Paulson to testify that AIG bailout was correct

“The decision to rescue AIG was correct, and I strongly supported it,” Paulson said in prepared remarks. “An AIG failure would have been devastating to the financial system and the economy.”

{mosads}Paulson will testify before the House Committee on Oversight and Government Reform, which has been investigating the bailout of AIG and the decision by Federal Reserve officials to pay out $62 billion to counterparties of troubled derivatives contracts with AIG. Those counterparties included major American and foreign banks.

Investigators are looking at why government officials did not pressure the counterparties to accept less than the full value of the contracts and why there was not more public disclosure about the transactions.

Reps. Edolphus Towns (D-N.Y.), the panel’s chairman, and Darrell Issa (Calif.), the panel’s top Republican, are expected to grill Paulson, Treasury Secretary Timothy Geithner and current and former Fed officials. Geithner was head of the New York Fed at the time of the bailout, but he maintains that he recused himself during the negotiations over disclosure.

Paulson said in his prepared remarks that he was not involved in the payments to AIG’s credit default swap counterparties or the questions surrounding public disclosure. Those were matters for the Federal Reserve, Paulson will say.

“We had to protect the economy and the finances of millions of Americans; we could not have anticipated the magnitude of AIG’s problems; and we had no way of letting it fail without disastrous collateral consequences,” Paulson said in testimony.

Paulson will say that he, Geithner and Federal Reserve Chairman Ben Bernanke all acted appropriately.