WASHINGTON (AP) – Timothy Geithner, a key player in the US government’s 2008 bailout of American International Group Inc, is due back in court Wednesday in a trial of a lawsuit filed by the insurance giant’s former CEO over the handling of the rescue.
On Tuesday, Geithner affirmed his belief that the bailout was needed to avert disaster for the financial system. Geithner was president of the New York Federal Reserve at the time of the rescue and later Treasury secretary.
A lawyer grilled Geithner at the trial of the lawsuit brought by former AIG Chairman and CEO Maurice Greenberg.
He is suing the federal government for about $40 billion in damages, asserting that it violated the Constitution’s Fifth Amendment by taking control of the insurance giant without “just compensation” for the shares it received.
The $85 billion loan package for AIG, which was teetering toward bankruptcy in September 2008, gave the government control of 80 per cent of the New York-based company’s stock. While upholding the necessity of the AIG bailout, Geithner in his testimony Tuesday also acknowledged that he had said the bailout “wiped out” AIG shareholders.
That statement was in line with testimony Monday by former Treasury Secretary Henry Paulson, who said the AIG bailout was specifically designed by the government to punish the company. Paulson, who headed the Treasury Department at the time of the rescue, said AIG shareholders should have faced punishment for the company’s troubled balance sheet.