WASHINGTON – Treasury Secretary Timothy Geithner foresees a lengthy involvement with American International Group and is not ruling out more aid to the insurance conglomerate.

Testifying before the Senate Banking committee, Geithner said Wednesday that untangling AIG’s finances has proven to be more difficult than originally envisioned.

The government holds about 80 percent of AIG’s assets and has injected $70 billion into the company from the $700 billion Troubled Asset Relief Program.

Senators criticized the government for letting AIG pay off its top creditors the full value of their debt. Geithner said the government lacked the authority to negotiate a reduction.

Said Banking Committee Chairman Christopher Dodd, D-Conn.: “There should be a better answer to this.”

WASHINGTON – Treasury Secretary Timothy Geithner asked Congress on Tuesday for broad new powers to regulate nonbank financial companies like troubled insurer American International Group whose collapse could jeopardize the economy.

“AIG highlights broad failures of our financial system,” Geithner told the House Financial Services Committee. “We must ensure that our country never faces this situation again.”

At the same time, Federal Reserve Chairman Ben Bernanke revealed that he had considered filing suit to keep AIG from paying millions in executive bonuses but that his legal advisers counseled him not to do so.

Geithner acknowledged that the current climate of anger, including the furor over those retention bonuses, will complicate any effort by the Obama administration to get more bailout money from Congress. “We recognize it will be extraordinarily difficult,” he said.

Geithner joined Bernanke in calling for greater governmental authority over complicated and troubled financial companies – power they likened to the authority wielded over banks by the Federal Deposit Insurance Corporation. That includes the power to seize control of institutions, take over their bad loans and other illiquid assets and sell good ones to competitors.

AIG is a globally interconnected colossus, with 74 million customers worldwide and operations in more than 130 countries. The government decided it was simply too big to let fail.

“Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs,” Bernanke told the panel.

Geithner, Bernanke and New York Fed President William C. Dudley testified in a rare joint appearance before the panel. Their testimony came a day after the Fed unveiled a new bank rescue plan under which the government would take responsibility for up to $1 trillion in sour mortgage securities with the help of private investors.

That delighted Wall Street and the Dow industrials shot up nearly 500 points. On Tuesday, Wall Street gave back some of its gains. The Dow was down just over 30 points in midmorning trading.

Much of Tuesday’s discussion centered on ways to help the government better deal with future AIG-like companies whose failure could devastate the financial system and the drag down the economy.

“As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,” Geithner said. “The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.”

Geithner made it clear he believes the treasury secretary should be granted unprecedented power, after consultation with Federal Reserve Board officials, to take control of a major financial institution and run it. The treasury chief is an official of the administration, unlike the FDIC, which is an independent regulatory agency.

The witnesses were asked if AIG would have been treated any differently, including the payment of $165 million in bonuses earlier this month, if such powers had existed last September, when the Fed began the government bailout of the insurer.

“Quite differently. It could have been taken into receivership or conservatorship. …The bonus issue would not have arisen,” Bernanke said.

He said that contracts providing for the bonuses could have been adjusted and “we could have taken haircuts” against some of AIG’s financial obligations to other companies.

AIG has become a symbol of reckless risk-taking on Wall Street. The House last week voted overwhelmingly to slap 90 percent taxes on the largest bonuses and similar, although not as punitive, legislation is before the Senate.The bonuses came even as AIG reported a stunning $62 billion loss, the biggest in U.S. corporate history.

The government has bailed out AIG four times, to the tune of more than $180 billion altogether.

New York Attorney General Andrew Cuomo said Monday that 15 employees who received some of the largest bonuses from AIG have agreed to return them in full, totaling about $50 million.

Bernanke said it was “highly inappropriate to pay substantial bonuses” to the employees. Bernanke said he asked that the payments be stopped but was told that they were mandated by contracts agreed to before the government seized control of AIG on September 16.

“I then asked that suit be filed to prevent the payments,” he said. Bernanke said that his legal staff counseled against this action on the grounds that Connecticut law provided for substantial punitive damages in the event any such suit failed. AIG’s financial products division has a base in Connecticut.

The AIG bonuses created a public relations headache for President Barack Obama at a time when he was trying to gin up public and political support for his economic policies, bank-rescue plan and overhaul of the nation’s regulatory structure.

Government bailouts of AIG, Citigroup Inc., Bank of America Corp. and others have put billions of taxpayers’ dollars at risk over the past year and have angered the American public.

WASHINGTON  – The White House says Treasury Secretary Timothy Geithner (GITE-nur) will visit Capitol Hill on Thursday to start outlining President Barack Obama’s plans to update financial regulations.

White House spokesman Robert Gibbs said Monday the administration hopes to have regulatory legislation in place by the end of the year. Gibbs says those regulations are important to help stabilize the global market.

When asked about the White House’s timetable for outlining its plan for financial regulations, Gibbs announced Geithner’s testimony.

Gibbs says he isn’t sure if Geithner would testify in the House or Senate. Geithner faces critics in both chambers.

