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Busch: The Gomer Pyle AIG Outlook

Timothy Geithner
cnbc.com
Timothy Geithner

Today, we have the financial odd couple of current US Treasury Secretary Tim Geithner and former US Treasury Secretary Hank Paulson testifying in front of Congress on the AIG bailout.

At 10:00 am, they will testify before the House Committee on Oversight and Government Reform and discuss in detail the steps the government took to rescue AIG and how the consequences of AIG failing at that time, in those circumstances, would have been

catastrophic for our economy and for American families and businesses" according to the US Treasury. (Note: you can watch the hearing live on CNBC.com)

The FT says that Republicans on the House oversight committee are accusing the New York Fed of a “cover-up” after reviewing thousands of pages of e-mail traffic between officials discussing the decision to pay $27.1bn, equivalent to par value, to banks led by Société Générale and Goldman Sachs that had bought credit default swaps from AIG.

The markets should anticipate a vigorous defense of their actions during today's political theatre.

What-did-they-know-and-when-did-they-know-it will be the over-arching theme of the questions. According to the US Treasury Department, Geithner was recused from "working on issues involving specific companies," including AIG after he was nominated on Nov. 24th, 2008, for the US Treasury Secretary.

This was the point I made yesterday with Larry Kudlow on CNBC.

However, this will boil down to decisions made during the height of the financial panic and what was the best path to stabilizing the markets.

Geithner has decided to release his testimonyearly to allow for all to see and review. In it, he denies any cover-up allegations: "I had no role in making decisions regarding what to disclose about the specific financial terms of Maiden Lane II and Maiden Lane III and payments to AIG counterparties," Geithner said, referring to Fed investment vehicles that bought securities from the banks according to Reuters.

I think Paulson will also be on the hot seat not only for his role, but also because of his connection to Goldman Sachs . Again, this will be great theatre with the requisite red faces of disgust and disdain for Geithner and Paulson from members of Congress.

The most important element of the testimony for the American public will be the acknowledgement from Geithner that "Taxpayers are unlikely to get back all money pumped into AIG." As Gomer would say, "Surprise, surprise, surprise."

After all the smoke has cleared, this will be the one fact that will be undisputable.

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Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.