Geithner says will work with Congress on bailout costs

By David Lawder

WASHINGTON (Reuters) - Acknowledging that U.S. financial bailout costs may rise, Treasury Secretary Timothy Geithner on Tuesday said the Obama administration will work with Congress to determine the size and shape of future rescue efforts

In testimony before the U.S. House of Representatives Ways and Means Committee, Geithner said a $250 billion "placeholder" provision in Obama's budget plan for additional financial stability costs did not represent a specific request.

The fiscal 2010 budget "acknowledges that, as expensive as it already has been, our effort to stabilise the financial system might cost more," Geithner said in prepared remarks..

The placeholder, which would allow the Treasury to purchase $750 billion in financial sector assets, will "help ensure we can cover any additional financial stability costs."

This amount would be in addition to the $700 billion that the U.S. Treasury is spending through a financial rescue fund approved by Congress in October. That fund is more than half spent or committed.

As more information becomes available, the Obama administration will estimate those costs and work with Congress to determine the appropriate size and shape of the efforts, Geithner said.

He defended a deal made over the weekend to prop up staggering insurance giant American International Group with up to another $30 billion in taxpayer funds, saying that allowing the company to default on its obligations would cause "catastrophic damage to the American people."

He said the global financial situation has dramatically worsened since AIG was first rescued in September 2008 and this has put more pressure on the economy and AIG.