Geithner: 'I had no role' in an AIG cover up

NEW YORK (CNNMoney.com) -- Treasury Secretary Timothy Geithner told lawmakers Wednesday that he had no involvement in an apparent attempt by government regulators to withhold crucial information about AIG's bailout from the public.

"I had no role in making decisions regarding what to disclose," Geithner testified at a hearing held by the House Oversight Committee Wednesday.

New York Fed officials instructed AIG (AIG, Fortune 500) not to disclose more than a dozen controversial transactions to the Securities and Exchange Commission in November 2008. At the time, Geithner was the president of the New York Fed, but he said he had recused himself from the day-to-day operations at that time because of his nomination to be Treasury secretary.

At least two lawmakers weren't buying Geithner's denial.

"He has asserted complete ignorance of the Fed's efforts to cover up the bailout details," said Committee Ranking Member Darrell Issa, R-Calif. "Many Americans, including members of this Committee, have a hard time believing that Secretary Geithner entered an absolute cone of silence on the day that his nomination was announced."

Another Republican lawmaker, Rep. John Mica of Florida, also said he did not believe Geithner's testimony and called for his head.

"Why shouldn't we ask for your resignation?" Mica asked Geithner. "We're not getting the whole story, we're getting the blame story. You're either incompetent on the job or you knew what was taking place and you tried to conceal it, and I think that's grounds for your review."

Geithner angrily responded to Mica, "You don't know me very well."

He then more calmly said, "That is your right to have that opinion. I have served my country as carefully and ably as I can."

AIG's bailout has incited furor among lawmakers and the public, as the troubled insurer has come to symbolize the corporate greed, risky behavior and lack of regulation that many believe caused the Great Recession.

The issue at hand on Wednesday was one of the bailout's most contentious: a decision by the New York Fed to pay counterparties 100 cents on the dollar for the underlying assets that AIG has insured through so-called credit default swap agreements.

As a result, $62.1 billion of taxpayer and AIG funds were essentially funneled to 16 banks that were counterparties to AIG insurance contracts.

Committee Chairman Edolphus Towns, D-N.Y., called the facts of the case "murky."

"The circumstances surrounding the payments to the counterparties has created an air of suspicion and distrust among the American people, starting with the New York Fed's initial refusal to name the counterparties," Towns said at the hearing. "The New York Fed argued that disclosing the counterparties would somehow injure AIG. In fact, when the information was finally released under pressure from Congress, nothing happened."

Former Treasury Secretary Henry Paulson also testified Wednesday. He said that he had "no involvement whatsoever" in the New York Fed's decision not to disclose the agreements in question.

And like Geithner, Paulson argued that the AIG bailout was "correct, and I strongly supported it." He reiterated that allowing AIG to fail would have been disastrous for the economy and jobs. "I believe we easily would have had 25% unemployment," said Paulson.

Federal Reserve Chairman Ben Bernanke, who is not testifying Wednesday, said in a letter that he was also not involved in any decision regarding disclosures.

The Committee also heard testimony from Special Inspector General for the $700 billion bailout Neil Barofsky and attorneys for AIG and the New York Fed.

In November, SigTARP Barofsky released an audit of the New York Fed's decision that found the regulator failed to use its clout to negotiate concessions from AIG's business partners.

The House Oversight Committee, subpoenaed the New York Fed for the documents Barofsky used in his audit and recently received 250,000 pages of e-mails and other correspondence. The documents reveal that the New York Fed had urged AIG not to make any reference in its SEC filing that the counterparties had received the dollar-for-dollar value.

Geithner defended his decision to offer full-value for the underlying assets on the credit default swaps. But regarding any decision not to disclose those transactions, Geithner argued that he had had no involvement because of his nomination as Treasury secretary.

"On Nov. 24, President-elect Barack Obama announced that he intended to nominate me to be Secretary of the Treasury," Geithner testified. "Starting on Nov. 24, I withdrew from involvement in monetary policy decision, policies involving individual institutions, and day-to-day management of FRBNY."

One day later, on Nov. 25, the subpoenaed New York Fed documents show that AIG began to prepare its report with the SEC.

Despite his stated lack of involvement, Geithner was adamant that those who were involved "acted solely in the public's interest," adding that they were "never involved in any decision for any private benefit."

Due to many New York Fed employees' ties to Wall Street investment banks -- including Geithner -- many lawmakers and members of the public have implied that the regulator's decisions may have been made for personal gain.

"I think your commitment to Goldman Sachs trumped your commitment to the American people," said Rep. Steven Lynch, D-Mass.