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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.

-- Frank Ahrens
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By Frank Ahrens  |  April 21, 2009; 11:32 AM ET
Categories:  The Ticker  | Tags: Ben Bernanke, Elizabeth Warren, Tim Geithner, bailout  
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Comments

The Federal Reserve enjoys a monopoly over the flow of our money and credit but has never been completely transparent and accountable to Congress. Since its establishment in 1913 our dollar has lost more than 95 percent of its purchasing power.
In addition to more than $11 trillion national debt (over $36,000 per citizen), Congress, the Treasury, and the Federal Reserve have put us on the hook for almost $10 trillion in bailouts and loans. Yet, the Fed refuses to tell Congress which financial institutions have received these funds.
U.S. Rep. Ron Paul of Texas introduced HR 1207, which would deliver answers to the American people about how our money is being used. HR 1207, which is currently in the House Financial Services Committee, received the support of almost 55 other representatives within a month of its introduction and will amend section 714 of Title 31 of the U.S. Code to remove the restrictions on how the Government Accountability Office can audit the Federal Reserve.

Posted by: AtlasShrugged1 | April 21, 2009 10:22 AM | Report abuse

Of course Geithner cannot set the value of toxic assets. It is the job of the people to decide if it is any value. His problem now, is letting the banks hold on to them, even after the unborn's wallet is robbed.

The divorce of the people from these loan sharks will more than likely mean that no American will buy them ever, over the shove around this Administration has put the public through.

The ire of the people now sees the large banks as victimizers, and not service tools.If the public will not submit themselves to more victimization by loan sharks, they will fail.

The Administration has one plan, but the people may not think it is one they will follow. If the leadership wants followers, there might have to be new cabinet and team members first.

The wise rule of taxation is to never take the chicken in the pot off the table.

This round Congress and Obama took the table and the house as well.

They might have it, but they will not find anyone granting their holdings any value, who had a friend or relative veictimized by what has become known as :"slick and the loan sharks"

Posted by: dottydo | April 21, 2009 11:20 AM | Report abuse

DEER-SIX THE FED

Why don't our democratic representatives of both Houses on the Hill in Washington D.C., put forth a referendum that either the FED is morphed (since both political parties are terrified any time someone utters the word Nationalization) into a government agency where at least the general public will have a voice in the decision making of the FED through their elected representatives or public advocate's (elected by the people in a special election because of the severity of the foreclosure crisis) where they will have equal seats and voting power on the Federal Reserve Board.
As it stands now, the Federal Reserve Board cares only of bailing out the CEO's of Wall Street and the banks.
Not the thousands of American families (that ACORN is doing their best to help) with children, the elderly and pets that will be left homeless due to the foreclosure of their primary homes.
Enough of bailing out Wall Street and the banks with our money from the FED and we have no say in it nor do the financial aristocrats at Wall street and the banks need to disclose to anyone (including Congress or the U.S. Senate) where this money is going. It's time that we deep-six the FED for the sake of the working class people of our nation.

Posted by: Ciro291 | April 21, 2009 11:24 AM | Report abuse

What nonsense.......


Anyway....be sure to celebrate April 22...

Industrial Revolution Day!!

Posted by: georgedixon1 | April 21, 2009 11:30 AM | Report abuse

Everyone needs to call their represenatives and demand support for HR 1207 and S 513. This is a bill to audit the Federal Reserve and report to We the People what has been done with the funds in the Federal Reserve.

Everyone call your Congressman and Senator and tell them to support this very important bill. Until we have an audit of the Federal Reserve we will not be able to begin to regain control of our government.

Come 2010 We need to vote for fiscally responsible candidates. Vote out the Spendocrats, Red or Blue.

http://www.ronpaul.com/on-the-issues/audit-the-federal-reserve-hr-1207/

Posted by: Bubbette1 | April 21, 2009 11:33 AM | Report abuse

Of course credit is too expensive. There are number of obvious factors behind that.

First off, for all intent and purpose, the banks are insolvent, in spite to Turbo Tax Timmy's assertation that they are more than sufficiently capitalized.

Second, the government has meddled far to much in these complex markets, now the risk of further and far deeper than ever imagined, meddling by the Obama administration has the banks reworking their risk models to account for things that they never imagined possible. Even China is throwing in the towel.

http://TheLastGoodIdea.blogspot.com/

Posted by: PSURoss | April 21, 2009 11:43 AM | Report abuse

This is a problem with the Obama administration as AIG begin to emerge out of the darkness by selling assets and having Wall Street slowly beginning to reinvest in the insurance giant. The administration do not want to give up its power of having control of this international corporation. Instead of working to reduce the stake the federal government ownership it has cemented itself in the name of the government can not come up with an exit strategy. Get out of private corporations as soon as the repayment of loans can be made and stop coercing corporations into not paying off loans. The American people win everytime the loans are paying back.

