Geithner, under fire, defends AIG bailout

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US Treasury Secretary Timothy Geithner on Thursday defended the costly bailout of insurer AIG and urged swift regulatory reform to safeguard the economy from the failure of big financial firms.

Before Congress' Joint Economic Committee, Geithner faced fierce criticism of his role in the rescue of American International Group Incorporation in 2008, when he was president of the New York Federal Reserve Bank.

Geithner said AIG's failure posed as significant a risk to the economy as the collapse of investment bank Lehman Brothers, which sparked a panic that froze global trade and threatened to topple the entire financial system.

"The United States of America came into this crisis without anything like the basic tools countries need to contain financial panics," he said. "Coming into AIG, we had basically duct tape and string."

The AIG bailout has become a symbol of outrage over the failings of Wall Street and the government's USD 700 billion bailout fund, complicating the White House's efforts to get a regulatory reform bill passed.

Congress has been wrangling over how best to revamp financial rules to give the government tools to prevent another crisis, while striking the right balance between clamping down on risky lending and hampering the flow of credit.

The U.S. House of Representatives Financial Services Committee has been working on a bill for weeks, and the Senate Banking Committee kicked off a similar effort on Thursday.

Senator Richard Shelby, the top Republican on the Senate panel, said he would not support a bill put forward by Senator Christopher Dodd, the Democrat who chairs the committee, and called for a "complete rewrite."

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Geithner said because the United States had no authority to seize and wind down complex financial firms that were in danger of collapse, it had no choice but to step in when the failure of AIG appeared imminent in September 2008.

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