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Journalism of Courage
Treasury Secretary Timothy Geithner held out hope to Congress that a hefty investment to bail out insurer AIG and avert its catastrophic failure will gain value as the economy improves.
In prepared remarks for delivery on Wednesday to the US House of Representatives Oversight and Government Reform Committee,Geithner defended the controversial 2008 rescue and said it was done solely to protect US taxpayers8217; interests.
Just one year into the Treasury job after serving as president of the New York Federal Reserve bank,Geithner will face stiff questioning from Republican committee members. But it appeared on Tuesday that Democrats were rallying behind him.
Geithner said that as of September 30,2009,Treasury had invested 43 billion from its 700-billion Troubled Asset Relief Program,or TARP,in AIG and estimated that it stood to lose 30 billion based on market values at the time.
8220;We believe that,depending on market conditions and the future performance of AIG8217;s businesses,the actual recovery on Treasury8217;s investment could be significantly higher,8221; he said.
In total,AIG received a bailout in stages that was valued at about 180 billion.
One of the issues that raised Congress8217; ire was that AIG had paid out some 62.1 billion to big banks,including Goldman Sachs that were counterparties for credit default swaps that AIG had issued at 100 cents on the dollar to settle.
It took some months for the public to learn that the payments had been made at par,rather than at a discount and there were allegations that the New York Fed and possibly Geithner had counseled AIG not to reveal the payments.
Democratic staff members from the oversight committee said on Tuesday that none of the documents that had been subpoenaed from the Fed indicated Geithner was involved in urging AIG to keep quiet about payments to banks.
Geithner said he was confident that AIG-related loans the New York Fed had made,including to special facilities set up to buy securities underlying AIG8217;s credit default swaps,will be fully repaid.
Geithner has faced some criticism,and heard calls for his resignation,in part because he is associated with Wall Street because of his past position at the New York Fed. But his career has been almost entirely in public service,rising through the ranks at Treasury,and he has never worked for a Wall Street firm.
He told lawmakers that Treasury still needs power to limit risk-taking by banks and other financial firms if they pose a threat to the stability of the financial system,something that President Barack Obama has called for but that Congress would have to approve.
Geithner also it was vital that the government gain the ability to wind down,or resolve,big financial firms that are failing 8212; something that it lacked the legal authority to do in AIG8217;s case.
