WASHINGTON — In questioning that at times took on the air of a cross-examination, the Treasury Secretary Timothy F. Geithner on Wednesday defended the government actions in bailing out the American International Group, saying Washington did what was necessary to prevent “a second Great Depression.”
But Mr. Geithner said he was not involved in withholding information about deals that sent billions of taxpayer dollars from the bailout of A.I.G. , the insurance giant, to big banks.
“I withdrew from monetary policy decisions,” Mr. Geithner said, “and day-to-day management of the New York Fed.”
The committee called Mr. Geithner, former Treasury Secretary Henry M. Paulson Jr. and other officials to explain, once again, the confounding results of an $85 billion rescue loan made to A.I.G. in September 2008. The loan sheltered big banks from any losses, but saddled A.I.G. with a debt so crushing that the Treasury soon had to step in and provide even more rescue money. Mr. Geithner was the president of the Federal Reserve Bank of New York in September 2008, when the first rescue loan to A.I.G. was extended.
After Mr. Geithner’s statement, the questions focused almost immediately on trying to determine why those negotiating on behalf of the taxpayers did not push the banks to make concessions, like returning the collateral to A.I.G. or accepting less than full value for their contracts with the insurer.
At times, the hearing took on a scolding, even berating, tone, that at one point turned personal.
Representative John L. Mica, Republican of Florida, raised the issue of Mr. Geithner’s personal integrity and honesty, citing the flap over Mr. Geithner’s failure personal income taxes, which nearly derailed Mr. Geithner’s confirmation last year.
“I believe either you made a bad decision there, or there was the attempt to cover up one of the biggest bailouts, backdoor bailouts, in history,” Mr. Mica said. “Now, you’ve tried to frame it as you did it in the interest of the people and the failure of the system, I’m telling you, these are lame excuses. You were in the charge and did the wrong thing, or participated in the wrong thing.”
He added: “You give lame excuses, then and you’re giving lame excuses now.”
“Why shouldn’t we ask for your resignation as secretary of the Treasury?” Mr. Mica asked.
Mr. Geithner, who kept his composure, responded: “That is your right, to that opinion. I have worked in public service all my life. I have never been a politician.”
Representative Dan Burton, Republican of Indiana, assailed Mr. Geithner’s assertion that he fully withdrew himself from decisions about disclosure after Nov. 24, 2008.
“It stretches credulity for us to believe that you had no role in this,” Mr. Burton said, adding, “You were the head of the Fed and didn’t know anything about it? It just doesn’t makes any sense to me.
Mr. Geithner replied: “Congressman, I was president of the New York Fed at that time. We were involved, as you know, in enormously complicated, major things.”
Mr. Burton interjected: “But this is major stuff.”
The exchange was one that would be repeated during the hearing.
Moments before, the top Republican on the committee, Representative Darrell Issa of California, asked if Mr. Geithner had “ever become involved with the Federal Reserve’s disclosure decisions with respect to counterparty claims” after he was nominated Treasury secretary.
“No, I did not,” Mr. Geithner said.
Mr. Issa promptly pulled up a slide showing a March 2009 e-mail message in which Mr. Geithner asked William C. Dudley, his successor at the New York Fed: “Where are you on the A.I.G. counterparty issue?”
Mr. Geithner began by saying: “Congressman, as you know, the question of disclosure was the subject of a huge amount of controversy...”
Mr. Issa cut him off, saying sarcastically: “You think?”
Mr. Geithner replied: “Yeah. That’s what my son says, and I agree with you.”
In his testimony, Mr. Geithner called the government’s decision to rescue A.I.G “exceptionally difficult” but one that was “in the best interests of the American people.”
Mr. Geithner, who had greeted Edolphus Towns, the chairman of the House Oversight and Government Reform committee, and the top Republican on the committee, Darrell Issa of California, looked tense while he listened to Mr. Towns and Mr. Issa make their opening remarks. His face drawn, he bit his lips on several occasions.
