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Hank Paulson's Prepared Testimony: More Alternative Universe Destruction
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Testimony by Henry M. Paulson Before the House Committee on Oversight and Government Reform
by Hank Paulson
Chairman Towns, Ranking Member Issa, and distinguished Members of the Committee.
I appreciate the invitation to testify before the Committee.
I was Secretary of the Treasury in 2008. In that role, I had the privilege to work with the many talented men and women in government and the private sector who labored to pull our nation back from the brink of disaster.
The decision to rescue AIG was correct, and I strongly supported it.
An AIG failure would have been devastating to the financial system and
the economy.
Today’s hearing relates to payments to AIG’s credit default swap
counterparties. I was not involved in any of the decisions made with
respect to those payments, nor was I involved in any of the decisions
about AIG’s public disclosure of those payments. Those matters were
handled by the Federal Reserve Bank of New York and the Federal Reserve
Board. They sought to make appropriate decisions on those matters, and
I am confident that this review will show that they did.
I have limited knowledge on the topic of immediate interest to the Committee, but I will share my observations.
The basic facts of the government’s involvement with AIG are well
known. I will recount them only in brief. On September 16, 2008, the
Federal Reserve Board, with the full support of Treasury, announced
that it was authorizing the Federal Reserve Bank of New York to lend up
to $85 billion to AIG pursuant to its authority under the Federal
Reserve Act. This loan was secured by AIG’s ownership interest in its
subsidiaries, and the U.S. government received a 79.9% equity interest
in AIG. Simultaneously, the CEO of AIG was replaced. In early October,
the New York Fed extended AIG another $37.8 billion in credit.
Unfortunately, these actions did not sufficiently abate the problems
at AIG. The company faced mounting losses, and it faced potential
ratings downgrades which would trigger tens of billions of dollars in
collateral calls which, without an equity infusion, would have led to
its failure—a failure that would have collapsed our financial system
and devastated millions of Americans.
To address these problems, on November 10, 2009, Treasury and the
Federal Reserve announced plans to restructure AIG’s finances. Treasury
announced that it would provide $40 billion from its TARP funds to
stabilize AIG’s capital structure, in return for senior preferred
shares in AIG and stringent restrictions on golden parachutes and
executive bonuses. At the same time, the Federal Reserve announced that
it had authorized the New York Fed to set up two facilities which would
handle certain AIG assets that were subject to the greatest risk of a
devastating collateral call in the event of ratings downgrades.
The combined actions of Treasury and the Fed were effective. Despite
AIG’s breathtaking third-quarter losses, the company did not fail, and
we avoided the disastrous consequences that would have accompanied such
a failure. Although the road to complete recovery is slow and
unemployment is still high, had AIG failed I believe we would have seen
a complete collapse of our financial system, and unemployment easily
could have risen to the 25% level reached in the Great Depression.
The rescue of AIG was necessary, and I believe that we in government
who acted to rescue it—including Secretary Geithner, Chairman Bernanke,
and me—acted properly and in the best interests of our country. The
reasons the rescue of AIG was necessary are well worth examining. I
believe they are representative of the causes of other aspects of the
crisis and indicate where regulatory reform is necessary. There are
three reasons we needed to intercede to save AIG that stand out in my
mind.
First, AIG was incredibly large and interconnected. It had a $1
trillion dollar balance sheet; a massive derivatives business that
connected it to hundreds of financial institutions, businesses, and
governments; tens of millions of life insurance customers; and tens of
billions of dollars of contracts guaranteeing the retirement savings of
individuals. If AIG collapsed, it would have buckled our financial
system and wrought economic havoc on the lives of millions of our
citizens.
Second, AIG was seriously under-regulated. Although, many of AIG’s
subsidiaries— including its insurance companies—were subject to varying
levels of regulation, the parent entity was, for all practical
purposes, an unregulated holding company.
