Democrats and Republicans alike pummeled Treasury Secretary Timothy Geithner on Wednesday over his role in the $180 billion bailout of insurance giant AIG Inc., venting public anger over Wall Street's return to prosperity while unemployment stands at 10 percent.
Geithner, one of the original architects of the government's 2008 response to the financial crisis as president of the Federal Reserve Bank of New York, defended the use of taxpayer money as necessary to head off "potentially catastrophic damage to the economy."
But members of the House Committee on Oversight and Government Reform hammered away at why regulators allowed American International Group to pass on billions of the bailout money to big Wall Street and international banks that were business partners.
"In effect, the taxpayers were propping up the hollow shells of AIG by stuffing it with money. And the rest of Wall Street came by and looted the corpse," committee chairman Edolphus Towns, D-N.Y., told Geithner.
Geithner clearly was getting no cover from committee Democrats on the day that President Barack Obama was to give a State of the Union address intended to assure Americans he shares their economic priorities.
Rep. Marcy Kaptur, D-Ohio, suggested Geithner was more beholden to banking interests than to taxpayers at the New York Fed and cut him off abruptly when he tried to deny it.
Kaptur later called Geithner's performance weak and said it showed that "he shouldn't have been appointed in the first place." She said in an interview that he should go "but removing him would be an empty change without eliminating the revolving door between Washington and Wall Street."
Both Geithner and Federal Reserve Chairman Ben Bernanke have found themselves on the defensive, both targets of political discontent and rising voter anger over bailouts and bonuses.
Bernanke was scrambling for support for confirmation for a second term. And Geithner faced speculation over whether his influence was fading after Obama reset his economic priorities to go with a far more aggressive attack on Wall Street and large banks that had been recommended by former Fed Chairman Paul Volcker.
In recent days, the White House has made a point of voicing support for both Bernanke and Geithner. Bernanke's support appears solid enough for him to win confirmation for another four-year term and Geithner's departure seems unlikely. If Geithner were forced out, it would likely put extreme pressure on the markets and the White House would have a hard time finding a replacement who could be confirmed in the current partisan climate.
Geithner swung back hard against congressional criticism.
"Deciding to support AIG was one of the most difficult choices I have ever been involved in, in over 20 years of public service. The steps that were taken were motivated solely by what we believed to be in the public interest," Geithner said.
He also repeated an insistence that he played no direct role in AIG deals to pay back banks that were business partners or in withholding information about them from the public.
Once Obama picked him for the Cabinet post on November 24, 2008, "I withdrew from monetary policy decisions ... and day to day management of the New York Fed," Geithner testified. "I don't think there was a better alternative available."
AIG eventually received an aid package from the government of more than $180 billion.
The committee subpoenaed 250,000 pages of documents from the Fed.
Lawmakers want to know why so many bailout dollars were funneled to big banks with deals with AIG and revelations that officials from the Treasury Department and the New York Fed worked to keep the details of such decisions from the public.
"I played no role in those decisions," Geithner said. But lawmakers expressed skepticism.
"Many people, including people of this committee, have a hard time believing Secretary Geithner entered into an absolute cone of silence," California Rep. Darrell Issa, the committee's top Republican, said. Issa said he had "lost confidence" in Geithner.
Democrats and Republicans took turns lambasting the Treasury secretary.
"Either you made a bad decision there, or there was the attempt to cover up one of the biggest bailouts, backdoor bailouts, in history," Rep. John Mica, R-Fla., told him.
Recalling the early controversy over Geithner's failure to pay some personal income taxes, Mica said: "You gave lame excuses then, you are giving lame excuses now. Why shouldn't we ask for your resignation as secretary of the Treasury?"
"You have a right to your opinion," Geithner said.
Rep. Stephen Lynch, D-Mass., told Geithner: "It just stinks to the high heaven what happened here." Lynch said later that Geithner's reputation "has been hurt greatly."
Bernanke also told the panel he was "not directly involved in negotiations" on payments from AIG to big banks such as Goldman Sachs and other Wall Street firms. Those negotiations were handled primarily by the staff of the New York Fed, he said. Bernanke made the comments in written responses to questions posed by Issa.
Neil Barofksy, the special inspector general for the $700 billion bank bailout program, told the committee the New York Fed should have put "just a little effort" into trying to strike a better deal for taxpayers by getting banks owed money by AIG to accept less than 100 cents on the dollar.
But Thomas Baxter, general counsel of the New York Fed, testified that dragging out negotiations further would have resulted in AIG being "downgraded by the credit rating agencies and thrown once again to the brink of bankruptcy."
Although Bernanke and Geithner have taken the most heat, the government's bank rescue effort began under former President George W. Bush and Henry Paulson, his Treasury secretary.
Paulson defended his role. "An AIG failure would have been devastating to the financial system and the economy," he told the committee.
Rep. Elijah Cummings, D-Md., asked Paulson if he understood the anger that ordinary people were feeling toward Wall Street barons who play golf with each other and are "looking out for themselves" while the rest of the country suffers.
"I'm not a golfer but I sure know that's how people feel," Paulson said. "Congressman, you've got it. People are very, very angry. And rightfully so ... They don't recognize that what was done wasn't done for the banks" but to save the nation's financial system and economy.
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