Treasury Secretary Tim Geithner used a hearing on the bailout of American International Group Wednesday to repeatedly endorse President Obama's plan to impose a 15 basis-point tax on large banks and restrict their growth and activities.
Although many observers have questioned whether those proposals contradicted Geithner's own views, the Treasury secretary left little doubt that he backed the ideas. "If you join with the president in adopting his proposed financial responsibility fee, American taxpayers will not have to pay one cent for the actions we took in AIG or the actions we took with the authority Congress gave the administration to stabilize this financial crisis," Geithner said.
Rep. Patrick McHenry, R-N.C., argued that Geithner had changed his mind, noting that he has previously opposed a return to the Glass-Steagall Act of 1933, which established walls between the banking, securities and insurance industries. McHenry said that the so-called Volcker Rule, which would ban banks from proprietary trading, marked a return to the Depression-era law.
"How do you reconcile that belief against a Glass-Steagall roll back with this rule?" McHenry said.
But Geithner said that the Volcker Rule was not the same as Glass-Steagall, much of which was repealed in the 1999 Gramm-Leach-Bliley Act. "Does [the Volcker Rule] dial back some of the Gramm-Leach reforms? Yes but it is not what people typically think of Glass-Steagall," Geithner said.
Among other things, Geithner said, the Volcker Rule would not ban banks from underwriting securities, which was a major provision of Glass-Steagall. More details on the Volcker Rule and the bank tax are expected next week when the administration releases the budget. President Obama is also expected to give both another plug Wednesday evening during his State of the Union address.
But Geithner spent much of the hearing on the defensive, as a bipartisan group of lawmakers blasted him for more than two hours on his involvement with the bailout of AIG. Lawmakers claimed that the Federal Reserve Bank of New York, which Geithner ran until early last year when he was confirmed as Treasury secretary, pushed AIG not to disclose paying $62 billion to AIG counterparties. "We have come not to praise but to bury Caesar — and you are Caesar today," Rep. Paul Kanjorksi, D-Pa., told Geithner during the hearing.
The House Oversight and Government Reform hearing on the government's rescue of AIG came after the committee obtained more than 250,000 pages of documents from the New York Fed on its handling of the bailout and after months of intense criticism of the action. Geithner defended himself by saying he was not involved in the decision to not disclose the payments because he had recused himself after being nominated for the Treasury job. But lawmakers said they simply did not believe that.
"Many Americans, including members of this committee have a hard time believing that Secretary Geithner entered an absolute cone of silence on the day that his nomination was announced," said Rep. Darrell Issa, the panel's lead Republican, who also said he has "lost confidence" in the secretary.
Committee Chairman Edolphus Towns said the failure of disclosure has created an "air of suspicion and distrust among the American people."
Geithner said the decision to pay AIG counterparties 100 cents on the dollar was the only option to avoid the company being downgraded and collapsing but lawmakers did not believe him.
"I believe these were lame excuses, either you were in charge and did the wrong thing or you participated in the wrong thing," said Rep. John Mica, R-Fla. "Why shouldn't we ask for your resignation from secretary of Treasury?"
In a heated, often shouting exchange, Rep. Stephen Lynch, D-Mass., also blasted Geithner. "You had every opportunity to weigh in for the American people and you didn't," he said. "It's inexcusable and it makes me doubt your commitment to the American people."
Still, some Democrats came to the secretary's defense.
"I don't know what anybody else would have done," said Rep. Elijah Cummings, D-Md. "I don't think we had a choice or you had a choice so let me say I think we did the right thing there."
This story was reprinted with permission from American Banker.
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