Posted by: phjesuswarrior7 | April 21, 2009 11:52 AM | Report abuse

Confusing. We the people have bailed out the banks. We supposedly have an ownership stake in the banks. A major reason for bailing was to get money and credit to flow. So in the last month I receive notices from two of "my" banks telling me that they are raising my credit card interest rate from the former 7.90 to 18.00%!!!!!! Usury? and how is this going to accelerate spending, supposedly the goal and reason why my taxpayer dollars are gong to these folks? Actually has the opposite effect. Am I going to use credit at 18% interest! No way. This makes no sense what so ever. Our money goes to the banks to bail them out and they respond by raising credit rates, and therefore stifling spending. We are being taken for a ride on all sides.

Posted by: hello3 | April 21, 2009 12:01 PM | Report abuse

Obama and Geithner have had no problem passing these toxic assets from the banks to We the People. Are they now saying they have done this without understanding the value or the risk to the taxpayers these unknown toxic assets represent? What a shock after cramming down the bail-out bill in one day with no review. The primary interest here is how to protect Wall-Street and the owners of the Federal Reserve. Yes, the Federal Reserve is privately owned by bankers who are involved in the decisions on whether to pass their debt to the People or be forced to eat the losses of their creation. How do you spell conflict of interest?

The change in mark to market is all smoke and mirrors to allow the banks to unload this heaping, steaming pile of cr@p to We the People. Now Geithner is saying they do not know the value of this pile they have passed along to the taxpayers. When the losses of this toxic dump passed to the People becomes known there will be anger. This is the first step in trying to build plausible deniability.

Show AIG, banks, automakers and any other failed business to the bankruptcy court. The loss can then fall where it should and not on the backs of the taxpayers for generations to come.

Posted by: Bubbette1 | April 21, 2009 12:03 PM | Report abuse

Wasn't it cheap credit that got us in trouble in the first place?

Posted by: steve1231 | April 21, 2009 12:08 PM | Report abuse

short summary:these fools giving our money away and do not understand what is happenin? incompetence boardering on criminal neglect.

Posted by: pofinpa | April 21, 2009 12:11 PM | Report abuse

The exit plan for AIG is the same as for a clogged overflowing toilet.First take the appropiate tool, set it firmly over the outflow pipe, ane push down hard, pull uv vigiorusly, repeat three or four times. Lift it above the water, and watch for change. Repeat as necessary, until the bowl is empty.

Posted by: laurelphoto | April 21, 2009 12:17 PM | Report abuse

You know, with time, it's really become apparent Obama is no more than just another Wall Street/(hapless) Pentagon lapdog.

Why bother? No one else is...

Posted by: thegreatpotatospamof2003 | April 21, 2009 12:30 PM | Report abuse

I watched the Geithner testimony in full today, and I have no idea how WaPo put this story together. First, he demolished the silly charts that Silvers had put together, but anyone not conversant in financial accounting might not have understood the terms.

Second,Rep. Hensarling asked a simple question, and Geithner gave him a direct answer. Hensarling then repeated what Geithner had told,"in other words you are saying that you cannot give us an exit strategy for AIG, because Congress needs to give you the tools?" Geithner replied, "Yes."

Third, when he was asked about his career as a banker, an investment banker at that, Geithner politely, and truthfully replied that he had never worked in banking, or investment banking, but had spent his entire career in public service, specifically the Treasury Dept.

Personally, I feel very comfortable with Geithner...much more so than with any previous secretary of Treasury since Rubin.

Posted by: LeftGuy | April 21, 2009 12:40 PM | Report abuse

this is rubbish whining by Geithner- only leading to nationalisation- ultimately bankruptcy of our Country- this is gross betrayal of tax payers. This tax evader knows how to evade his taxes. It is surprising our President is just running around the World to promote good will.He is more worried about his own image. World knows Americans are the best in the world

Posted by: jayrkay | April 21, 2009 12:49 PM | Report abuse

This seems more of the same, doesn't it, the very thing that got us into trouble economically being offered as a solution?

And I mean, I'm really glad some people, like my friend Chris, I mean, I think he's my friend, say, think Geithaner's a great guy, really a great guy, but I'm wondering about Geithner's talent, his mind, and his ability to understand a problem.

