“Certainly Citi and B. of A. were insolvent.” former U.S. Treasury Secretary Timothy F. Geithner (during the book interview), New York Times
A.I.G. Trial Puts Geithner, and His Book, on Hot Seat
Timothy Geithner, former president of the New York Fed, arriving at court before testifying in a suit brought by A.I.G.’s former chief.Credit Alex Wong/Getty Images
So often did parts of his book, “Stress Test,” come up during Mr. Geithner’s testimony at the trial of a lawsuit against the government over its bailout of the American International Group, that at one point Justice Department lawyers suggested the entire book should be submitted as evidence. And it was.
David Boies, the lawyer for Maurice R. Greenberg, the former A.I.G. chief executive, who has sued the government for $40 billion claiming the Federal Reserve shortchanged shareholders in 2008pulled out copies to give to the Justice Department’s lawyers and Mr. Geithner. Mr. Geithner sat on the stand with a half-amused, half-nervous look.
Mr. Boies and his team had their own prop, too: The television displays in the courtroom shone with a black-and-white image of the cover, complete with a sticker that read “Autographed.”
Timothy Geithner, former Treasury secretary, testified in a lawsuit brought against the government over its bailout of A.I.G.Credit Win McNamee/Getty Images
The hardcover handouts prompted the presiding judge, Judge Thomas C. Wheeler of the United States Court of Claims, to interject dryly: “Do you have a copy for court, or should I visit Barnes & Noble?”
But while the scene of Mr. Geithner sitting in the witness box frequently holding a copy of his own book, paging through with the help of some stylish reading glasses, struck some in the courtroom as a bit farcical, the strategy by Mr. Greenberg’s legal team was carefully orchestrated.
Mr. Greenberg’s side believes that much of what Mr. Geithner has said in his book — and which he consequently cannot dispute during the trial without hurting his own credibility — helps the shareholders’ case, according to people briefed on the legal strategy. Mr. Greenberg’s lawyers also obtained transcripts of the unpublished interviews the former Treasury secretary gave to people assisting him with putting together “Stress Test.”
The transcripts were frequently referenced, as Mr. Geithner was peppered with questions about his role in the A.I.G. bailout in 2008. Mr. Geithner was then president of the Federal Reserve Bank of New York — arguably the most important player in the financial crisis after the Fed chairman, Ben S. Bernanke. (Mr. Bernanke is scheduled to take the stand on Thursday.)
Under questioning from Mr. Boies, Mr. Geithner said the aftershocks from the collapse of Lehman Brothers were “very much on my mind” during those critical days in September 2008, and that the subsequent failure of A.I.G. would have been “catastrophic” for the economy, possibly “even more damaging” than Lehman.
While Mr. Geithner mostly concurred with his previous statements, he also struggled at times to explain his own words — seemingly boxed in by judgments he uttered as part of his book.
At one point, Mr. Boies zeroed in on the idea of whether some banks that were “insolvent” were given more lenient loan terms than A.I.G. (The plaintiffs argue that A.I.G. at the time was solvent, but suffering from a liquidity crisis; the government disagrees.) Using one of Mr. Geithner’s unpublished book interviews, he raised the subject of Citigroup and Bank of America, two banks that received bailouts in the crisis.
“Certainly Citi and B. of A. were insolvent,” Mr. Geithner had said during the book interview.
The two men then engaged in a lengthy back-and-forth over the definition of “insolvent.”
During more than six hours of testimony, Mr. Geithner’s was not the only book introduced. The other volume was the secretive compilation of the Federal Reserve’s legal powers, known internally at the central bank as the “Doomsday Book,” which has never been made public.
When Mr. Boies moved to introduce two of the editions of the book into evidence, the New York Fed’s own lawyer, John Kiernan, sprang up from the gallery to chime in: The Fed wanted the “Doomsday Book” kept strictly under seal.
Judge Wheeler determined he would let the editions into evidence under a temporary seal, until a hearing to determine whether they should stay that way. Mr. Boies did not appear to mind if most of the contents remained secret, as long as he could ask Mr. Geithner certain questions that related to the Fed’s texts.
Mr. Geithner testified on Tuesday that while he had seen the “Doomsday Book” while president of the New York Fed, he felt some of what had been done in the past — dating to the Great Depression in the 1930s — was not necessarily what was needed to solve the 2008 crisis.
“We were operating outside of the boundaries of established precedent,” Mr. Geithner said.
As the trial continues, the civil case, which will be decided by the judge, may rest on whether he believes that the Fed acted within its authority under the Federal Reserve Act in imposing certain terms on A.I.G.’s loan, or if it stepped over the legal line.
Mr. Geithner, whose testimony will continue on Wednesday, at one point summed up what he believed was the biggest problem with federal regulations leading up to the financial crisis: that it occurred outside the traditional banking system at places like Fannie Mae and Freddie Mac, the investment banks, and of course, A.I.G.
“It was a failure of the country to put in place a system to constrain risk-taking,” Mr. Geithner said. “Risk migrated to places where constraints did not exist.”