Jan. 11 (Bloomberg) — Treasury Secretary Timothy Geithner retains the confidence of President Barack Obama as he faces questions about why the Federal Reserve Bank of New York tried to withhold details of the government’s financial-industry rescue, administration officials said.
Aides to top congressional Democrats also said that Geithner has support on Capitol Hill as lawmakers prepare hearings into why the New York Fed in December 2008 asked American International Group Inc. to scale back disclosures of the government’s $182.3 billion bailout of the New York-based insurer. The Treasury Department said Geithner, 48, recused himself from such deliberations after Obama picked him to be Treasury chief the previous month.
Asked yesterday for comment, White House Press Secretary Robert Gibbs said he stood by his earlier statements that the president had full confidence in Geithner. Jim Manley, a spokesman for Senate Majority Leader Harry Reid of Nevada, said “Secretary Geithner enjoys the strong support of the Senate Democratic caucus.”
Aside from some lawmakers who’ve often criticized Geithner’s role in saving AIG and other financial institutions, he maintains the backing of Democratic leaders including Representative Barney Frank, House and Senate Democratic aides said in interviews Jan. 8. Only a revelation that he was directly involved would erode that support, a Senate Democratic aide said on condition of anonymity.
Financial Regulation
Geithner’s role as the administration’s point man on overhauling financial-industry regulation makes him more of an asset than a liability on Obama’s team as the November midterm elections approach, said former congressional aide Charles Gabriel, managing director at Capital Alpha Partners LLC, a Washington-based firm that provides research to institutional investors.
“He has earned the president’s trust,” Gabriel said. “Unless there really is something that was grossly unpopular, I would think it unlikely Geithner would be replaced.”
Republicans including Representative Spencer Bachus of Alabama and Representive Darrell Issa of California want Geithner to explain the series of events that led to the government’s AIG financing. The calls for testimony follow requests last year from other House members for Geithner to resign his post for his role in the bailout and stewardship of the economic recovery.
“Secretary Geithner has some explaining to do,” Representative Roy Blunt of Missouri said of his part in the AIG discussions.
Recusal
The Obama administration and the New York Fed came to Geithner’s defense, saying he had nothing to do with the e-mail exchange between lawyers for AIG and the district bank. Treasury spokeswoman Meg Reilly said that Geithner was already recused from AIG matters when the e-mails were written.
After the e-mails became public, Frank, chairman of the House Financial Services Committee, on Jan. 7 expressed “confidence” in Geithner, while acknowledging the AIG correspondence is “troubling” and saying he’d back a hearing to learn more.
The House Oversight Committee chairman, Representative Edolphus Towns of New York, scheduled the hearing for next week after disclosure of the e-mails showed New York Fed officials in late 2008 advised AIG executives not to disclose in a regulatory filing details about payments to settle derivative contracts with counterparties on Wall Street, including Goldman Sachs Group Inc.
Hearing Scheduled
Towns, who has been investigating the government’s September 2008 bailout of AIG and payment of $1 billion of retention bonuses to the company executives, acted after Maryland Democrat Elijah Cummings and Issa requested a chance to question Geithner about the e-mails.
Issa, who requested the e-mails from AIG, said Jan. 8 that Geithner should be subpoenaed if he declines to testify voluntarily.
“It is essential to know what knowledge or involvement” Geithner “had in the decision made by New York Fed officials to exclude information” from AIG’s regulatory filings, Cummings wrote Jan. 7 to Towns. Cummings said it was “critical” that Geithner testify.
Treasury spokesman Andrew Williams declined to comment yesterday on whether Geithner would testify.
The questions surrounding Geithner weren’t a focus of the weekly talk shows in Washington yesterday. An interviewer for CNN quizzed Christina Romer, Obama’s chief economist, about the state of the economy, health care and the deficit, and Geithner’s name wasn’t mentioned.
Voters Backlash
Sam Geduldig, a former aide to House Republican leaders including Blunt and John Boehner of Ohio, said Issa’s demand to subpoena Geithner shows that lawmakers are capitalizing on voters’ ire over the rescue of AIG, which Geithner helped orchestrate when he was at the New York Fed.
“If you’re a politician, being angry about the AIG bailout is good for business,” said Geduldig, who is now a financial services lobbyist at Clark Lytle & Geduldig in Washington.
Thomas Baxter, general counsel of the New York Fed, said in a statement Jan. 8 that Geithner had nothing to do with the exchange of e-mails. Reilly said in a Jan. 7 e-mail that Geithner “played no role” in decisions regarding the New York Fed’s requests to withhold data.
Asked at a Jan. 8 briefing whether Obama continues to have confidence in Geithner, Gibbs said, “of course.”
Administration officials declined in interviews Jan. 8 to publicly discuss Geithner’s future, saying they wouldn’t lend credence to what they consider a preposterous outcome: that Geithner would lose his job.
Distraction
The congressional criticism of the AIG e-mails was regarded at the White House as a distraction to be dealt with, and there were no questions about Geithner’s standing within the administration. The aides said the Treasury secretary maintains ready access to the president and has Obama’s full support.
Geithner has been the object of Republican rebukes since his confirmation hearings a year ago. They objected to the disclosure that he had underpaid his federal taxes in previous years. The full Senate confirmed him by a vote of 60-34 — the closest margin for a Treasury secretary nominee in at least five decades.
As unemployment rose to a 26-year high of 10.2 percent in October and American public opinion soured on the lifelines thrown to Wall Street firms, Geithner’s unpopularity with the opposition party intensified. Members of both parties have argued that his department isn’t doing enough to help small businesses.
In November, Representative Kevin Brady, the senior Republican on the Joint Economic Committee, called on Geithner to resign, saying at a hearing that “the public has lost all confidence in your ability to the do the job.” Geithner defended the administration’s record and said he couldn’t accept responsibility for “the legacy of crises you bequeathed the country.”
To contact the reporters on this story: James Rowley in Washington at jarowley@bloomberg.net Edwin Chen in Washington at echen@bloomberg.net
