Geithner, Paulson defend $182 billion AIG bailout
Facing sharp criticism on Capitol Hill, Treasury Secretary Tim Geithner and his predecessor, Henry Paulson, on Wednesday defended their decision to complete a $182 billion bailout of American International Group Inc., arguing that it was necessary to protect the financial system from implosion.
“The steps the government took to rescue AIG were motivated solely by what we believed to be in the best interests of the American people,” said Geithner, who was the president of the New York Federal Reserve when AIG was rescued.
Paulson, who was Treasury Secretary at the time, said in prepared testimony that an AIG failure would have been devastating to the financial system and the economy. Geithner said taxpayers could recover the cost of the AIG bailout if lawmakers support an Obama administration proposal that would impose a $90 billion fee over ten years on financial institutions.
Lawmakers argue that Geithner and Paulson failed to obtain concessions for taxpayers and point to emails suggesting the New York Fed sought to conceal that it had repaid AIG’s counterparties in full with $62 billion in taxpayer funds.
Rep. Ed Towns (D-NY), chairman of the House Oversight and Government Reform committee, said the bailout “creates an air of suspicion and distrust among the American people.”
He expressed concerns about the decision by the New York Fed to seek to keep the names of derivative counterparties of AIG receiving taxpayer bailouts private. Under pressure from Congress, the names of derivative counterparties were eventually disclosed.
“The New York Fed argued that disclosing the counterparties would somehow injure AIG,” Towns said.
“In fact, when the information was finally released under pressure from Congress, nothing happened. It had absolutely no effect on AIG’s business or financial condition. But it did have an effect on the credibility of the Federal Reserve and it called into question the Fed’s penchant for secrecy.”
The Federal Reserve’s use of its extraordinary powers to assist AIG has angered many members of Congress of both political parties. Lately, lawmakers have expanded their criticism of the Obama administration’s bailout efforts, which they contend resulted in expanded benefits to Wall Street at the expense of Main Street.
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