MADELEINE BRAND, host:
From NPR News, this is ALL THINGS CONSIDERED. Im Madeleine Brand in California.
ROBERT SIEGEL, host:
And in Washington, Im Robert Siegel.
Treasury Secretary Timothy Geithner has been spending a lot of time testifying in front of angry members of Congress. Hes been quizzed about many aspects of the financial crisis. And today, he faced questions about the bailout of the insurance company, AIG. The federal government poured billions of dollars into AIG at the height of the financial crisis.
As NPRs Jim Zarroli reports, today, lawmakers pressed Geithner on concerns about transparency and about how the bailout money was used.
JIM ZARROLI: Members of Congress were scathing in their denunciation of the AIG bailout and in the way the bailout money was spent. Edolphus Towns, chairman of the House Committee on Oversight and Government Reform, said the taxpayers propped up the hollow shell of AIG by stuffing it with money. And the rest of Wall Street came by and looted the corpse.
But Secretary Geithner held his ground. AIG had underwritten a massive number of derivatives contracts in virtually every corner of the global economy. And he said letting it to fall would have had terrible consequences.
Secretary TIMOTHY GEITHNER (Department of Treasury): The Federal Reserve faced a terrible choice to support AIG putting billions of dollars of taxpayer resource at risk or to let AIG fail and accept potentially catastrophic damage to the economy. We were not willing to accept such a catastrophe.
ZARROLI: Geithner headed the Federal Reserve Bank of New York at the time and played a pivotal role in federal efforts to contain the crisis. He said the Fed had allowed Lehman Brothers to go under, but AIG was different. It was an insurance company, and so the Feds lines of authority werent as clear.
Sec. GEITHNER: If the rules had been stable, everything had been fine, we werent on the edge of the worse recession in generations, then we could have been afforded to be completely indifferent to the fate of AIG or all those institutions.
ZARROLI: But the committees main focus was on what happened to the $180 billion that has been funneled to AIG, much of it went to pay off AIGs trading partners called counter parties. One congressman said the whole thing stinks to high haven. Geithner told Congressman Dennis Kucinich that forcing AIG to renege on the contracts would have pushed it into default.
Sec. GEITHNER: There was no way, financial, legal or otherwise, we could have imposed haircuts, selectively default on any of those institutions without the risk of downgrade and default. And that is the only reason...
Representative DENNIS KUCINICH (Democrat, Ohio): I just want to say, Mr. Secretary, since when does saving the system require the taxpayers to give a better deal than the market would normally deliver? Yet, you know, that is what the New York Fed did.
ZARROLI: The payments to counterparties have been especially controversial because they included foreign banks like Deutsche Bank and Societe Generale, but also the politically well-connected Goldman Sachs. Several of its alumni helped keep positions at the Fed and the Treasury Department including then Treasury Secretary Henry Paulson who also testified today. Paulson said he played no role in discussions over how much of Goldmans claims should be paid off.
Mr. HENRY PAULSON: My concern here was not about counterparty claims when we rescued AIG. My concern was about what was going to happen to the American economy and the American people.
ZARROLI: But it was Geithner who took the brunt of the committees criticism. He was asked repeatedly about the decision to conceal key details of the AIG bailout from the public. And like Paulson, he insisted that he had played no role in the talks. By then, he said, he had been appointed Treasury secretary and had withdrawn from day to day management at the Federal Reserve Bank of New York.
At times, the exchanges grew heated when one congressman told Geithner that he should never have been appointed Treasury secretary, he bristled with anger.
Sec. GEITHNER: I have worked in public service all my life. I have never been a politician. I have served my country as carefully and ably as I can. And it is a great privilege to me for me to work with this president to help repair the damage that was here when we took office.
ZARROLI: Geithner said AIG had grown so big by underwriting billions of dollars in contracts it didnt have collateral for. And he said that should never have been allowed to the happen. If Congress really wants to prevent a repeat of the AIG debacle, he said, it needs to think about passing financial market reforms. Geithner did acknowledge that he wondered often about whether regulators had made the right decision during the financial meltdown. But he also said he was ultimately proud of the decision to bailout AIG and that the meltdown would have been much graver if nothing had been done.
Jim Zarroli, NPR News, New York.