Consequently, there was no one regulator with a complete picture of
AIG or a comprehensive understanding of how it was run. It was not
until AIG started to fail, that regulators began to understand how
badly managed it had been and how much the toxic aspects of parts of
its business had infected otherwise healthy parts. Third, AIG could not
be effectively wound down. Unlike failed depository institutions which
can be taken over by the FDIC with little or no harm to depositors, or
the GSEs which were seamlessly placed into conservatorship by Treasury
and the Federal Housing Finance Agency, there was—and is—no resolution authority available to
wind down a failing institution like AIG. The only option is
bankruptcy, a process that is simply not capable of protecting the
millions of Americans whose finances are intertwined with AIG’s.
The government rescue of AIG in the Fall of 2008 was directly shaped
by these realities. We had to protect the economy and the finances of
millions of Americans; we could not have anticipated the magnitude of
AIG’s problems; and we had no way of letting it fail without disastrous
collateral consequences. We had to intervene, and I am thankful that we
did.
I do not mean to say that I am happy that we needed to intervene.
Taxpayer money should not have to be spent to save a mismanaged and
misguided enterprise. But the fundamental problem lies not in how we
intervened, but in why we needed to intervene. We need to modernize our
regulatory structure by creating a systemic risk regulator and
resolution authority so any large firm that fails can be liquidated
without de-stabilizing the system. Large financial enterprises in this
country will always play a role that is essential to our economic
growth, but they must only be permitted to grow and interconnect
throughout our economy under careful oversight and with a mechanism for
allowing those connections to be broken safely.
Thank you, and I would be happy to answer any questions.
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Ok...
So when does Goldman Sachs and others pay back the difference between 100 cents and 50 cents ????
The world would have ended ????
Tell us more ....Prove it....
Show us the data model that led you to that conclusion.
BAILOUT OF AIG BY TREASURY AND FED THE WORK OF "ROGUE TRADERS"
The biggest financial bailout in history was not authorized by
Bernanke, FRB Chairman
Geithner, NYFRB President and CEO
Paulson, Treasury Secretary
Therefore it was UNAUTHORIZED and NOT AN OFFICAL ACT OF THE U.S. GOVERNMENT
I think Mark McGwire should get together with Hank on this one...'we're not here to talk about the past', 'mistakes were made', etc.
Ahem, and by "any large firm that fails can be liquidated" I think he meant "any large firm that fails can still make its debt holders 100% whole"
This makes senses now, took me forever to understand. So since they saved AIG, we have a boat load of problems/ job losses. http://www.dailyjobcuts.com ... clearly stated here.
But if we didn't save AIG then we would of had job growth, and everything would be good?
I'm So confused hehehehe, I guess I will have to wait till the State of the Union tonight to explain this to me. I'm sure after tonight I will feel much better
It's like the stimulus, with it we have 10% unemployment, without it we would have had 8.5% unemployment, er, ah, I mean they saved, created so many jobs, uh anyways just look at their website for that info, it just hasn't been updated since October 2009.
Stammering Hank is denying having any involvement in the public disclosure of the AIG bailout. Sure, Hank didn't worry about public disclosure, he robbed us in broad daylight and declared he saved us from financial armegeddon, meanwhile, Bush was counting down the days.
Hank may as well plead the 5th, they'll get as much info out of them as they did the Salahis.
Liar, Liar........pants on fire'r!!
Simultaneously, the CEO of AIG was replaced.
Yes, and who authorized that, Hank? Why was the CEO replaced with a Goldman man?
1) Weren't the insurance policies and products issued by AIG adequately reserved and segregated? If so, is it accurate to say that "millions of Americans" would have been harmed by the collapse of AIG?
2) What is wrong with the bankruptcy code that AIG was too big to be unwound in an orderly fashion? Did anyone even seriously examine the possibility of a bankruptcy proceeding?
What is needed here is an exact accounting of what the true liabilities of AIG and its counterparties were, not just some doofus's assertions that the sky would fall if all parties were not made whole. I'm not buying that and I'm pretty sure nobody else is at this point. That fact is, and its been said here on this blog many times before, the United States of America is now a fascist oligarchy where the assets of the elite are protected at the expense of everyone else. The criminals at the root of these frauds must be brought to justice. Oh, I forgot, the laws have been written to protect fraudsters and not the defrauded.
well said.No rules anymore, revolution is coming.
