GWEN IFILL: Now: Two of the leading architects of the government’s response to the financial crisis returned to Capitol Hill today. Both the current and the former treasury secretaries got an earful from Democrats and Republicans about their role in the bailout of insurance giant AIG.
“NewsHour” congressional correspondent Kwame Holman has our report.
KWAME HOLMAN: Amid rising public anger about the bailouts of financial institutions, Treasury Secretary Tim Geithner was called before the House Government Reform and Oversight Committee to explain the government’s 2008 rescue of insurance giant AIG. Geithner said there was no choice.
TIMOTHY GEITHNER, U.S. Treasury Secretary: 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. We didn’t act because AIG asked for help. We didn’t act to protect individual institutions. We acted because the consequences of AIG failing would have been catastrophic for our economy and for American families and businesses.
KWAME HOLMAN: At the height of the financial crisis, the Federal Reserve, working with the Treasury, loaned AIG $85 billion. AIG, in turn, paid more than $60 billion to banks and companies such as Goldman Sachs.
Goldman held contracts with the insurance giant to protect against losses worth billions. As the financial crisis worsened, total government aid to AIG swelled to $180 billion dollars. At the time of the initial loan, Geithner was president of the New York Federal Reserve.
TIMOTHY GEITHNER: More than a year removed from that terrible week of September 2008, I believed that the government’s strategy — and it was the government’s strategy — was the best of the available options.
KWAME HOLMAN: The Oversight Committee also criticized the government’s decision to allow AIG’s creditors to be paid in full, even though AIG was insolvent. And members from both parties expressed anger that the public initially wasn’t told about those payments.
REP. ELIJAH CUMMINGS, D-Md.: Were you involved in any discussions with AIG or your staff involved where you discussed what AIG should or shouldn’t disclose to the public?
TIMOTHY GEITHNER: I had no role in making those decisions. But, as the record shows, and the record before the committee shows, a large number of people at the Federal Reserve Bank of New York and the Federal Reserve Board in Washington played a very active role in thinking through those difficult choices.
KWAME HOLMAN: Geithner said he withdrew from decisions involving AIG and other matters before the New York Fed once he was nominated to be treasury secretary by President Obama in November 2008. But many committee members still were skeptical about his role in the bailout. And some criticized his overall performance.
Republican John Mica of Florida.
REP. JOHN MICA, R-Fla.: I believe either you made a bad decision there, or, in fact, there was the attempt to cover up one of the biggest bailouts, backdoor bailouts, in history.
Now, you have tried to frame it as you did it because you did it in the interest of the people and the failing — the failure of the system. I’m telling you I believe these are lame excuses. Either you were in charge and did the wrong thing or you participated in the wrong thing.
This — to me, it appears like — you know, when you were being confirmed, a lot of controversy surrounded your not paying your taxes. You gave lame excuses then. I believe you’re giving lame excuses now. And I want — my final question is, why shouldn’t we ask for your resignation as secretary of the treasury?
TIMOTHY GEITHNER: That is your right to that opinion.
I have worked in public service all of my life. I have never been a politician. I have served my country as carefully and ably as I can, and it is a great privilege for me to work with this president, to help repair the damage that was here when we took office.
KWAME HOLMAN: And several members rejected Geithner’s contention that forcing Wall Street firms to accept cuts in payments would only have caused defaults and an even worse crisis.
Massachusetts Democrat Stephen Lynch.
REP. STEPHEN LYNCH, D-Mass.: You could have done the right thing by those people, by the American taxpayer, because their money was putting into — being put into this deal.
TIMOTHY GEITHNER: Congressman, I…
REP. STEPHEN LYNCH: And it just stinks to the high heaven, what happened here.
KWAME HOLMAN: Marcy Kaptur, Democrat of Ohio, was among those who suggested Geithner was too accommodating to Wall Street.
Geithner fired back.
TIMOTHY GEITHNER: Congresswoman, you are suggesting that the people that were involved in this were not acting in the public interest, and you are suggesting that they were working for the private interest, not the public interest.
And that is not true. I would never and I believe none of those individuals would be ever part of any decision like that.
KWAME HOLMAN: By the end of the day, Geithner said he wished he had known more about the payments to banks at the time.
Later, the committee heard from Geithner’s predecessor, former Treasury Secretary Hank Paulson. He, too, denied any involvement in the decision to make sure AIG’s banks and counterparties were paid, but said the rescue was critical.
HENRY PAULSON, former U.S. Treasury Secretary: If AIG had gone down, I believe that we would have had a situation where main street companies, industrial companies of all size wouldn’t have been able to raise money for their basic funding.
And they wouldn’t have been able to pay their employees. They have would have had to let them go. Employees would not have paid their bills. This would have rippled through the economy. The — today, Congressman, we have, after everything that was done, all the resources, we have 10 percent unemployment. I believe we easily would have had 25 percent unemployment.
KWAME HOLMAN: Paulson faced skepticism as well.
Cliff Stearns is a Republican from Florida.
REP. CLIFF STEARNS, R-Fla.: Here’s the problem that I think a lot of us are having. Mr. Geithner says he wasn’t involved with the counterparty negotiations. You’re saying you didn’t — you were — you were not involved. Oh, yes, you heard a little about it. But, on November 6, when they gave $62 billion to all these parties that came in and looted AIG, all you guys say, I knew nothing about it.
And, yet, it appears that this happened.
KWAME HOLMAN: The power of the growing backlash against assistance to Wall Street may get another test tomorrow, when Federal Reserve Chairman Ben Bernanke is expected to face a Senate vote on confirmation to a second term.