Geithner, Paulson grilled on what they knew about AIG payments
UPDATED at 3 p.m.
The current and former Treasury secretaries got a classic Capitol Hill grilling today over bailed-out insurance giant AIG and the secrecy surrounding the disclosure that AIG's counter-parties would get get full value for what they were owed.
Documents that have emerged in recent weeks suggest that AIG was urged by the New York Federal Reserve not to disclose the fact; presumably, to hold off public and lawmaker outrage.
As former head of the New York Fed, Treasury Secretary Tim Geither was called before the Oversight and Government Reform committee and asked what he knew about the secrecy.
Geithner repeated what he has been saying: When he was nominated to take over Treasury, Geithner recused himself from day-to-day operations of the New York Fed and dealings with particular companies. Therefore, he knew nothing.
Under intense and pointed questioning from lawmakers of both parties, however, Geithner finally allowed: "In retrospect, I wish I had known, frankly."
Former Treasury Secretary Hank Paulson followed Geithner and said he was unaware of who AIG's counter-parties were, given that was under the auspices of the New York Fed and the Federal Reserve.
Some lawmakers weren't buying it.
Rep. Dan Burton (R-Ind.) said it "boggles the mind" to imagine that Paulson didn't know what was going on.
"It makes me want to think that some clerk some place was making these decisions," Burton said.
Paulson wraps up testimony
1:35 p.m.: Former Treasury Secretary Hank Paulson just wrapped up testifying on the Hill before the House Oversight and Government Reform Committee on the AIG bailout and what appears to be efforts at the New York Fed to hide AIG payments to counter-parties with government bailout money.
Rep. Dan Burton (R-Ind.) said it "really boggles the mind" that Paulson and Treasury Secretary Tim Geithner said that they didn't know about certain parts of the AIG bailout. "It makes me want to think that some clerk some place was making these decisions," Burton said, getting off a good line. Find that clerk!
Rep. Stephen Lynch (D-Mass.) asked why he didn't push for Bear Stearns creditors to get 100 cents on the dollar, the way AIG's did.
"I had no knowledge of the size of the claim of any bank...and no decision in payments to counter-parties," Paulson said.
Rep. Jim Jordan (R-Ohio) tried to press Paulson on when he changed his mind on the original bailout, from using the $700 billion to buy toxic assets to injecting it directly into banks.
Paulson, as he has said before, said he changed his mind virtually as the vote was underway.
Rep. Elijah Cummings (D-Md.) asked Paulson if he knows that a lot of America believes there's a Wall Street "club," and "you all play golf together" and then "pass out the billions."
"Even though I'm not a golfer, I sure know that's how people feel," Paulson said.
Paulson explains how jobs would have been lost with AIG failure
1:05 p.m.: Rep. John Tierney (D-Mass.) asked how the average person would been harmed if AIG had failed.
Paulson: "They would have lost jobs..."
Tierney interrupted: "How, how would that have happened?"
Paulson: "What I believe, we were at around the time of the AIG rescue, the markets were frozen, even blue-chip industrials were having trouble financing. We were on the brink. If AIG had gone down, I believe that we would have had a situation where Main Street companies would not have been able to raise money for their basic funding. They would have had to let employees go and employees would not have been able to pay their bills."
Paulson: AIG failure could have driven U.S. unemployment to 25 percent
12:52 p.m.: Former Treasury Secretary Hank Paulson has begun his testimony, saying he believes the AIG bailout was a good idea. If we hadn't bailed out AIG, Paulson says, unemployment could have hit its Depression-era high of 25 percent.
The takeaway on Geithner's testimony: He said he didn't know about the secrecy around the counter-party payments to AIG that gave its creditors 100 cents on the dollar of government bailout money but, in retrospect, wishes he had.
Geithner: I wish I had known about AIG counter-party payments
12:42 p.m.: Geithner just said that he wished he had known about the secrecy regarding the AIG payments to counter-parties: "In retrospect, I wish I had known, frankly."
Rep. Jordan: Why the secrecy? Geithner: I don't know.
12:39 p.m.: Rep. Jim Jordan (R-Ohio) finally asked the question I think a lot of people have been waiting for: "Why the secrecy relative to disclosure? If it's that important...why in the heck not disclose it when it's happening? And frankly, why weren't you involved?"
Geithner said: "I think reasonable people looking back at this could say, 'Why wasn't this possible sooner?' I think it's a reasonable question. All I can say is what I was understand was involved in.[sic] And I was not involved in discussion about, decisions about what to do with that particular transaction the counter-parties or the details."
Jordan pressed: Do you support the decision of your colleagues to withhold the information.
Geithner: "It is very hard to put yourself in shoes you did not occupy. I do not feel like I can put myself in their shoes."
