U.S. Treasury Secretary Timothy Geithner '83 defended the controversial bailout of insurance company American International Group at a House Committee on Oversight and Government Reform hearing on Wednesday, contending that the bailout was necessary to prevent a second Great Depression.
Several analysts, however, argued that Geithner's ties to the AIG bailout could damage his credibility as Treasury secretary, Reuters reported. Multiple media sources have also speculated that the recent controversy regarding bank reform may have distanced Geithner from President Barack Obama.
Recently released documents have revealed in greater detail Geithner's central involvement in AIG's bailout, The Washington Post reported.
At the time of the bailout, Geithner was president of the New York Federal Reserve, although he has claimed that he limited his involvement in the N.Y. Fed's decisions following his nomination as Treasury secretary.
The N.Y. Fed submitted 250,000 pages of documents after being subpoenaed by the Committee, according to The Post. The documents include Geithner's call logs on Sept. 16, 2008, the day of AIG's multi-billion dollar bailout, The Post reported.
According to The Wall Street Journal, the N.Y. Fed committed $182.3 billion in taxpayer assistance to AIG.
The phone records show that Geithner placed nearly 70 calls throughout the day to Wall Street executives, Washington leaders and investors, according to The Post.
The subpoenaed documents have raised concerns about the possible influence of N.Y. Fed officials on AIG decision-making and company processes. In an e-mail to AIG's general counsel, a N.Y. Fed official wrote that "future SEC filings, press releases, and other significant communications" should be first run by N.Y. Fed lawyers, according to The Post.
AIG used taxpayer money to pay off debts owed in contracts with certain banks, paying the full cost of the deals, according to the International Business Times.
"The N.Y. Fed never made any serious effort to try to obtain any concessions for the counterparties on behalf of the American people who were footing the bill," Kurt Bardella, a spokesman for Rep. Darrell Issa, R-Calif., told The Post.
Lawmakers have criticized AIG's fully payment of debts to other banks, including Goldman Sachs, calling them "backdoor bailouts," The Post reported.
Analysts and financial advisors agree that the attention focused on AIG's contentious bailout has cast Geithner in a potentially negative light, Reuters reported.
"It reinforces that belief that he's part of the bailout culture and he's somehow corrupted," policy analyst Greg Valliere told Reuters.
At the hearing, Geithner said he was not involved with "any of the decisions made with respect to AIG's payments to banks," according to The New York Times.
However, Geithner also said he wished he had known more about his staff's discussions and their decisions about the bailout, according to CNN Money.
"The bailout and [Geithner's] actions as head of N.Y. Fed are going to come into conflict with what the Obama administration is trying to accomplish, which is going after the big banks and Wall Street," according to Ethan Siegal, president of the policy analysis think-tank The Washington Exchange, Reuters reported.
Obama has worked closely with Paul Volcker, the chairman of the Economic Recovery Advisory Board and former Federal Reserve chair, in formulating reform proposals that would set strict regulations on banks and prevent risky investments, according to The Post. Their proposals would impose stricter checks on financial institutions than Geithner's more moderate proposal for bank reform, The Post reported.
Despite his original divergence from Obama and Volcker's reform plan, Geithner encouraged Congressional representatives during the hearing to support Obama's proposal to increase restrictions on the banking industry, according to Business Week.
"If you are outraged by what happened with AIG then you should be deeply committed to financial reform," Geithner said at the hearing. "The United States of America should never have let institutions like AIG take on a level of risk that threatened the stability of the financial system."
