Geithner: Guilty Until Proven Innocent in AIG Debacle

It was damn good theater. The Republican members of Congress's Joint Finance Committee had U.S. Treasury Secretary Tim Geithner on the carpet and were trying to pull the rug out from under him. They blamed him for the American International Group bailout, for giving away too much to AIG's bank creditors after the bailout, for the state of the economy, for everything in fact but the recent report on mammograms.

Geithner was encouraged to resign by one Texas congressman, a remark that got the GOP's "Deputy Whip" a lot of exposure on both network and cable news. Another said that the former president of the New York Federal Reserve never should have been appointed in the first place.

The Republican pummeling was followed up by a Wall Street Journal editorial suggesting that Geithner knew there was never a risk to the financial system when he agreed to use taxpayer money to pay off what AIG owed in credit default swaps.

Much of the abuse stemmed from TARP Inspector General Neil Barofsky's report released earlier this week, which was highly critical of Geithner and other federal officials. The report said they could have taken a harder stance in negotiating with AIG's creditor banks, and ultimately gotten a better deal.

But Geithner proved he was no punching bag for Congress. When he was asked to resign by GOP Rep. Kevin Brady, Geithner shot back that he inherited the mess from the previous administration's lax regulatory policies - a shot at Brady and the Republican administration of former President George W. Bush.

It's hard to contradict Geithner, since AIG "went rogue" in 2000 when it acquired a savings and loan. That allowed AIG to use the insurers' massive financial resources to get involved in what we now know were risky mortgage-backed securities swaps with investment banks like Goldman Sachs and Deutschebank. By operating this unit out of London, AIG had virtually no regulation from the Office of Thrift Supervision. Both AIG's board and shareholders were happy to leave it alone to earn money.

But in 2008 the mess fell into Geithner's lap and he made several judgment calls. First rescue AIG, and then pay off its debts. Were they the right moves? It's easy to second-guess. The one thing that is certain is that he took swift, decisive action and the financial system didn't fail. And in hindsight, we will never know if it would have.