My suggestion : make a default on US debt, nationalize banks. I know the desastrous consequences of that step but it could perhaps set a new ground ground for a healthy economy (in the long term of course).
TO:XAMAX
Eventually such speech as yours will be determined to be "financial terrorism"
the groundwork has been established that the health and welfare of GS is a paramount matter of national security.
As an "enemy", potentially more a threat to national security than Al Qaeda, you can, therefore, be "eliminated" without delay or review...you will just disappear as the enemies of the military dictatorship in Argentina disappeared in the 1980's.
In response to a question about the targeted assassination of U.S. citizens,
The Obama administration has adopted the same stance [as the Bush administration]. If a U.S. citizen joins al-Qaeda, “it doesn’t really change anything from the standpoint of whether we can target them,” a senior administration official said. “They are then part of the enemy.”
http://firedoglake.com/2010/01/27/obamas-growing-war-in-yemen-includes-n...
...the United States of America is now a fascist oligarchy where the assets of the elite are protected at the expense of everyone else."
Yes we are, in fact, a BANANA REPUBLIC!
They are all using the same speechwriter.
Tyler's last question is the main one: If the guy in charge is never in charge of anything important, even when the issues are so, SO, so very important, who, exactly, at any given point, are the taxpayers paying to do any given job? Can these guys just always say they were "recused" or that somebody else was handling stuff that didn't turn out right? Does it not matter simply on whose watch "mistakes were made"? And now that people are telling us we're through the worst and everything they did worked like clockwork, is it really a risk to just get rid of them? Now that we no longer need superheroes?
Whew!!!! If AIG would have collapsed "it would have buckled our financial system and wrought economic havoc on the lives of millions of our citizens"
Thank you Hank, Timmy & Ben. I feel so much better now. I had it all wrong, my apologies kind sir.
This statement says nothing, other than the Traitor Paulson, Goldman mole that he was and is to this day, deflecting blame away from himself and pointing at Timmah. Hank is the ultimate sack of lying, treacherous, duplicitous shit. " . . a failure that would have collapsed our financial system and devastated millions of Americans." Fat chance, Hank.
"There are three reasons we needed to intercede to save AIG that stand out in my mind." I see one (AIG was big) and two (Gosh, it was unregulated), where's three?
"The only option is bankruptcy, a process that is simply not capable of protecting the millions of Americans whose finances are intertwined with AIG’s." The super-thin "protect the ma and pa policy holders" defense, same as proposed as Timmah, is nothing more than an excuse manufactured after the fact. Would be child's play to pierce, if someone asked the right questions.
". . . had AIG failed I believe we would have seen a complete collapse of our financial system, and unemployment easily could have risen to the 25% level reached in the Great Depression." Not really, not by any stretch of the imagination, Hank. What you mean is that if AIG's financial products unit had failed, your bosses at Goldman and their compatriots elsewhere would have lost scads of money, and been ruined. Ladies and gentlemen: let me assure you of something. The sky would not have fallen that day, but it would have appeared so to Blankfein and many other banksters. But only to them. Insurance policies and annuities would not have been damaged.
In my refrigerator there is a block of swiss cheese with less holes in it than hank's statement!
Am I missing something? Nobody has said how AIG going bankrupt would of have devastating effects on the economy?
When your entire worldview consists of what's good for the banks is good for the "people" then yes of course aig's failure (which would have hurt the almighty gs) would have been bad for your 'people".. Too bad that worldview is so ass backward retarded, he should die in a fire and be out of his retarded misery (and ours).
If they really believed they'd done a good thing and saved the US economy from disaster they wouldn't all be scuttling to avoid having anything to do with the decision.
The fact that all of them are trying to wheedle out of any knowledge, never mind responsibility, just shows that they all know it was a crime, not a heroic act
If they "saved" the economy, I want them to prove it with cold hard facts. All they have claimed so far is a cleverly crafted opinion that carried over to mainstream media... and it got good mileage.
