After Rocky First Year, Geithner Faces Another Test in AIG Bailout Hearing

FILE: Treasury Secretary Timothy Geithner testifies on Capitol Hill on Nov. 19 to the Joint Economic Committee hearing on financial regulatory reform. (AP)

Timothy Geithner's tenure as Treasury secretary got off to a rocky start, to say the least.

There was the revelation during his Senate confirmation last year that he once failed to pay taxes. There were the questions surrounding his role at Freddie Mac during an accounting scandal. And later, there were the calls from some lawmakers for his resignation for what they deemed as a poor response to the U.S. economic crisis.

Now Geithner is back in the hot seat, for bailout decisions he made about AIG while he was head of the New York Federal Reserve -- and it has created a firestorm that some critics hope will mark the end of his tenure.

"Everybody on the [trading] floor thinks these revelations about the Fed and AIG are outrageous," Barry T. Larkin, the head of sales and trading at Kabrik Trading, told the New York Post. Geithner "should be held to account for what has come out."

The House Oversight and Government Reform Committee is investigating deals that diverted billions of AIG bailout dollars to banks, including Goldman Sachs. Geithner has agreed to testify next week, accepting an invitation from the committee's chairman, Rep. Edolphus Towns, D-N.Y.

Geithner was president of the New York Fed when it managed the bailout under President Bush. The AIG deals might have cost taxpayers billions more than necessary because Geithner did not demand concessions from the banks, an earlier watchdog report said.

Rep. Towns has subpoenaed the New York Fed for documents related to the bailout of AIG, including Geither's e-mails, phone logs and meeting notes linked to the AIG bailout.

Some believe those documents prove that Geithner went too far.

"I think it was a violation of the law," Chris Whalen, senior vice president and co-found of Institutional Risk Analytics, told the New York Post. He argued that the New York Fed can't block the disclosure of an SEC filer such as AIG and not violate the Securities Exchange Act of 1934.

"I think he has violated the law," he said. "I think he needs to be held to account."

Administration officials have defended Geithner in the AIG matter by saying he wasn't involved in the e-mails released this month. Treasury said he recused himself from decisions about AIG after being appointed treasury secretary.

But the controversy is sure to intensify calls on Capitol Hill for Geithner to resign. As recently as November, Republican lawmakers were pressuring the treasury secretary to step down, saying they have lost confidence in him.

But Geithner isn't the only policymaker under fire. The committee has invited former Treasury Secretary Henry Paulson and former Federal Reserve Bank of New York Chairman Stephen Friedman.

California Rep. Darrell Issa, the committee's top Republican, also said he wants Federal Reserve Chairman Ben Bernanke to answer questions about the bailout, which he helped lead.

In inviting Paulson, Towns addressed accusations by Democrats that the hearing was motivated by partisan attacks on Geithner.

House Financial Services Chairman Barney Frank, D-Mass., said Thursday that Bush appointees Paulson and Bernanke "outranked" Geithner.

Issa insisted the investigation "is not and has never been about Tim Geithner." Its goal "is to learn the truth about the apparent waste of billions of taxpayer dollars and the government's efforts to conceal this waste from the American people," he said in a written statement Friday.

The Associated Press contributed to this report.