A Tax Cheat's Last Stand

From Tim Geithner's testimony, presumably not prepared on TurboTax. Presented without commentary but with some bolding.

The steps the government took to rescue AIG were motivated solely by what we believed to be in the best interests of the American people. We did not act because AIG asked for assistance. We did not act to protect the financial interests of individual institutions. We did not act to help foreign banks. We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses.

The government has not yet repaired all the extensive damage caused by this crisis. For every American out of work, for every family facing foreclosure, and for every small business facing a credit crunch, this recession remains acute. But everyone should realize that because of the actions of the Treasury and the Federal Reserve, the American financial system is now in a position where it can provide the credit necessary for economic growth, not stand in its way. That is an important achievement necessary to lay the foundation for job growth and long-term economic stability.

The situation of AIG today is substantially better than it was six or twelve months ago. AIG's insurance subsidiaries are open for business and generating positive returns. A number of those subsidiaries are attracting attention from external investors. We anticipate that AIG will generate substantial proceeds from the sale of some of those entities. Under the terms of the support we have provided, the first call on the proceeds from any sales of AIG's subsidiaries will be to repay the support that the U.S. government has provided to AIG.

AIG has made substantial progress in winding down its Financial Products subsidiary, the division where AIG's problems were concentrated. The gross value of AIGFP derivatives positions are down by more than half since September of 2008 and the company actually generated a profit in the last two quarters for which public information is available.

Our latest audited financial statements show that, as of September 30, 2009, Treasury had invested $43 billion in AIG under TARP. At that time, our estimate of the "market value" of that investment was $13 billion. We believe that, depending on market conditions and the future performance of AIG's businesses, the actual recovery on the Treasury's investment could be significantly higher. Moreover, we are confident that the FRBNY Credit Facility, its loans to Maiden Lane II and Maiden Lane III, and its preferred interests in certain of AIG's subsidiaries will be fully repaid.

There are two central lessons from this crisis, both applicable to AIG, that have guided the President's proposals and the legislation now working through Congress to reform our financial system.

First, we need the ability to limit risk-taking for institutions that threaten the overall stability of the system and can cause extraordinary damage to the American economy. We need this ability not just for banks, but for institutions that operate like banks. These non-bank financial institutions have existed alongside banks and yet were not subject to those constraints in this crisis. We also need to make sure that regulators have clear accountability and enforce sensibly-designed constraints on risk.

Second, the federal government must have the ability to resolve failing major financial institutions in an orderly manner, with losses absorbed not by taxpayers but by equity holders, unsecured creditors and, if necessary, other large financial institutions.

Today, we know that when confronting a severe economic crisis the government must respond with overwhelming force. That is the basic lesson of the Great Depression. That is the basic insight that informed every judgment we made. And that is the reason we are now emerging from a recession and not still in the midst of a second Great Depression.


Remember: Do your citizen's duty - burn a Benjamin with overwhelming force, max out your credit card in the midst of America's latest Golden Age (cause the Conference board said so), buy 10 Kindles, quit your unemployed status, garnish Goldman with 80% of your wages (scratch that, you already do), support Team TurboTaxTreason and vote for change!


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