secretary Henry M. Paulson, who also took heat for the bailout.
And Geithner bristled at suggestions from some Democrats as well as Republicans that decisions about AIG -- particularly paying $62 billion owed by AIG to major banks -- were made with more concern for Wall Street than taxpayers.
"If we had broken those contracts, if AIG had not paid them in full . . . that would have brought about a downgrade in its [credit] rating, the firm would not have been able to operate and the firm would have collapsed," Geithner told the House Oversight and Government Reform Committee.
The pressure to avoid a meltdown, Geithner said, had stripped government officials of any negotiating leverage.
"We were guided by a simple but terrible choice: how best to prevent default at the least cost to the taxpayer."
Geithner's sharp defense didn't win over his bipartisan critics, who reflected public anger and increasing political concern that the bailouts helped Wall Street much more than average Americans. Those lawmakers said they didn't buy Geithner's assertion that it would have been impossible to get large Wall Street firms such as Goldman Sachs Group Inc. to take less than they were owed from AIG and that he was not involved in the controversial decision to withhold information from the public about those payments.
"It makes me doubt your commitment to the American people. . . . And I think the commitment to Goldman trumped the responsibility our officials had to the American people," an angry Rep. Stephen F. Lynch (D-Mass.) told Geithner, adding that the AIG bailout "just stinks to the high heaven."
Rep. John L. Mica (R-Fla.) compared Geithner's defense of his actions with AIG to the one he made during his confirmation regarding disclosures of unpaid income taxes.
"You gave lame excuses then. I believe you're giving lame excuses now," Mica said. "Why shouldn't you step down now?"
Geithner has been under fire for his role in the bailout, which resulted in taxpayers' owning 80% of AIG. Republicans on the committee, led by California Rep. Darrell Issa (R-Vista), have hammered Geithner and other government officials for agreeing to pay Goldman Sachs and other financial firms the full amounts they were owed on insurance they had bought from AIG for their investments.
A committee investigation uncovered e-mails showing that New York Fed officials pressed AIG to withhold information about the $62 billion paid to AIG's so-called counter-parties, which Issa has labeled a "backdoor bailout" for Goldman Sachs and other large financial firms.
Lawmakers from both parties also criticized Paulson, Geithner's predecessor, for the AIG bailout and the payments to customers, particularly $14 billion received by Paulson's former firm, Goldman Sachs.
Paulson said he strongly supported the bailout of AIG but was not involved in later decisions by the Federal Reserve about how much money would be paid to its customers.
Under pressure from Republicans, Rep. Edolphus Towns (D-N.Y.), the committee's chairman, subpoenaed 250,000 pages of documents from the Fed and called Geithner and Paulson to testify.
"In the AIG case, we can talk all we want about complicated business deals, but this all boils down to a simple concept -- when average people were losing their homes and jobs, the same big banks that caused the problems got every dollar back, courtesy of the American taxpayer," Towns said. "And the Federal Reserve tried to keep important information secret. Secrecy leads to distrust. And the American people now distrust what happened in these bailouts."
Geithner said he was not involved in discussions about which information would be disclosed in AIG's filings to the Securities and Exchange Commission. He did not take part in those decisions before Nov. 24, 2008, when President Obama had selected him as his Treasury secretary, and he recused himself from the New York Fed's daily operations after that date.
"I personally played no role before the 24th or after," Geithner said.
Towns and some other Democrats on the committee said they were satisfied with Geithner's explanation of his role.
But Issa said he had a difficult time believing that Geithner "entered into an absolute cone of silence" regarding AIG when he was chosen as Treasury secretary.
And Rep. Dan Burton (R-Ind.) said he and other lawmakers were skeptical given the number of e-mails sent between officials of the New York Fed about the disclosures.