When Treasury Secretary Timothy Geithner testifies on Wednesday before the House Oversight Committee, along with former Treasury Secretary Hank Paulson, he will face questions from both Democrats and Republicans about his relationship to Wall Street.
Geithner is likely to be grilled on TARP, AIG, Bank of America’s purchase of Merrill Lynch and the bailout of automakers’ pension plans.
Ohio Rep. Jim Jordan said Democrats on the panel “really stepped up” efforts to bring Geithner to Capitol Hill, largely in response to voter anger over bank bailouts. Republicans on the committee sent more than 20 letters to Treasury requesting that Geithner appear; he agreed to do so following a public invitation issued on Jan. 13 by Democratic Chairman Edolphus Towns.
“The e-mail issue raised significant questions about the Fed’s role in the alleged effort to keep the counter-party payments secret,” said Jenny Thalheimer Rosenberg, communications director for the committee. “Because of the potential seriousness of the allegations, it is important to hear from Treasury Secretary Geithner.”
“He needs to talk to us about a lot of things — his whole dealing with TARP, dealing with Bank of America and what has recently come to light in his dealings with the New York Fed telling AIG how to disclose certain information,” Jordan, who is the ranking Republican on the domestic policy subcommittee, said.
E-mails and phone logs that show the New York Federal Reserve Bank — of which Geithner was president — obscured details of the AIG bailout from the public. Leaked emails imply that the Federal Reserve asked the Securities and Exchange Commission to mark documents on the deal as “confidential,” as national security information is classified.
“They had no intention of disclosing these dealings to the public, and went to extreme lengths to prevent it,” said Kurt Bardella, a Republican spokesman for the Oversight Committee. “The Fed itself has gone to extremes to prevent us from getting documents. The SIGTARP [special inspector general for TARP] has said he would love to cooperate but the Fed had ordered them not to.”
The Federal Reserve of New York at one point maintained that revealing the inner workings of the deals would throw the markets into turmoil. David Skidmore, a spokesman for the Board of Governors of the Federal Reserve System, said the SIGTARP’s office had initially agreed to certain confidentiality requirements that required it to refer inquiries such as the one from the House Oversight Committee, directly to the agency where the documents originated. A Jan. 19 press release announced the Fed’s cooperation with the committee’s requests.
“Particularly at a time when the Fed is seeking out even more authority and in light of pending regulatory reform proposals, we have a responsibility to examine how they used their current powers before we give them any more,” Bardella said.
Committee members also are likely to ask why AIG paid debts to its Wall Street customers in full. AIG passed $60 billion in bailout funds to Wall Street banks such as Goldman Sachs, effectively using taxpayer dollars to pay for the outstanding insurance products taken out on mortgage-backed securities. Critics argue that if Wall Street had agreed to a smaller reimbursement from AIG, they could have saved taxpayers billions.
Committee members are also keen to question Geithner on the circumstances under which Bank of America bought Merrill Lynch. Bank of America reportedly wanted out of the deal, but Treasury pushed it ahead – Rep. Patrick McHenry, a Republican from North Carolina called the merger a “shotgun marriage.”
The panel will also probe the bailout of automakers’ pension plans, which appear to have favored some groups over others. On Jan. 13, committee members sent a letter to Geithner requesting information regarding GM’s takeover of Delphi Corporation’s pension plans of unionized workers. Delphi was spun off from GM in the mid-1990s and was a supplier of automotive parts.
Other questioning will focus on the fact that Congress approved the TARP program for a specific type of transaction — buying troubled assets from banks’ balance sheet — but the funds were spent differently in the end.
“I think it’s fair to say look, you guys told Congress in the fall of ’08 that you needed a $700 billion bailout, and you said you were going to use it to buy mortgage-backed securities [the toxic assets the TARP was originally designed for] and nine days later you went back and did something else,” said Jordan.
“One thing was being said, but a different action was being taken.”