The US treasury secretary Timothy Geithner was accused of incompetence, obfuscation and of making “lame excuses” during a furious hearing on Capitol Hill over the government’s contentious bailout of the sprawling insurer AIG.
In an unusually ill-tempered confrontation, members of Congress from both parties rounded on Geithner over a decision to use taxpayers’ money to pay out the full $62bn owed by AIG to banks such as Goldman Sachs, Merrill Lynch, Barclays and RBS. Geithner described the AIG bailout, which cost a total of $182bn, as a “tragic choice” at the height of the global financial crisis in September 2008 but said that at the time, there was a risk of “utter collapse” of the US economy.
“For the first time in 80 years, the United States risked a complete collapse of our financial system,” said Geithner. “Americans were starting to question the safety of their money in the nation’s banks, and a growing sense of panic was producing the classic signs of a generalised run.”
Several members of the House oversight committee demanded Geithner’s resignation, accusing him of selling US taxpayers short by failing to force AIG‘s counterparties to take “haircuts”.
“It stinks to high heaven, what happened here,” said Stephen Lynch, a Democratic congressman. “I don’t like the obfuscation.”
The committee’s chairman, Edolphus Towns, a fellow Democrat, blasted the government’s handling of AIG: “Taxpayers were propping up the hollow shell of AIG by stuffing it with money, and the rest of Wall Street looted the corpse.”
At the time of the bail-out, Geithner was chairman of the New York Federal Reserve, which played a key role in rescuing AIG. He said the alternative to refunding AIG’s counterparties would have been bankruptcy of AIG, causing an evaporation of confidence leading to “millions more job losses”, factory closures and a possible economic “catastrophe”.
And he denied being part of a “cover-up” in which the government initially hid the identity of the banks receiving AIG funds, saying he withdrew from participating in decisions from late 2008 in preparation for taking office in the Obama administration.
But a Republican, John Mica, accused Geithner of providing “lame excuses” and said: “You were either incompetent in your job or you were not doing your job.”
The biggest counterparty receiving money from AIG was Goldman Sachs. Visibly rattled, Geithner was obliged to confirm to the committee that his chief of staff, Mark Patterson, is a former Goldman Sachs banker, as is Geithner’s predecessor at the treasury, Henry Paulson. But he angrily defended those involved, describing them as “people of enormous integrity and experience, operating under exceptional circumstances with no precedent”.
During the hearing, Geithner was pressed over his views on Wall Street pay. He described the growth of bankers’ bonuses at the height of the boom as a “terrible catastrophe”.
“It came amid a wave of a huge increase in income inequality in the US over decades,” said Geithner. “In the financial industry, it was much worse and helped encourage a level of risk-taking that brought the financial system to the edge of collapse.”