After watching Tim Geither get torn a new one by the House today, I couldn't help but put into question the validity of some of his answers - especially of those relating to the Fed's repayment of AIG's swaps to counterparties such as Goldman Sachs and other big banks.

Geither asserted that when deciding what to do, the Fed "had no choice" but to pay back the swaps at 100 cents on the dollar, or else face the collapse of AIG and, in turn, the entire financial system. Now, it may well be true that if AIG wasn't able to honor its CDS contracts, it would have been faced with a credit rating's downgrade - losing investor's confidence in it's operations and making it much more difficult to raise capital - and eventually forcing it to file for bankruptcy. But my question is, was there another solution to this problem that would ensure AIG's viability, while at the same time honoring the counterparty swaps at a more realistic price? I understand that nobody at the time (and nobody still, for that matter) had any idea how to value these securities, but 100 cents on the dollar does seem ridiculous - these swaps clearly lost substantial value from when they were originally bought.

Geithner said that there was no alternative solution to what the Treasury and the Fed ended up doing, aside from letting AIG fail. A Congressman from Massachussetts replied that he believed they had to have other choices as there had to be "increments" between the two extremes (ie. haircuts). Were there, in fact, other viable options, or were Geithner, Paulson and co. simply trying to help out their buddies on the Street while using the seemingly easiest way to keep AIG afloat?