The critical nature of the hearing had a bipartisan tone. Mr. Issa has led Congress’s investigation into the A.I.G. bailout, and he secured permission from Mr. Towns to have four other House Republicans, who are not members of the committee, join them on the dais: Kevin P. Brady and Ron Paul of Texas, Spencer T. Bachus of Alabama, Cliff B. Stearns of Florida.
Mr. Geithner tried on Wednesday to persuade lawmakers that the government acted in the public’s best interest when it bailed out A.I.G., even though the transaction sent tens of billions of dollars to a group of big American and foreign banks.
He called for better controls on risk-taking by large financial institutions, and pointed out that more than a year after the near-collapse of A.I.G., the government still had no systems in place to cope with such failures.
Departing from his prepared testimony, Mr. Geithner closed his comments by forcefully advocating the Obama administration’s proposed reforms of financial regulation.
“Let me close by saying this,” he said. “If are outraged by A.I.G. — and you should be — if you are outraged by what happened with A.I.G., then you should be deeply committed to financial reform. The United States of America should never have let institutions like A.I.G. take on a level of risk that threatened the stability of the financial system.”
“In his prepared testimony, Mr. Paulson, too, said the rescue of A.I.G. was necessary to keep the economy from collapsing.
“We would have seen a complete collapse of our financial system,” Mr. Paulson said, “and unemployment easily could have risen to the 25 percent level reached in the Great Depression.”
Mr. Geithner painted a picture of a decision made with the involvement several agencies including the Federal Reserve and the Treasury.
“The Federal Reserve and the Treasury determined that it was in the best interests of the United States to rescue A.I.G. in order to slow the panic and prevent further damage to our economy,” he said. Mr. Paulson, however, noted in his remarks that he was not involved with “any of the decisions made with respect to those payments.”
“Those matters were handled by the Federal Reserve Bank of New York and the Federal Reserve Board,” he said. “They sought to make appropriate decisions on those matters.”
The House panel also sought to learn whether the New York Fed acted properly later that fall, when it advised A.I.G. to delete certain information from its public disclosures about the bailout. By that time, Mr. Geithner had been nominated to head the Treasury by Barack Obama, then President-elect.
E-mail messages made public in recent days show that A.I.G. sought the New York Fed’s advice on the contents of its filings about the bailout to the Securities and Exchange Commission. The New York Fed crossed out certain passages, including references to the fact that A.I.G.’s trading partners would get 100 cents on the dollar on their soured derivatives trades.
Thomas C. Baxter Jr., the New York Fed’s general counsel, in his prepared testimony offered the panel explanations for several of the deletions. He said that the New York Fed removed verbal descriptions of the payments to the banks because the filings offered much the same information in numbers, which he said were more precise.
Mr. Baxter explained that the New York Fed felt compelled to pay out A.I.G.’s counterparties in full to unwind tens of billions of dollars in derivative contracts because “there was little time, and substantial execution risk and attendant harm of not getting the deal done by the deadline of Nov. 10.”
That was the date when A.I.G. was scheduled to report its earnings and could face downgrades from credit ratings agencies. A downgrade would have led to more collateral calls and even greater liquidity problems for A.I.G., Mr. Baxter said.
He added, “Even in a best-case scenario, we did not expect that the counterparties would offer anything more than a modest discount to par.” Under the circumstances, he said, “the Federal Reserve had little or no bargaining power.”
That statement was reinforced by Elias Habayeb, the former chief financial officer of A.I.G., who said in his prepared remarks that before the bailout, “the counterparties were unwilling to accept less than par value.”
Mr. Baxter said it would have been “an abuse of our authority” for the Fed to have threatened A.I.G.’s counterparties with its regulatory power to get discounts.
Mr. Baxter also defended A.I.G.’s disclosures about the transactions in public filings, saying, “What is described here is the kind of thing that routinely happens in major transactions.”