Rep. McHenry to Geithner: You have not reached out to GOP
12:14 p.m.: Rep. Patrick McHenry (R-N.C.) told Geithner: "You have not reached out to Republicans on the Financial Services committee." Geithner: "That is not true."
Rep. Kaptur working the Goldman-government conspiracy angle
11:58 a.m.: Rep. Marcy Kaptur (D-Ohio) is making the point that the head of the New York Fed is elected by private banks. Geithner says, "it's slightly more complicated than that." She's not buying it. She's also trying to further the link between government and Goldman Sachs that some have maintained is too close. Geithner is trying to stop her from doing that, "What you're trying to do..." he is protesting," but she is cutting him off. Now she's going into Geithner's phone records, noting he made several calls to Goldman Sachs.
Geithner is fighting back:
"You are suggesting that the people involved in this were not acting in the public interest and you are suggesting they were working for the private interest, and that is not true. I would never, and I believe none of those individuals, would ever be part of any decision like that. And I think these people were of enormous experience and integrity operating under enormous, exceptional circumstances with no precedent, doing the best they could in the public interest."
Rep. Lynch gives Geithner blistering tongue-lashing
11:38 a.m.: Rep. Stephen Lynch (D-Mass.) is asking Geithner why the federal government let Bear Stearns fail because taxpayer money was involved, yet propped up AIG when taxpayer money was involved. And why the federal government allowed AIG counter-parties to get paid at 100 cents on the dollar.
He unleashed a classic stemwinder of outrage, stabbing his finger at Geithner and yelling. Here's the bulk of Lynch's rant, with some edits:
"We don't negotiate a nickel, not a cent, off of what they're getting. You're supposed to be negotiating on behalf of the American people. You're saying, 'Oh. The regulations were different.' Let me tell you something: We were changing the rules and regulations every single day. We were taking action...you had every every opportunity -- every opportunity -- to weigh in on behalf of the American people and make these people take a new deal, make them take a haircut. You scalped the folks on Bear Stearns -- two cents on a dollar they got, two cents on a dollar! The folks at Goldman Sachs got 100 cents on a dollar. And that is just unacceptable. Totally unacceptable. I think it was a terrible decision on your part, and Mr. Paulson's part....It just stinks to the high heaven, what happened here, and I don't like the obfuscation and to top it all off, the disclosure was not there to tell the American people and to tell this congress what was going on and this is just inexcusable and it makes me doubt your commitment to the American people... I think the commitment to Goldman Sachs trumped the commitment to the American people."
Geithner responded: "I respect your opinion, I know you hold those opinions strongly, but I completely disagree. The American taxpayer would not have been better off if the government had made it possible for equity holders in Bear Stearns to get more money. The American taxpayer would not have been better off if we had let AIG default. None of us did anything out of any concern..."
Lynch interrupted: "There's a difference between giving them 100 cents on the dollar and letting them default. This was a new game. You were creating new facilities every week...we were changing the rules day by day. And we had the banks at a position where we could have exercised a lot of leverage and you chose not to do it."
Geithner: "I disagree with you..."
Lynch: "That doesn't mean we have to pay them 100 cents on the dollar or let them fail. There are increments here. And we never used this leverage."
Geithner: "Not in this case." And then launched into an explanation of why the government didn't have the authority to do with AIG what it did with Bear Stearns. But Lynch wasn't buying it.
Lynch: "When Hank Paulson pulled nine banks into a room and said 'You're taking bailout money,' that was extraordinary action. He could have done the same thing negotiating a better rate on behalf of the American taxpayer."
Geithner answered by saying: The only way you can impose haircuts is if you're willing to let the firm fail. It's a gamble, he said. The government was willing to let Bear Stearns fail, but not AIG.
Geithner: We bailed out AIG to save Main Street
11:15 a.m.: Rep. Dennis Kucinich (D-Ohio) just took at swipe at Geithner, suggesting the AIG prop-up was for the benefit of Goldman Sachs.
Geithner bristled in his response and said something that may linger with him for awhile -- we bailed out Wall Street to help Main Street. If Geithner can successfully make this connection and sell it to the American people, he will be the first:
"It is not true that the actions we took at AIG were for the benefit of anybody but the millions of Americans who at that point were suffering from the worst financial crisis since the Great Depression. The only way to help reduce that damage was to fix the system. that is the only motive that underpinned these actions by the government."
Republicans lay the wood to Geithner
11:08 a.m.: Rep. Darrell Issa (R-Calif.) is now pulling out slides of e-mails from Geithner to others. Drama!
The e-mail shows that Geithner wrote to a former colleague at the Fed on March 15: "Where are you on the counter-party disclosure?" Geithner said he was merely following up on the very controversial issue. Issa unconvinced.
