Geithner defends bonus action

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NEW YORK (CNNMoney.com) -- Treasury Secretary Tim Geithner told CNN Thursday that his department, concerned that language about bonuses would not hold up to a court challenge, asked Sen. Chris Dodd to include an executive pay provision in the stimulus bill. The loophole allowed bailed-out insurance giant American International Group to pay out $165 million in bonuses.

In an interview with CNN's Ali Velshi, Geithner said the Treasury Department was concerned the government would face lawsuits if contracts were breached for the bonuses.

"We wanted to make sure it was strong enough to survive legal challenge," Geithner said. "But we also worked with [Dodd] to strengthen the overall framework, and his bill has this very important provision we're relying on now to go back and see if we can recoup payments that were made that there was no legal ability to block.

Sen. Dodd, chairman of the Committee on Banking, Housing and Urban Affairs, admitted to CNN Wednesday he'd added the controversial provision after a Treasury official pushed for it. Earlier in the week, Dodd had said he had not played any role in the addition of the loophole.

Geithner told Velshi Thursday the bonus situation is his issue to deal with. "You know, it's my responsibility," he said. "I was in a position where I didn't know about those sooner, I take full responsibility for that."

The Treasury Secretary has been under scrutiny as to when he became aware of the bonus cash going to AIG executives. Testifying before a House Financial Services subcommittee on Wednesday, AIG chief executive Edward Liddy said Geithner was aware of the bonuses two weeks ago - a week before the secretary has said he first heard of the bonuses from his staff.

But Geithner reiterated when he knew about the payments. "I was informed by my staff of the full scale of these specific things on Tuesday, March 10th," he told CNN.

Ali Velshi's fulll interview with Secretary Geithner airs tonight on Campbell Brown: No Bias No Bull at 8 p.m. ET.