Geithner: NY Fed unsure until last minute about AIG loan
By Aruna Viswanatha
WASHINGTON (Reuters) - Former U.S. Treasury Secretary Timothy Geithner defended the 2008 bailout of American International Group Inc (AIG.N: Quote) for a second day on Wednesday, struggling at times to respond to increasingly contentious questions about the government's efforts to rescue the insurance company as it stood minutes from bankruptcy.
The questions came in the second week of trial in a lawsuit brought by Hank Greenberg, a major AIG shareholder until the bailout and the company's chief executive until 2005. He contends the terms of the government $85 billion loan to AIG in September 2008, which was extended in exchange for a nearly 80 percent stake in the company, cheated its shareholders.
A U.S. Justice Department lawyer on Wednesday afternoon elicited testimony from Geithner that the New York Fed did not determine until the last minute that it had the authority to provide AIG a loan that could be fully secured.
We were "trying to do something we didn't normally do," he said.
Geithner described how he believed the terms of the loan, which included a high interest rate, were necessarily harsh and tougher than potential private terms, so that they could not be viewed as attractive to other institutions facing similar circumstances.
While few legal experts expect Greenberg's lawsuit to be successful, it has served to reopen a fraught chapter in American economic history and the outcome could shape how regulators respond to future crises.
In the trial's morning session, a lawyer for Greenberg, David Boies, pressed Geithner with questions about the extent of the government's control of the company and whether his team at the New York Fed had assessed whether AIG had taken imprudent risks.
The questions came after Geithner, who served as president of the New York Fed at the time of the rescue, spent Tuesday describing the bailout as necessary to avert a second Great Depression. Continued...