Despite the verbal pounding Secretary Geithner took today over his role in approving the bailout of AIG, I’m hard pressed to find any smoking gun.

I heard lots of grandstand ranting by Congresscritters about backdoor bailouts to banksters, especially Goldman Sachs, lots of unnproven accusations, and plenty of Republicans using the terms "cover up" every other sentence. But what "crime" were they covering up?

Despite having obtained hundreds of documents and e-mails, the questioning provided no damning evidence, and as far as I could tell, none we hadn’t heard before, that proved Geithner and Bush officials acted improperly on the specific decisions at issue here regarding AIG’s bailout. That doesn’t mean they didn’t; but today’s hearing didn’t prove it.

The last Administration made an intial judgment in the Fall of 2008 to bail out AIG, because AIG seemed to be the insurer of the financial industry; it was just too interconnected to allow it to fail. None of the evidence today challenged that basic judgment. And once they decided AIG couldn’t be allowed to fail, they were forced to buttress that bailout repeatedly as the scope of AIG’s unraveling positions became known.

Their later decision in early November to pay off AIG’s counterparties at 100 percent, which so outraged everyone, was made at a time when officials were in near panic, with rating agencies threatening to downgrade AIG and create another run on a now cashless AIG.

By the time the NYFed was called in by AIG to try to negotiate better terms with the counterparties, there were four days left, two foreign creditors had said no, and there was no assurance they could bring everyone on board by November 10, when AIG would have to disclose $25 billion in losses and face imminent, crippling rating downgrades.

To those present, it must have looked like the end of the financial world as they understood it, and after struggling with the crisis for a year, watching Lehman fail, and F&F be taken over, no one could be sure what to do.

Barofsky, the Special Inspector General for overseeing TARP administration made the best argument he could for how Geithner could have gotten concession, but it all boils down to judgment and hindsight. Barofsky argues, in essence, that the Administration/NYFed should have tried harder, appeal to patriotism or self-preservation, or do something creative, to convince the biggest CDO holders to take a haircut and extinguish the CDSs whose collateral calls were imposing unending demands on AIG cash.

But the example Barofsky points to on how Geithner should have acted is Paulson’s jawboning the biggest bankers to accept TARP funds when they might otherwise have preferred not to. Getting the bankers to take more money they might not want seems a far cry from demanding they take less money then they thought they would get if they just held out another four days, knowing they held almost all the cards. If that’s the best argument, it’s pretty thin tea. We just wish Geithner had tried.

The question Bernanke, Paulson and Geithner need to answer is how they could be so negligent in their collective oversight responsibilities that they allowed these conditions to grow and metastasize over several years. Asking them why they had to accept really bad deals once the financial sector was going down for the count seems to miss the target by a mile, but maybe I missed something in today’s hearings.



John has been writing for Firedoglake since 2006 or so, on whatever interests him. He has a law degree, worked as legal counsel and energy policy adviser for a state energy agency for 20 years and then as a consultant on electricity systems and markets. He's now retired, living in Massachusetts.

You can follow John on twitter: @JohnChandley