Geithner Cannot Describe AIG Exit Strategy
UPDATED at 11:32 A.M.:
Treasury Secretary Tim Geithner could not give an answer to this question, posed moments ago by Rep. Jeb Hensarling (R-Tex.): "What is the exit strategy from AIG?"
Geithner is testifying before a congressional oversight committee headed by Elizabeth Warren, the overseer of the bailout, underway right now.
Hensarling pointed out that AIG, the troubled insurance giant, has thus far received four infusions or promises of government money totaling about $180 billion "of taxpayer liability exposure and counting," Hensarling said.
Effectively, the government owns 80 percent of AIG.
Geithner was unable to spell out how the government -- and the taxpayer -- will be able to untangle from AIG because the government lacks the necessary tools, he said.
"We came into this crisis without a legal framework to manage the risks posed by AIG -- it was the tragic failure of this country," Geithner said. "We still do not have that authority today."
"Not as majority shareholders in AIG?" Hensarling interrupted.
"No. We do not have the ability or tools that were designed in the wake of the crises of the past decades given to the FDIC," Geithner said. "We would like to work with Congress to legislate authority over the coming weeks and months" to get that authority, he said.
Fed Chairman Ben Bernanke has echoed Geithner's point and has asked Congress for the authority to "wind down" troubled institutions such as AIG.
Geithner: Can't Judge Bailout By Normal Business Terms
11:13 A.M.: Geithner said that bailout overseers cannot judge how well the taxpayer money is being spent by using traditional business measurements but whether by whether the entire financial system has been stabilized.
Geithner just sat through a grilling by committee member Damon Silvers, associate general counsel for the AFL-CIO, who produced charts showing the government's involvement thus far in sickly bank Citigroup.
So far, "the cash we put in is majority of capital of Citigroup today," Silvers said. "Some would say we have crossed nationalization line already."
Even with that being the case, Silvers continued, the federal government -- taxpayers -- only have 7.6 percent of Citigroup's "upside" (the amount the government would get should the Citi stock rise) and exactly zero percent of voting control.
"Do you believe this is the right way to go, the model for the next sick bank?" Silvers asked.
Geithner said that, because of his job, he could not comment in detail about individual institutions, frustrating Silvers.
Silvers persisted, more bluntly: "How does protecting Citi's common shareholders at the expense of the taxpayer benefit the economy?"
Geithner answered that Silvers cannot think about the government's investment in and loans to private institutions in normal investment-to-profit terms. "You have to think about it through the broader prism" of whether the government intervention stabilizes the economy, he said.
Geithner: Bailout Effectiveness 'Frankly...Mixed"
10:45 A.M.: Geithner said "to date, frankly, the evidence is mixed" on how well the $700 bilion bailout is working.
Geithner pointed out that the cost of interbank lending is down from the crisis days of last autumn, that non-financial corporate bond issuance is up and the issuance of asset-backed securities is up in the first few months of 2009, but is less than half what it was this time last year.
That being said, "the cost of credit is still too high," Geithner said.
Further, and perhaps more troublesome, is something people have suspected all along: "It is impossible to judge how banks and the markets would have acted" had the bailout not been approved and largely spent, Geithner said.
Warren: Americans Are Angry
10:05 A.M.: Warren is setting the tone of the hearing, telling Geithner that Americans are "angry" at how the bailout has been administered so far, by both Geithner and his predecessor, Hank Paulson.
"People want to see action in terms that make sense to them," Warren said, is Geithner nodded solemnly.
Here's the text of a letter Geithner sent to Warren outlining the bailout so far.
Geither writes that there is currently $109.6 billion left in the $700 billion bailout fund but expects an additional $25 billion will be paid bad shortly, bringing the total up to $134.6 billion.
In addition to Warren, oversight committee members include Damon Silvers, associate general counsel for the AFL-CIO, Rep. Jeb Hensarling (R-Tex.), former New Hampshire Republican Sen. John Sununu and Richard Neiman, superintendent of New York state banks.
April 21, 2009; 11:32 AM ET
Categories: The Ticker | Tags: Ben Bernanke, Elizabeth Warren, Tim Geithner, bailout
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