WASHINGTON (AP) — President Barack Obama has saluted the outgoing Timothy Geithner as one of the best U.S. Treasury secretaries ever. He's surely been among the most contentious.
Not since the Great Depression had an administration inherited so many grave financial threats at once. To many, Geithner deserves credit for helping steady the banking system and helping restore investor confidence. Yet his toughest critics say Geithner's policies consistently favored big banks over ordinary struggling Americans.
When Geithner became Treasury secretary in January 2009, the economy had sunk into a deep recession. Unemployment was surging. Stock prices were sinking. The financial system was teetering.
Geithner, whose last day in office is Friday, was an administration point man on all these issues. Here's a look at some of the crises the Treasury confronted on his watch:
— BANK BAILOUTS
In the bleakest days of the financial crisis in 2008, the Bush administration got Congress to approve a $700 billion government bailout fund: the Troubled Asset Relief Program, or TARP.
By the time Geithner took office, billions had been handed out to the biggest banks. Many were considered at risk of failing because of their huge investments in subprime mortgages that were souring.
Opponents charged that TARP, a taxpayer-funded bailout, let banks evade responsibility for reckless gambles. Geithner countered that the banking system had to be stabilized. The bailout was deemed necessary to get credit, the essential lubricant for an economy, flowing again.
In the end, the banking system was bolstered with the help of TARP and a separate Geithner initiative requiring the largest banks to undergo "stress tests." The tests calmed investors by showing that the banks could withstand an even worse downturn.
TARP distributed $245 billion to banks. So far, it's brought back $268 billion for a return of $23 billion.
Critics argue that under Geithner, the government failed to ensure that banks would use their TARP money to lend more to businesses and homeowners.
Geithner's approach won't prevent future crises, opponents further argue. They say big banks still feel free to make risky bets because of an implicit guarantee: that if their gambles fail, the government will save them, and the banks' executives won't be held accountable.
"Secretary Geithner protected the interest of the largest financial institutions, and we will pay a very heavy price for that," said Neil Barofsky, who was the government's top watchdog for TARP.
Many private economists are less critical. They say Geithner achieved the fundamental goal of stabilizing the U.S. financial system without damaging the economy.
"The effort was a success and vitally necessary for ending the Great Recession and starting a recovery," said Mark Zandi, chief economist at Moody's Analytics.
— AIG BAILOUT
Geithner and the administration endured intense criticism for giving bailout aid outside the banking system to American International Group.
The insurance giant represented everything the public detested about the government bailouts: Its rescue was the costliest at $182 billion. It spent $440,000 on spa treatments for executives only days after its rescue. It gave millions in bonuses to top executives, including those who'd made the risky bets that had unraveled AIG.
Geithner, who led the Federal Reserve Bank of New York before heading Treasury, was involved in the decision to save AIG in September 2008 and oversaw its bailout as Treasury secretary. Some of the rescue money went to fully repay banks that had invested in AIG. Critics called this a giveaway to banks that should have had to accept less than full payment.
Geithner and Federal Reserve Chairman Ben Bernanke have said that letting AIG fail would have threatened the entire U.S. financial system, in part because of AIG's outsize role in selling credit default swaps. These swaps were insurance-like guarantees on mortgage bonds. They required AIG to pay billions once the housing market went bust.
Supporters note that the government ended up profiting on its investment. AIG has repaid all the bailout money, and the government made $22.7 billion more than it provided.
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