Bernanke, Paulson, and Geithner all had general knowledge of the AIG bailout-- and all had the authority to block these proposals to protect the taxpayer. They supported these proposals knowning full well the moral hazard effects-- many Fed staffers apparently knew.
These guys are not leaders-- they are crooks trying to cover up some incredibly selfish decisions. As such, President Ombama and our Congressional leaders are complicit in this raping of the public by backing these goons.
My hope is that is does end badly... but it may need to come through the voting booth, as these guys cannot seem to police their own. What a sad, sad state of affairs.
What makes it so clever is that it can't be proven false. There's no way anyone can state for sure what would've happened if AIG had bankrupt.
How bout this one....I can say for sure Goldman would have been bankrupt....connect those dots.
"it would have buckled our financial system and wrought economic havoc on the lives of millions of our citizens"
The millions out of work have to be wondering if they are chopped liver. They don't count?
Our financial system looks pretty buckled. It is only sort of semi-functioning as long as they make dollars with computers faster than printing presses could ever have done and hoard them to cover up the loss of real capitol in a deflationary spiral. The banks are not loaning and the public is broke.
So what exactly did we gain? How could it be worse? Oh yeah - BANKERS could be out of a job. Thank God for preventing that huh?
Bullshit. The whole blogosphere knew AIG was in trouble no later than December, 2007, when it held its disastrous "analyst day."
Move on, there's nothing to see here. Come on. The US must borrow over $2.5 trillion this year with Jimmy and Bennie in the lead. The idea that anything will happen today or that Bennie will not be confirmed is a joke. Also these guys are part of the financial mob who will protect each other to the death. They know the secrets that if disclosed would bring the Rothchild, Rockerfellow, GS, Bush, Clinton, etc. down. That will never happen.
GREATEST DEPRESSION dead ahead! Hyper-Inflation!
Geithner's testimony is an embarassment. People sitting behind him are laughing. Kanjorski saying that the constitution was threatened if the fed and treasury didn't take the actions they did. This is appalling, these congressman trying to give him cover.
Burton hit Geithner hard. Geithner said didn't make decisions after 11/24 when nominated for treasurer, then Burton produced an email from 11/11.
Bury Hank. Only outlaw actions can extract justice.
You will see the untouchable nature of the financial elite in today's "proceedings" which are nothing more than Kabuki Theater.
Paulson is the most likely to do time over this. His cheerleaders or handlers are gone from public office, the Goldman guys would let their grandmothers hang for a dollar, the FED is pretty much untouchable and I’m sure have destroyed their tracks going way back to the Greenscum era.
I seem to recall Paulson having insisted upon immunity from prosecution for any decisions he made regarding the handling of $700B. Struck me as "telling" at the time, and was incredulous that anyone could remotely consider agreeing to it.
Unless that did provision was not included in the final version??? Anyone recall?
I seem to recall Paulson having insisted upon immunity from prosecution for any decisions he made regarding the handling of $700B. Struck me as "telling" at the time, and was incredulous that anyone could remotely consider agreeing to it.
Unless that did provision was not included in the final version??? Anyone recall?
He's reading his "statement" now.
What a fucking asshole.
Let's watch to see if he checks his watch during the testimony like he did last time.
"Are we through yet? I need to go back to being rich and un-indictable"
Nothing but lies. Hank had the power to make Goldman a bank with his magic wand but not AIG. Further, a system was/is in effect for insurance companies in financial stress, ie the state dept of insurance takes control in conservativeship. Was good enough for Fannie and Freddie but not AIG? Crooks, plain as day.
We need to spend our time dissecting the problems with Wall Street and their role in the 2008 destruction rather than the cleanup by Bush or Obama. Why can't we look at the substance rather than the political. And yes I know many political decision led to the brink, but it was Goldman, JPM, etc that pulled the strings and timing of those strings.
Example: why haven't we investigated all the insider knowledge regarding Bear Sterns---not hard to figure out who bought all those $20 Puts a couple weeks from OE.
It's amazing that with something this dangerous and this destructive to the economy that someone in Mr. Paulson's position would not immediately grab the responsibility to guide it to a safe conclusion.