Geithner testimony brings back memories of AIG’s bad old days by Jennifer Liberto @FortuneMagazine October 8, 2014, 8:05 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Tuesday marked the first time former Treasury Secretary Timothy Geithner has ever testified in court about the financial crisis bailouts. The former New York Federal Reserve chief took the stand on Tuesday in federal claims court in Washington to describe the decisions leading up to the original $85 billion bailout of American International Group. He discussed in depth the events of September 2008, when the government took over some 80% of the insurance company at the height of the financial crisis. Geithner’s testimony is part of a shareholder lawsuit against the U.S. government that claims that AIG’s AIG bailout was unfair, overly punitive, and overstepped the Fed’s legal authority. The lawsuit pits the federal government against former longtime AIG CEO Maurice “Hank” Greenberg, who was AIG’s largest shareholder at the time of the crisis through his Starr International Corp. The case will be decided by U.S. Judge Thomas Wheeler in the U.S. Court of Federal Claims in Washington. There’s no jury, which may have played a role in how the much-criticized case got this far. Anyone who remembers much about the financial crisis would think Greenberg and his powerhouse trial attorney David Boies are nuts for attempting to suggest AIG got a raw deal in what was definitively the least popular bailout in America. But after Geithner’s testimony on Tuesday afternoon, they don’t look so crazy anymore. Geithner spent much of his time on the stand walking back boasts he had previously made about how tough the government had been on AIG in his book, Stress Test: Reflections of Financial Crises, as well as in plenty of speeches and interviews over the past six years. All that time and effort Geithner spent as Treasury Secretary—where part of his job was to convince the public that the federal government put taxpayers’ interests first, particularly with the much-maligned AIG bailout—is now helping Starr International build a case that the government was out to get AIG, shareholders be damned. Meanwhile, the Department of Justice needs Geithner to help them demonstrate that the AIG bailout was appropriate, especially considering the alternative would have been to walk away and leave AIG, Starr, and Greenberg to fend for themselves in bankruptcy court, where they might have fared worse. If the government loses, the taxpayers could end up owing Starr International, Greenberg, and other shareholders in the class-action suit more than $40 billion. (The total AIG bailout, which topped $180 billion, has since been repaid.) Geithner started his testimony calmly answering questions posed by Boies in grammatically complete sentences, not his strength under pressure. For example, he explained why his team set different interest rates on different bailouts to different Wall Street banks and AIG. He also said for the umpteenth time that he considered the failure of AIG potentially catastrophic to a financial system in freefall. But Geithner was not as steady later in the day, when Boies asked him if he had ever said the federal government “wiped out” AIG shareholders in the bailout. Geithner answered that while he may have said that, “it wasn’t completely true because the equity holders were still provided with a very substantial benefit.” Later in the day, Boies asked Geithner whether he considered Citigroup C and Bank of America BAC insolvent during the height of the financial crisis, trying to make the point that the two banks were in as bad shape as AIG was but nevertheless got better deals. He pointed to preparation notes that Geithner had made to write his book, where he said: “Certainly Citigroup and Bank of America were insolvent.” Geithner tried to clarify on the stand that the banks “certainly needed substantial support. If people want to say that’s insolvency, maybe it is.” In one of the funniest moments of the trial, Boies asked Geithner about a phone call he received from his client, Maurice “Hank” Greenberg on Sept. 15 2008. Greenberg wanted a “seat at the table” in discussions about how to help AIG. Geithner declined. Boies asked Geithner if he held Greenberg in “high regard.” His response? “I [pause] I had a [pause] a high regard but I would say a complicated regard for him. Just to be honest about it.” Geithner finished testifying on Wednesday. Up next, former Federal Reserve Chairman Ben Bernanke.