Former US treasury secretary Timothy Geithner defends AIG bailout

Geithner claims action necessary to prevent country from plunging into possible second Great Depression.

Former US Secretary of the Treasury Timothy Geithner is surrounded by members of the media as he arrives at US Court of Federal Claims to testify at the AIG trial on Tuesday. Photograph: Getty Images

Former US treasury secretary Timothy Geithner defended the government's rescue of American International Group (AIG) in September 2008, saying the action was necessary to prevent the country from plunging into a possible second Great Depression.

Mr Geithner's comments came in testimony he provided in the trial of a lawsuit brought by Hank Greenberg, AIG's top executive from 1968 to 2005, who contends the terms of the government $85 billion loan to AIG cheated its shareholders.

Mr Greenberg’s lawyer, star litigator David Boies, spent much of yesterday morning introducing emails Mr Geithner wrote and received when he served as president of the New York Federal Reserve in the chaotic days around the initial bailout offer.

Many of the emails were sent from other New York Fed officials after midnight, underscoring the round-the-clock effort the government undertook to contain the 2008 financial crisis.

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Geithner, who appeared relaxed during his more than three hours on the stand, did attempt to retract some comments he had made in the past about the AIG bailout, including statements that the insurance company’s shareholders had been “effectively wiped out” and that the government had essentially “nationalised” AIG.

That was “not the most precise language,” he said, to laughter in the courtroom.

Away from the court hearing, billionaire Warren Buffett said he gave an appraisal of AIG to Mr Geithner, just before it rescued the insurer in 2008.

“I thought if they had staying power and, if there weren’t things there that I didn’t know about, it could be,” said Mr Buffett.

“Probably the underlying subsidiaries would bring $85 billion in a normalized market. And that was that.” The bailout grew to $182.3 billion. – Reuters /Bloomberg