Highlights: Geithner's Senate testimony on the budget

WASHINGTON (Reuters) - The following are highlights of U.S. Treasury Secretary Timothy Geithner's testimony on Wednesday to the Senate Finance Committee on the Obama administration's proposed fiscal 2010 budget.

GEITHNER ON 'PLACEHOLDER' IN BUDGET FOR MORE RESCUE FUNDS:

"This is not a request to the Congress. It's not an estimate of the potential future cost. It's just a recognition of reality that it's possible we're going to need to do this with more resources, and so we wanted to put in the budget -- an abundance of caution, like we'd do for other types of expenditures, wars and natural disasters -- a placeholder..."

Asked why the placeholder is just for the possible loss of $250 billion, rather than the $750 billion in potential investments envisioned, Geithner said: "What matters in the budgetary context, again, under the established procedures by (the Congressional Budget Office) ... is the estimated subsidy cost associated with those types of investment. So, we're doing what I think is conventional good budget accounting."

GEITHNER ON INTEREST RATE SPREADS:

"Mortgage rates are lower. The spreads between mortgage rates and Treasuries are still at, in some areas, at abnormally high levels and we would like to continue to find ways to bring those spreads down. That would be very beneficial to the broad objective we share."

GEITHNER ON THE NEED TO RESCUE AIG:

"The world has gotten dramatically worse since September of 2008. You're seeing that across the financial system, across insurance companies generally. The world is more fragile today, even than it was then. Therefore the consequences of allowing a disorderly failure of AIG would be at least as damaging today as they were then. It is our judgment that the best way to protect the American economy from that risk is to stabilize this institution and let it be in a position where it can pursue a restructuring over time that leaves us and taxpayers better off. That's why we have done this because of those broader benefits and we believe that is the least cost way to protect the economy from that."

GEITHNER ON NAMING ADDITIONAL TREASURY NOMINEES:

We're making some progress. We hope to come before the committee soon with a full slate of very strong people. We're doing this carefully, as you would expect, to try to make sure we have the best talent in the country.

GEITHNER ON AIG:

"The biggest effects (of not bailing out AIG) would have been on the direct counterparties to the affiliates of AIG that sold a bunch of credit protection. The biggest effects and the most troubling effects, like we saw with Lehman, but they would be bigger in this case, would have been on broader confidence in the financial system, in asset values, in interest rates and in willingness of people to take risk in exposure to financial institutions. That would have caused much damage. That's harder to quantify, but in the case of AIG it's important because millions of Americans here and around the world depend on AIG for insurance policies and a range of different types of savings products. The judgment your government made in that context was the right judgment because the effect on confidence would have been more dramatic, more dramatic than even in the case of failure of a major investment bank."