WASHINGTON – Part of President Barack Obama’s tax plan is running into opposition from key Democrats in Congress.

They’re worried that charities and the housing market could be hurt by Obama’s proposal to limit itemized tax deductions for high earners.

Treasury Secretary Timothy Geithner (GYT’-nur) told the Senate Finance Committee today that tax increases on high-earning families are needed in order to make a down payment on health care reform and limit future deficits. But he said he’s willing to work with lawmakers on proposals they object to.

Panel chairman Max Baucus, a Montana Democrat, questioned whether the plan to limit deductions is viable. He told reporters that he thinks the administration will be flexible on it.

Geithner and White House budget director Peter Orszag each faced tough questions about the tax package during a second day of hearings today.

WASHINGTON  – Treasury Secretary Timothy Geithner said Tuesday the new administration will wage an aggressive two-front battle against the worst financial crisis in seven decades, while the Federal Reserve announced it was expanding a key lending program to up to $1 trillion.

But investors appeared to reject the government’s latest plan. The Dow Jones industrial average plunged more than 300 points in midday trading as financial stocks led the market lower, reflecting Wall Street’s growing concerns about the government’s ability to revive the banking industry.

The efforts were part of the government’s major overhaul of the widely criticized financial rescue program.

The Fed said it would expand the size of a key lending program to as much as $1 trillion from $200 billion. The program, which has yet to begin operations, is designed to boost resources for consumer credit and small business loans.

The Fed said the program would be expanded to cover the troubled commercial real estate market and certain residential mortgages.

“Right now critical parts of our financial system are damaged,” Geithner said. “Instead of catalyzing recovery, the financial system is working against recovery and that’s the dangerous dynamic we need to change.”

Geithner said the loss of 3 million jobs last year, and another 600,000 just last month underscored the urgency for government action.

“It is essential for every American to understand that the battle for economic recovery must be fought on two fronts,” Geithner said in a speech in Treasury’s ornate Cash Room where he unveiled the administration’s new plan.

“We have to both jump-start job creation and private investment and we must get credit flowing again to businesses and families,” he said.

WASHINGTON- The Bush administration overpaid tens of billions of dollars for stocks and other assets in its massive bailout last year of Wall Street banks and financial institutions, a new study by a government watchdog says.

The Congressional Oversight Panel, in a report released Friday, said last year’s overpayments amounted to a taxpayer-financed $78 billion subsidy of the firms.

The findings added to the frustrations of lawmakers already wary of the $700 billion rescue plan, known as the Troubled Asset Relief Program. Congress approved the plan last fall, but members of both parties criticized spending decisions by the Bush administration and former Treasury Secretary Henry Paulson.

Financially ailing insurance giant American International Group, which the Treasury Department deemed to be too big to be allowed to fail, received $40 billion from the Treasury for assets valued at $14.8 billion, the oversight panel found.

In December, in response to questions from the oversight panel, Paulson wrote that the value of preferred stock purchased by the government was “at or near par,” meaning Treasury paid $1 for every $1 dollar of asset.

“The way the Treasury secretary described it does not fit with the numbers that were produced in our much more extensive valuation analysis,” panel chairwoman Elizabeth Warren told reporters Friday. “The secretary of the Treasury described it in December that these were par transaction and that is not supported by the numbers.”
 
The continued scrutiny comes as new Treasury Secretary Timothy Geithner prepares to place the Obama administration’s imprint on the program with a sweeping new framework for helping banks, loosening credit and helping reduce foreclosures. Geithner plans to unveil the changes Monday.

And while Paulson is gone and Geithner is in charge, the program itself remains in the hands of Neel Kashkari, a holdover from the Bush administration.

In December, Kashkari defended the Treasury purchasing strategy as bank stock prices dropped.

“We’re not day traders, and we’re not looking for a return tomorrow,” he said. “Over time, we believe the taxpayers will be protected and have a return on their investment.”

In a bright spot for the rescue program, the same banks that received capital infusions from Treasury have already paid $271 million in dividends to the federal government and are expected to pay $1.5 billion more in dividends by the end of this month. Wells Fargo, which received a $25 billion infusion, has already announced it would pay Treasury $371 million in dividends this month.

The oversight panel examined 10 transactions, including eight made under a capital purchase program designed to put liquidity into the banks in hopes of easing credit. That money went to banks considered “healthy” financially but in need of capital to make loans.

Two other transactions went to AIG and to Citigroup Inc. under programs designed to help companies that were facing serious financial difficulties.

Overall, the panel and the analysts it retained to conduct the valuation study found that the Treasury used taxpayers’ money to pay $62.5 billion more than the value of assets in the 10 transactions it examined. By extrapolating to the more than 300 institutions that received money, the panel concluded that the government in effect paid $78 billion more than the actual value of the assets at the time.

“Treasury chose to offer ‘one size fits all’ pricing in order to encourage all institutions to participate, and in so doing disregarded apparent differences in their financial condition,” the report states. “A consequence is that Treasury effectively offered weaker participants greater subsidies than it offered to stronger participants.”

