Page last updated at 19:11 GMT, Wednesday, 27 January 2010

Timothy Geithner defends AIG bail-out

AIG sign
Mr Geithner said letting AIG fail would have been catastrophic

US Treasury Secretary Timothy Geithner has told a congressional panel he acted properly in the bail-out of AIG.

Mr Geithner was head of the New York Federal Reserve at the time of the insurer's bail-out in 2008.

Regulators have been criticised for paying AIG's counterparties face value for assets and for keeping details of the deals secret.

But Mr Geithner said he had no role in the disclosure of the financial terms of the deals.

"I was not involved in decisions about what to disclose about the individual transactions or the names of counterparties," he said.

"But I have enormous trust and confidence in the integrity and judgment of those who were."

Mr Geithner was appearing before the House Oversight Committee.

AIG was initially bailed out for $85bn (£52bn), but its total rescue package has since amounted to more than $180bn.

'Lame excuses'

President Obama nominated Mr Geithner for Treasury Secretary on 24 November 2008.

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
Treasury Secretary Timothy Geithner

On that date, "I withdrew from monetary policy decisions... and day-to-day management of the New York Fed," Mr Geithner said.

But the committee were sceptical of his claim.

"Many people, including people of this committee, have a hard time believing Secretary Geithner entered into an absolute cone of silence," said California Representative Darrell Issa, the committee's top Republican.

"I believe these are lame excuses," Republican John Mica said. "Why shouldn't we ask for your resignation as Secretary of the Treasury?"

'Catastrophic consequences'

Mr Geithner also defended the decision to pay the counterparties, including Goldman Sachs and other Wall Street banks, face value for assets.

"The counterparties held insurance entitling them to full or par value of the contract. We could not credibly threaten not to pay. That meant putting AIG into bankruptcy," he said.

But the committee's chairman was furious at the decision.

"In effect, the taxpayers were propping up the hollow shell of AIG by stuffing it with money, and the rest of Wall Street came by and looted the corpse," said Representative Edolphus Towns, a New York Democrat.

"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," Mr Geithner said.

"We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses."

Former Treasury Secretary Henry Paulson also appeared before the committee.

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