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Geithner: 'I Would Not Give One Penny' To AIG Counter-Parties If I Didn't Have To

UPDATED at 12:03 P.M.:

Treasury Secretary Tim Geithner, who just finished testifying before Sen. Chris Dodd's (D-Conn.) Senate Banking committee, said that "it's not fair" that AIG counter-parties are getting paid 100 cents on the dollar by government bailout money but "if I felt there was a better way...I would support it."

Geithner was responding to tart questioning by Sen. Mark Warner (D-Va.) asking why, when others owed money by the troubled insurance giant are taking "haircuts," the counter-parties (such as Goldman Sachs) are getting all the money owed to them.

"It is an incredibly difficult balance and it is very hard to know if we're going to get the balance right," Geithner said. AIG has received or been promised more than $150 billion in bailout money.

Geither got his anger up at one point, saying that, "I would not give a penny to AIG to protect counter-parties" if he didn't have pay them to reduce the risk to pensions and other taxpayer-related funds that have done business with AIG and that are owed money by the company.

GOP Senator Hammers Geithner

11:29 A.M.: Geithner was hammered by a Republican senator decrying Treasury's growing power over the American economy.

"This is not mission-creep," said Sen. Jim DeMint (R-S.C.). "This is a stampede of any traditional understanding of constitutional boundaries."

DeMint called Geithner the chief executive of the American economy. And he didn't mean it in a good way.

DeMint complained that "we hear very little talk about exit strategies." He asked Geithner how much of the $700 billion government bailout will be returned to Treasury's general fund within five to six years.

"That's hard to say right now," Geithner said, deflecting: "If we are successful, that money will come back with substantial interest."

Geithner added that the way the bailout was designed, for each $1 that is paid back, $1 can be lent back out.

"So it's your understanding that you have $700 billion to use permanently as you see fit?" DeMint asked incredulously.

Geithner wouldn't take the bait. "I'm not quite sure 'permanently' is right," he said.

Geithner Challenged On Request for Wind-Down Authority

11:09 A.M.: Geithner was asked why Treasury doesn't asked for "one-off" resolution authority to wind down troubled insurance giant AIG rather than to keep pouring money into it and running it.

Geither and Fed Chairman Ben Bernanke have said that the federal government needs resolution powers to wind down and sell off troubled large financial institutions -- the way it does with small banks. Both have said that the government followed the only path it could with AIG because it lacks such authority, and both have asked Congress to grant the authority.

Geithner touched on the topic again today but was challenged by Sen. Bob Corker (R-Tenn.), who said that he believes that if Geithner asked Congress for "one-off" authority to wind down AIG and get out quickly, it would pass the Senate "100 to zero" and the House "435 to zero."

Corker said Geithner should not "hide behind not having resolution authority for AIG. My guess is we’d work with you to give you authority." Corker said Congress gave former Treasury Secretary Hank Paulson such authority last fall to take over Fannie Mae and Freddie Mac.

In response, Geithner repeated his plea for long-term authority, rather than the one-off ability Corker is suggesting.

Geithner: Govt. Has 'Obligation' to Fire CEOs, Shake Up Boards

10:51 A.M.: Geithner said that government has an "obligation" to remove management and restructure boards of companies that have come to the government for help.

Sen. Mel Martinez (R-Fla.) said he found it "troubling" that chief executives have been removed after government instruction (former GM chief Rick Wagoner) and boards of directors have been restructured (AIG) by the government.

"I understand these concerns," Geithner allowed, but added: "When institutions get to the point where they need to come to the government for assistance to restructure, it is our obligation that they have a strong board and management to emerge from this. This is a very important obligation."

Geithner added, as he has before, that "we do not want to have government involved in day-to-day management decisions."

Geithner: Govt. Likely To Still Be In AIG a Year From Now

10:27 A.M.: Geithner implied that the federal government will still be deeply involved in troubled insurance giant AIG more than a year from now.

Sen. Richard Shelby (R-Ala.) asked Geithner: "Will you be involved in AIG a year from now? I hope not."

The government has thus far given or promised more than $150 billion to AIG, whose FInancial Products division sold more derivatives than could be backed by AIG's insurance division. The government owns roughly 80 percent of AIG.

"Realistically, this is going to take time," Geithner answered. "It probably will take longer" than a year, he said.

Geithner: Financial Sector Starting To 'Heal'

10:07 A.M.: Geithner said that he's seeing improvement in the financial sector, saying that banks are raising capital more conservatively than they have in the past, for instance.

"Today, just four months into President Obama's term of office, there are important indications that our financial system is starting to heal," Geithner said in his testimony, which you can read here.

Dodd questioned Geithner on the effectiveness of the Small Business Administration in getting loans to their charges.

"The SBA is not seen as an ally and a friend" during this crisis, Dodd said, saying the mention of the SBA to small businesses he knows results in a "roll of the eyes."

-- Frank Ahrens
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By Frank Ahrens  |  May 20, 2009; 12:03 PM ET
Categories:  The Ticker  | Tags: Chris Dodd, Small Business Administration, Tim Geithner, bailout  
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