And frankly, well, Im not impressed one bit!

lolololololol

Posted by: thegreatpotatospamof2003 | April 21, 2009 12:59 PM | Report abuse

The arrogant little tax cheat also wouldn't answer why the government won't take back cash from banks which want to return it.
He's a coward like his boss, who won't admit it's because they want to nationalize the banks...like other leftist punk dictators have done.
Wake up folks. This slug has listened too much to people like Ayers, Wright and Chavez.

Posted by: LarryG62 | April 21, 2009 1:21 PM | Report abuse

There is something wrong with a system where you loan folks money and the same folks sock it to us in interest rate, late fees and all types of fine print.

Credit is the problem, and a balance budget is the solution. You can not solve credit with credit. How can you dig yourself out of a ditch? Impossible.

Show Obama and congress what Americans can do to failures...Fire them, vote them out...

Posted by: billisnice | April 21, 2009 1:22 PM | Report abuse

Geithner can't determine the efficacy of the bailout? He doesn't know the end game with AIG? Wait till this country understands his allowance of the enormous unwinding of credit default swaps by AIG in January and February.

Back then, before they received their latest round of TARP, AIG was sucking air instead of liquidity. They suddenly unwound huge CDS positions with counterparty banks at pennies on the dollar.

The recipient counterparty banks like Citi, B of A (Merrill), Goldman Sachs (Paulson's old firm), etc booked immediate, enormous profits in their investment banking divisions, AIG now had the credibility to beg $billions more aid from government with its severely weakened balance sheet, and with Geithner's knowledge the taxpayer (you & me) paid the bill.

Finally a mainstream journalist, Alan Abelson took a risk and broke the story yesterday in Barron's. The initial whistle got blown in early March though in a blog by Zero Hedge, and days after by Tyler Derdon in financial website Seeking Alpha. This has been known but unacknowledged.

These "profits" by huge banks such as named above were nothing more than booked gains from AIG unwinding credit default swaps in January and February, not the reflection of any success of TARP and the bailout, as the White House and the Washington Post would have us believe.

The smell factor is extremely high right now.

Posted by: reginacoeli | April 21, 2009 1:47 PM | Report abuse

So Timmy says that this sittuation is far to complex for odinary congress people to understand.
Mean while, back at the toxic assets ranch, insiders are skimming through the toxic assets and buying up the cream. And all that will be left is an empty teet.

Timmy's good at double talking using his thumb and forefinger as prop to dramatize his point. The point being ZIP!

The banking industry has us by the gonads and aren't going to let go until we are forced to learn Mandrin.

Nothing is going to change until our country starts manufacturing goods that the world market is going to buy. I mean, what else is there for a non-financial population to do to earn a living? Sell apples? You still need someone with earnings to pay for those apples.

8-_/\Q_

Get off your knees and elbows, that your local friendly bank behind you.

Posted by: ICantBelieve_ItsCongress | April 21, 2009 3:34 PM | Report abuse

"Overall, Barofsky's report said the public-private partnership -- using Treasury, Federal Reserve and private investor money -- could total $2 trillion. "The sheer size of the program ... is so large and the leverage being provided to the private equity participants so beneficial, that the taxpayer risk is many times that of the private parties, thereby potentially skewing the economic incentives," the report stated..."

Associated press

Posted by: bsallamack | April 21, 2009 3:42 PM | Report abuse

Dear President Obama and Secretary Geithner,

If you want to fix the banks and the economy, first fix the real estate market. Once that happens the banks will fix themselves. The toxic assets will detoxify themselves due to increased value.The fastest way to solve this crisis is to get investors involved in some fashion. They have the cash on the sidelines to get us out of this crisis. If we give them an incentive to purchase property they will and that will stabilize prices saving families and jobs.


There should be a zero % capital gains tax on any property purchased during the next year no matter when you sell it. This should only be on new purchases to help absorb some of the high housing inventory. Investors will buy properties and make things happen. This is a win win situation because no homes are selling anyway so there is no capital gains tax lost. Also there should be a rapid depreciation for tax purposes of 2 years on investment property. This was done after Katrina for counties in MS, AL, and LS. (called the GOZONE ACT) and should be done nationwide to stimulate demand and reduce supply which will help save the economy.
Once home prices are stabilized the jobs will return and the economy will recover. It might be difficult to get the republicans to go along with this because they know it will be extremely effective and therefore will result in the Dems gaining seats in 2010 And You Mr. President being re-elected in 2012.

Posted by: chuchu1248 | April 21, 2009 5:16 PM | Report abuse

Well, ladies and gentlemen, we have a very, very complex and critical financial condition.

It's so complex it can't be explained.

But we have a solution and it's very, very fair.

We will give away the taxpayer's money to the bankers who already can create their own money out of thin air anytime they want to.

