Wednesday’s hearing came at a sensitive time, when President Obama is facing political pressure to reframe his economic policies and many Americans believe Wall Street has gained from bailouts while problems on Main Street haven’t improved.
Against that backdrop, the rhetoric at the hearing was heated – with Geithner under fire from both Democrats and Republicans.
His spirited defense of the AIG bailout doesn’t end questions about his own job security. And some lawmakers including Rep. Darrel Issa (R) of California are pursuing the release of new documents regarding AIG, so the bailout probe isn’t over.
But various testifiers contended that the Federal Reserve Bank of New York – at which Geithner was president at the time – had little leverage to extract so-called “haircuts” from Goldman Sachs and other AIG creditors.
“Even in a best-case scenario, we did not expect that the counterparties would offer anything more than a modest discount to par,” Thomas Baxter, general counsel for the New York Fed, said in written testimony.
Fed officials sought concessions from eight AIG creditors. But their priority was on ensuring that AIG was not threatened with credit-rating downgrade, which would occur if the firm failed to reach a deal with creditors by Nov. 10, 2008. The Fed arranged for creditors to be paid in full, rather than face renewed risk of an AIG bankruptcy just a few weeks after the government had first intervened to save the firm.