WASHINGTON — Former top regulator Timothy Geithner defended terms of the U.S. government’s bailout of American International Group Inc., saying Wednesday that the insurance giant’s exceptionally risky behavior had caused losses that called for strict treatment.
The terms included a huge government stake in the company and an interest rate called “crazily high” by a government official.
Geithner headed the New York Federal Reserve when it extended an $85 billion rescue loan to AIG in September 2008 as the company veered toward collapse.
In trial testimony, Geithner said he and his colleagues at the Fed and the Treasury Department believed that AIG’s dire financial condition was “substantially” the result of its management taking on excessive risk.
AIG buckled after making huge bets on mortgage securities that soured. The government stepped in with a total of nearly $185 billion in aid.
It was the second day of questioning for Geithner in the trial of a lawsuit brought by former AIG Chairman and CEO Maurice Greenberg. Greenberg is suing the federal government for about $40 billion in damages, asserting that it violated the Constitution’s Fifth Amendment by taking control of AIG without “just compensation” for the shares it received.