Rep. Paul Kanjorski (D-Penn.) is quoting Shakespeare's "Julius Caeser" and rehashing Brett Favre's game-changing interception in last weekend's NFC championship game. Okay, then! And then he used much of the rest of his five minutes of question time to toss Geithner a big, fat softball question.
Now, Kanjorski is speculating that "law and order" may not have been able to have been maintained in the United States had the government not stepped in to bail out Wall Street when it did. Makes you wonder what sort of post-apocalyptic Mad Max scenarios Kanjorski has in his head.
Rep. Dan Burton (R-Ind.) is bringing the wood. He quoted Geithner's former legal counsel at the New York Fed, writing: "I don't know if there's any way to manage it so Congress won't release it," referring to the counter-party information.
Burton then asked Geithner if his legal counsel had the authority to make these sorts of statements without approval from his boss at the time, Geithner. Burton is clearly trying to establish that Geithner actually did know about keeping the counter-party payments secret.
"Of course," Geithner said.
"Regarding something of this import?" Burton pressed.
"Of course," Geithner repeated.
Burton then read a Nov. 11 internal N.Y. Fed memo reading, "we do not want to disclose the concession is at par unless absolutely necessary" and asked Geithner if he was familiar with it. No, Geithner said, but said he had "enormous trust and confidence" in the people who did.
Burton: "Do you still maintain that you weren't involve in any of this?"
Geithner: "Yes, absolutely."
Burton wound up with his accusation: "It stretches credulity for us to believe that you had no role in this and didn't know anything about it when your attorney and the people who worked for you were sending e-mails all around the place and you were the head of the [N.Y.] Fed and you didn't know anything about it? it just doesn't make any sense to me."
We still don't know who did authorize keeping AIG payments secret
10:50 a.m.: Geithner, frowning, combative, feverishly defending his colleagues at N.Y. Fed and their conduct in trying to save AIG. They would never use their position for private benefit, he said.
Committee chairman Edolphus Towns (D-N.Y.) pressed Geithner on whether he had a role in keeping AIG payments to counter-parties secret.
"I had no role," Geithner said. Of course, he added, others at the N.Y. Fed did.
Well, then, who were they? Perhaps we'll learn today.
Issa: We don't believe Geithner entered 'cone of silence'
10:25 a.m.: Committee chairman Rep. Edolphus Towns (D-N.Y.), in a particularly colorful turn of phrase, said that 100 percent payments to AIG counter-parties amounted to "looting the corpse."
Rep. Darrell Issa (R-Calif.), the committee's ranking member, is bringing in some big guns who are not on the committee, including Rep. Ron Paul (R-Texas) to join the questioning.
Issa reminded the committee that AIG founder Hank Greenberg has testified that he thought that bankruptcy would have been a better solution than the government bailout. And Greenberg was the largest shareholder in AIG.
Issa noted that the AIG payments to counter-parties "likely will never be repaid to the American people."
Issa said: "Many people, including members of this committee, have a hard time believing Secertary Geithner entered into an absolute cone of silence, for those of us old enough to remember that, on the day his nomination was announced."
I'm going to be live-blogging this event, so keep checking back here for updates. Also, I'll be sending out headlines from the hearing on my Twitter account at theticker, so sign up to follow me there, if you haven't already.
Geithner: We had pay counter-parties full value
10:07 a.m.: Here's the chunk of Geithner's testimony where he defends the 100 percent AIG payments to counter-parties:
"Some have suggested that the FRBNY should have used its regulatory authority, or some other means, to effectively coerce AIG’s counterparties to accept concessions. This was not a viable option either. Once a company refuses to meet its full obligations to a customer, other customers will quickly find other places to do business. If we had sought to force counterparties to accept less than they were legally entitled to, market participants would have lost confidence in AIG and the ratings agencies would have downgraded AIG again. This could have led to the company’s collapse, threatened our efforts to rebuild confidence in the financial system, and meant a deeper recession, more financial turmoil, and a much higher cost for American taxpayers."
And here's Geithner's out:
"Starting on November 24, I withdrew from involvement in monetary policy decision, policies involving individual institutions, and day-to-day management of FRBNY. In accordance with established practice, my colleagues at the Federal Reserve Bank of New York, led by the First Vice President, Christine Cumming, carried out the day-to-day management decisions in close cooperation with their colleagues in at the Federal Reserve Board."
Former Treasury secretary Hank Paulson also will be testifying. Here's the relevant part of his testimony:
"I have limited knowledge on the topic of immediate interest to the Committee, but I will share my observations."
I wonder whether the committee is hearing from the right people.
Follow me on Twitter at @theticker
January 27, 2010; 3:00 PM ET
Categories: The Ticker | Tags: AIG, Darrell Issa, Hank Greenberg, Tim Geithner
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