Reacting to the panel’s conclusions, Treasury spokesman Isaac Baker said in a statement: “Treasury’s efforts since the fall prevented a systemwide collapse, but more needs to be done to stabilize the financial sector, increase lending and protect taxpayer dollars.”

He said the plan Geithner will announce Monday aims to free up credit, “while strengthening transparency and accountability measures so that taxpayers know where and how their money is being spent and whether it’s achieving real results.”

Senate Banking Chairman Chris Dodd, D-Conn., said the overpayment was sure to “raise eyebrows.”

“I can understand some gap,” he said. “No one is expecting perfection between the price you pay and what you think you’re getting. But that’s a pretty large disparity.”

WASHINGTON – The Senate has confirmed New York Fed chief Timothy Geithner to be President Barack Obama’s secretary of the treasury.

The 60-34 vote puts Geithner at the helm of Obama’s plan to rescue the economy from the worst financial crisis in three generations. It also dislodges one of Obama’s most troubled nominations.

Some senators were concerned that Geithner, who would oversee the Internal Revenue Service, did not pay all of taxes until he had been tapped to the president’s Cabinet. Geithner called it an unintentional oversight and settled his $42,702 overdue tax bill.

Obama and others supporting Geithner’s nomination said the nation couldn’t afford to wait for Obama to search for another nominee to run the Treasury Department.

WASHINGTON – Chief Justice John G. Roberts Jr. is a lucky man.

Yes, he fumbled his role at Barack Obama’s swearing-in Tuesday, hesitating and then misplacing the word “faithfully” when he administered the oath of office. And, yes, Roberts’ mistake was seen ‘round the world, sparking bizarre chatter on the Web about whether Obama was the lawful president.

To recap, Roberts was supposed to lead Obama through the oath that begins, “I do solemnly swear that I will faithfully execute the office of president of the United States…” Roberts, working without notes, said, “…that I will execute the office of president of the United States faithfully.”

It’s embarrassing, but here’s why Roberts is lucky: He got a do-over. He re-administered the oath Wednesday. No harm done.

Most people who mess up don’t get to wipe the slate clean the very next day. Second chances are a rare glory in life. Perhaps it’s schadenfreude, glee at another’s misfortune, but we seem all too eager to pillory other people’s mistakes, even though we pray they’ll overlook ours.

The White House maintained that the do-over wasn’t necessary but was done out of an “abundance of caution.”

“You know lawyers,” said White House press secretary Robert Gibbs.

Obama also probably wanted to nip in the bud all the jokes and noise over the mistake. His vice president, an irrepressible gaffe machine, had already made light of the chief justice.

Joe Biden was about to swear in senior White House staff Wednesday afternoon when he said, “My memory is not as good as Justice Roberts” – his jokey way of asking for a text of the oath. Some in the room laughed, but Obama’s mouth was a straight line.

A few hours later, Roberts stopped by the White House, put on his black judicial robe and gave the oath to Obama again. No muss, no fuss, not even a television camera to capture the 25-second do-over.

Obama was relaxed about the whole thing, quipping that he wanted to take the oath slow, and, no, he would not re-enact the rest of the day and go to series of balls.

Roberts isn’t the only one to feel the glow of a second chance this week.

New York Federal Reserve Bank president Timothy F. Geithner, Obama’s nominee for Treasury secretary, didn’t pay all his taxes a few years ago. A 2006 audit by the IRS found that he had failed to pay the self-employment taxes he owed in 2003 and 2004 when he worked for the International Monetary Fund. He paid up with interest.

But when Obama vetters started looking into Geithner’s background late last year for the Treasury post, they said he’d made the same mistake in 2001 and 2002.

Geithner said he’d made “careless mistakes” in not realizing he also needed to pay up for the earlier years. His do-over came at a cost. He had to pay $42,702 in back taxes and interest. Critics say he wouldn’t have bothered had he not been tapped to lead Treasury.

Geithner tried to blame the TurboTax software program he used to prepare his taxes, but the company said the software would have caught the error and red-flagged it.

Past Cabinet nominees with similar problems in their background have been derailed, but Geithner survived because the need for his expertise during the economic crisis is so great.

In some ways, every administration change brings policy do-overs.

Obama already has overturned some of the Bush administration’s most controversial policies. He signed a series of executive orders to roll back or institute new policies on ethics, lobbying activities by staffers after they leave the White House, transparency in government, interrogation techniques for suspected terrorists and conduct of the war on terror. He froze the pay of senior White House staff. He set in motion the process to close the detention center at Guantanamo Bay, Cuba.

Do-overs by executive order are quick and they show a new direction in the White House. But they’re easy compared with the hard work of making good on other promises – reforming health care, creating millions of jobs and restoring financial security.

For all that, Obama will need time and maybe a second chance or two.

(What do you think? Comment at mgwashington. com or e-mail mmercer@mediageneral.com)