Geithner: Legislation Won't Lead To More Bailouts

ANNE FLAHERTY

WASHINGTON (AP) — Treasury Secretary Timothy Geithner said Thursday that giving the government the power to dismantle mammoth financial firms like Lehman Brothers will prevent future bailouts.

In a House hearing, Geithner refuted angry claims by Republicans and at least one Democrat that the proposal would create a category of firms deemed so big and influential to the broader economy that they wouldn't be allowed to fail.

"The only authority we would have would be to manage their failure," Geithner told the House Financial Services Committee.

The Obama administration and Rep. Barney Frank, the panel's chairman, want legislation that would enable federal regulators to identify and monitor big financial firms and step in to wind them down before they collapse.

Regulators have a similar authority with traditional banks but were powerless last year when investment bank Lehman Brothers and insurance giant American International Group teetered on the brink of collapse.

The government allowed Lehman Brothers to fail, helping to trigger the worst financial crisis in seven decades as nervous investors withdrew funds from money markets and credit lines froze. When it came to AIG, the Bush administration decided instead to swoop in with a hefty government bailout.