Geithner Denies Role in Hiding AIG Payments to Banks

U.S. Treasury Secretary Timothy Geithner said this month the bailout of insurer American International Group was not meant to help out bank counterparties and that he had no role in the decision not to disclose payments made to banks.

In his first public comments since e-mails surfaced showing the New York Federal Reserve – when Geithner was at the helm – advised AIG not to disclose payments it made to banks after receiving a taxpayer bailout, he said the insurer was legally obligated to make the payments.

“We had no effective legal means to step in and prevent default (at AIG) … without helping this firm meet all its legal obligations,” Geithner told CNBC television.

The e-mails, which showed lawyers for the New York Fed advising AIG not to disclose payments that gave 100 cents on the dollar to banks holding AIG credit default swaps, have touched off a firestorm of controversy.

House Oversight Committee Chairman Edolphus Towns, who has called the payments a “backdoor bailout,” said Geithner would testify before his panel on Jan. 27.

Towns said the hearing would examine the collapse and federal rescue of AIG, in particular the compensation of AIG credit default swap counterparties.

In an interview with National Public Radio, Geithner said the aid for AIG was not intended to help out big banks that held its credit default swaps.

“If the government had not stepped in to act to prevent the failure of AIG, this crisis would have been much more damaging,” he said.