Henry Paulson, the former treasury secretary, said he talked with China about helping bail out financial firms in 2008, in the first discussion of the rescue scheme in a court with two other plan architects to follow.

Paulson’s testimony of less than half a day left lawyers scrambling for witnesses because Timothy Geithner, the head of the New York Fed in 2008, wasn’t available yet. The federal court in Washington adjourned until the afternoon.

Geithner and Ben Bernanke, the former chairman of the Federal Reserve, are scheduled to testify about the fairness of the bailout of American International Group Inc. Maurice “Hank” Greenberg’s Starr International Co. sued claiming the government’s taking of equity in return for an $85 billion loan to AIG amounted to illegally gaining control of the company without proper compensation.

In AIG’s case, Paulson said he didn’t think the Chinese would be interested in a deal without a government guarantee.

“The government couldn’t provide that assurance,” Paulson said. “The Chinese were very, very nervous” about investing in U.S. firms at the time, he said.

In last year’s Netflix documentary “Hank,” Paulson discussed how he persuaded banks, Congress and presidential candidates to sign off on almost $1 trillion in bailouts. Geithner has written a book — “Stress Test” — about dealing with the financial, economic and housing crisis that plunged the U.S. into the worst recession since the 1930s. None of the three had been grilled by a hostile lawyer in court over their decisions.

High Interest

Starr, AIG’s largest shareholder at the time of the bailout, claims the government punished AIG by demanding equity and imposing an an interest rate on the loan of, in effect, 14 percent, far higher than interest other bailout recipients, such as banks, had to pay. Starr International is seeking at least $25 billion in damages for shareholders.

Paulson said in response to questioning by David Boies, a lawyer representing Greenberg, that AIGwas treated “harsher” than others and he has “a reason why that was appropriate.”

Boies concluded his questioning of Paulson after only about 75 minutes. The trial’s first witness, Scott Alvarez, the general counsel of the Federal Reserve, was questioned for several hours by Boies and spent a total of more than 13 hours on the stand.

Boies didn’t draw much out of Paulson regarding how the government arrived at the terms for bailing out AIG. Paulson said he didn’t recall many of the details of the rescue package.

The case is being heard by U.S. Court of Federal Claims Judge Thomas Wheeler.

Wheeler has rebuked government attorneys for attempting to rely on hearsay testimony, introducing exhibits in violation of trial rules about redactions, and dragging out proceedings by reading lengthy passages from documents.

The case is Starr International Co. v. U.S., 11-cv-00779, U.S. Court of Federal Claims (Washington).

Topics USA China AIG