One Last Bailout: Geithner, of Himself

Allan Dodds Frank The Daily Beast January 28, 2010

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Pablo Martinez Monsivais / AP Photo Obama’s Treasury secretary came under heavy fire on the Hill, brushing off attacks on the AIG rescue and calling for tough new regulation, but Allan Dodds Frank says his testimony may have saved his job. Plus, our Big Fat Story on who's gunning for Geithner.

Treasury Secretary Timothy Geithner delivered a dramatic, potentially job-saving performance before Congress on Wednesday, calling for real regulation of financial institutions and revealing how close the collapse of American International Group came to triggering a worldwide depression in September 2008.

In what was billed beforehand as a make-or-break appearance in front of a hostile congressional committee, Geithner characterized AIG as an out-of-control global octopus that never should have been allowed to elude proper government supervision for decades and grow into a monster that threatened the world economy. (At the time the government moved in and took a 79.9 percent stake, AIG had hundreds of subsidiaries in more than 130 countries and had more than $400 billion outstanding in credit default swaps.)

“We did not act to protect the financial interests of individual institutions.”

When Rep. William Clay (D-MO) asked about AIG’s “tentacles,” Geithner said, “That is exactly the right question,” and went on to explain that “AIG was so large and so interconnected and the system was so fragile” that you “had a world that was burning and the entire system was at stake.”

• Big Fat Story: Who’s Gunning for Geithner? When AIG came calling for help in September 2008, Geithner was president of the New York Federal Reserve. As the company revealed the extent of its losses to the New York Fed, Geithner said he realized that the fate of the global insurance conglomerate could not be left to the free market and bankruptcy court. He argued that further downgrades of AIG by credit agencies would have so strained the company’s credit lines that the company’s creditors would have forced the company into bankruptcy, an action he contends would have triggered a worldwide depression.

“We did not rescue AIG,” Geithner said. “We intervened, so we could dismember it safely.”

That view was reinforced by former Treasury Secretary Henry Paulson, who said forcing AIG into bankruptcy was not an option, nor was isolating the damage done by AIG.

“There were very few days to act,” Paulson testified. “I believe it would have taken down our whole financial system and the economy. It would have been a disaster… We could have easily had unemployment equaling or exceeding 25 percent unemployment, as it was in the Great Depression.”

Pressed by Rep. Cliff Stearns (R-FL) about the assertion by a state insurance commissioner that AIG’s insurance companies were perfectly safe and would have been protected in bankruptcy, Paulson called AIG a prime illustration of the need for more regulation: “The company had a huge problem…There was no regulator who had a clear line of sight on the company.”

Geithner, in particular, was on the hot seat as he faced questions from the House Oversight and Government Regulation Committee. The committee’s stated purpose was to ask about whether details of the government bailout of AIG had been covered up, and whether the government’s actions had unfairly benefited Goldman Sachs and other banks that got 100 percent of the money owed to them as counterparties in AIG’s credit default swaps.

In November 2008, the government agreed to pay AIG’s bank creditors $62 billion. At the time, regulators decided not to make any of the details of the AIG deals public. Emails uncovered by the committee suggested that the Fed may have told AIG not to reveal details in its filings with the Securities & Exchange Commission.

Geithner deflected the inquiries by denying responsibility: He was unaware of the decisions about paying counterparties, he said, as he had essentially recused himself by then after being chosen as President Obama’s Treasury secretary.

Instead of sinking into his chair at the witness table, Geithner deftly flicked away accusations that the decisions about paying counterparties were part of a conspiracy to benefit Goldman Sachs.

View as Single Page 12 Back to Top January 27, 2010 | 11:03pm Facebook | Twitter | Digg | | Emails | print Politics, Cliff Stearns, William Clay, Timothy Geithner, Aig, Henry Paulson, Barack Obama, Lehman Brothers, Morgan Stanley (–) Show Replies Collapse Replies Sort Up Sort Down sort by date: Genni2002

Doesn't he mean 'is' so large and 'is' so interconnected? Nothing has changed except that he is playing the blame not-my-fault game. I wouldn't call it a 'hot' seat. More like luke warm. This entire inquiry is just a lap dog licking fiasco with very little substance. Nothing will get done and the little guy will continue to suffer at the hands of these WS and bank exec Ponzi schemers. Our system of bank-it-alism in the G.S. of America downturn caused specifically by out of control corporate gambling on a monumental level was unnaturally stopped by Gov intervention. Do these bank execs extend this same courtesy to their customers? Heck no, though they should live and die by the same sword.

Flag It | Permalink | Reply 8:24 am, Jan 28, 2010 TWBBug

Who are you kidding? Saved his job...his job was never in jeopardy. He is the world's biggest suga-daddy.

Flag It | Permalink | Reply 9:27 am, Jan 28, 2010 democracyforall

Geithner saw the banks in full scheme, during the bust and after the bailouts. He's too complicit. He should step down.

Flag It | Permalink | Reply 9:33 am, Jan 28, 2010 democracyforall

Geithner says the government was in a panic. As if that excuses his involvements? He was president of the Federal Reserve Bank of New York whilest the New York banks were taking outlandish risks. His complacency and acceptance of everything led to the panic! And he evaded taxes for years on self-employment and cheated on day care. He's an idiot who must step down!

Flag It | Permalink | Reply 9:43 am, Jan 28, 2010 Snertly

And who was supposed to be the watchdog that should have noticed AIG's transformation from financial transaction insurer to focal point of systemic risk?

Flag It | Permalink | Reply 12:43 pm, Jan 28, 2010 BobbyTinGA

Quit yer whining, he's done a decent job. Where are you going to find someone capable of doing this job who is NOT intimately familiar with the large finanacial institutions in NYC? Do you want to give this to a Jim DeMint or Michelle Bachman, or some other populist fool who will do the "popular" and wrong things?

Flag It | Permalink | Reply 2:25 pm, Jan 28, 2010 $('#c_total span').html('6'); $('#c_total').show();

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One Last Bailout: Geithner, of Himself

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