The bankers need our money because what they bought with their own money isn't worth anything.

But remember, the bankers paid handsomely for what they bought even though it is worthless. This means something.

The government wants all working men and women in the United States to accept the same wages paid in Japan, to forgo health care and then to pay higher taxes.

This will allow the government to help the bankers who bought worthless stuff to get million dollar bonuses.

This is called a win/win/win situation. It will be very, very hard to prove it worked.

But, the public needs to know this will allow the government to keep these qualified bankers employed and at the level they have become accustomed.

The public can rest easy because the bankers are the only ones who know how to fix the problem that what they've bought isn't worth anything.

Please remember this is very, very fair...

Posted by: Vunderlutz | April 21, 2009 5:23 PM | Report abuse

If the cost of credit is too high still, then someone had better explain to me why I can receive only .5 to 2.4% on my savings or jumbo CDs.
If my money is wanted for loans, then they should provide competitive interest.
Some organizations go outside the US and pay up to 14% for loans. No one in the US would lend to those companies at any price, it seems.
The government and financial sector are keeping interest paid very low, so they can reap the profit.

Posted by: beagun27 | April 21, 2009 5:53 PM | Report abuse

The Guiding Doctrine for the American Government by the People

1) Nationalize the illegal and unnecessary private Federal Reserve Banking System with no compensation and keep their, now our, bank notes as our national currency. After all America gave it its value. They have cheated America since their formation in 1913. Only our U.S. Treasury, aka our National Bank will lend money and it will always be lent interest free, to all credit worthy borrowers. Everyone that is credit worthy will be eligible for a forty year interest free mortgage, refinancing your homes is acceptable. All credit worthy Businesses and all Municipalities can borrow interest free from our National Bank, as well.
2) All banks can be loan originators if they choose, and their origination fee will be less than 1%, no other fees will be allowed. They will not be authorized to lend money. Paying and receiving interest will be banned. The banks will carry out all the other standard banking services.
3) Retire our National Debt by paying all of our Treasury obligations, by issuing Treasury checks. The Treasury will issue checks to pay our nations bills. No need to borrow our own money with interest ever again. Control inflation and deflation through strict regulations. That’s what computers are for.
4) Ban currency trading in America and by Americans. Have our Treasury set a permanent FAIR exchange rate with every country.
5) Begin a National Sales tax to replace the entire IRS tax system. Immediately abolish income taxes in America.
6) Trading in food and fuel products futures will be banned in America and by Americans.
7) Lobbyists will not be permitted to speak to or visit and meet with any government employee with out having a representative of the People’s Oversight Office there to record everything. This is a new department that will be set up as a checks and balance over our elected officials in Washington D.C.
8) Give life in prison with no parole and no pardons to anyone convicted of public corruption. We did it to the drug dealers and they haven’t hurt America near as much as our corrupted elected officials and government employees have.

www.blogdis.com

Posted by: mehollywoods | April 21, 2009 6:46 PM | Report abuse

Watching Secretary Geithner yesterday at the Congressional Oversight Committee hearing, one cannot avoid the sense, that the invisible hand of Rothschild is at play.
I fail to understand the Secretary's explanation that the bailout money is not capital whereas, the new capital from the private investors for the toxic assets are.
Further, with TARP's money infused into the main Wall Street banks, they are now free to use them to buyout each other's toxic assets at "market value". This smacks of opportunistic price fixing - the old Wall Street cartel have just gotten stronger.The key will be to bid at a price higher than its worth ( whatever that could be), i.e to over value rather than undervalue - its to everyone's interest - with USD 1 trillion floating about, the game has gotten bigger. As such, the Bond market has to be cartelised to legitamise this coniving scheme of arrangements with an attractive 50% upside with no downside.
The Secretary then went on to explain, without the substantial upside for private money, the Government, ipso facto, the tax payers hold on to all the downside risks on its own. Consequently, as a choice set,the Government needs to entice private participation to the market.
The IMF came out with a report that USD 4 trillion in value has been wiped out from the face of this earth from these toxic assets - did this USD 4 trillion found its way to Mars ?
So, why is the Government in a hurry to prop up Wall Street's earnings ? A cheaper interbank lending cost and a statement that the 19 banks has capabilities to raise capital are once again, annoucements to soothe the ruffled feathers of Wall Street. It really has no significant impact on Main Street and the lives of many whom are faced with higher loan interests.
Finally, the Treasury and Fed must act in a manner that provides the confidence that it can counter the invisible hands of the Rothschilds, JP Morgan, Goldman Sachs and their family of relatives.

Posted by: kmarkt | April 22, 2009 3:48 AM | Report abuse

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