2009 1119 - GOV JEC - Financial Regulatory Reform - Protecting Taxpayers and the Economy

  • 2009 1120 - Letter - NAIC to GOV - to Carolyn B. Maloney, Chair Joint Economic Committee - 1p
  • (p8) - Tim Geithner:  AIG presented exactly the same kind of risk Lehman did.
    • But, in some ways, they were greater—because AIG as an insurance company, one of the largest in the world, was providing a range of insurance products to households across the country.
      • And if AIG had defaulted, you would have seen a downgrade leading to the liquidation and failure of a set of insurance contracts that touched Americans across this country and, of course, savers around the world. 
  • (p9) - Geithner:  Coming into AIG, we had basically duct tape and string.  
  • (p9) - Geithner:  ...the choice was to prevent default or allow default. Default would have been devastating. Preventing default meant that AIG was able to meet its obligations, its contractual obligations.
    • Again, not just to the financial system as a whole, but to the millions of Americans and savers around the world that had bought a basic set of insurance products, protections from that company. 
  • (p52) - Responses of Secretary Timothy F. Geithner to Questions from Representative Michael C. Burgess (R-TX)
    • The company’s failure would directly threaten the savings of millions of Americans to whom it had provided financial protection through investment contracts and products that  protect participants in 401(k) retirement plans
    • And doubts about the value of AIG life insurance products could have generated doubts about similar products provided by other life insurance companies, feeding the panic that was crippling the economy.
  • (p35) - Michael Burgess (R-TX) - If we would just get out of the way, I firmly believe that the resolve of the American people is enough to solve this.
    • I have lived through up-and-down cycles in my life.
    • I have seen some terrible things happen to the economy back home in Texas, when the savings and loans melted down.
    • I don’t recall anyone from the Treasury Department or the FDIC coming with a big bag of cash and saying, ‘‘Can I help you through these tough times?’’
  • Secretary Geithner [continuing]. Oh, to the contrary——
  • Representative Burgess. No, we were required to get through it ourselves.
  • Secretary Geithner [continuing]. To the contrary——
  • Representative Burgess. We cut spending. My business drew in its resources and kept going through that time. We didn’t depend upon the government for help at that time.
  • ....
  • Representative Burgess. So you are on record as being opposed to dithering?
  • .....
  • Secretary Geithner:  Now, the S&L crisis was incredibly expensive for this country.
    • It cost the taxpayers 2 to 3 percent of GDP.
    • It was not a crisis solved by the market.
    • It was a crisis where the taxpayer was put on the hook for enormous losses and risks.
    • And we are doing a very good job of limiting the taxpayers’ exposure to risk in this, as I said in pointing out to you that we have $70 billion of taxpayers’ money come back since I took office, at more than $12 billion in dividends and warrants.
  • 2009 1120 - Letter - NAIC to GOV - to Carolyn B. Maloney, Chair Joint Economic Committee - 1p
    • We are writing to correct a misstatement by Treasury Secretary Timothy Geithner at the Joint Economic Committee’s November 19, 2009 hearing, titled “Financial Regulatory Reform: Protecting Taxpayers and the Economy.”
      • Secretary Geithner asserted that the reason for the federal government’s bailout of AIG was a fear that AIG might not have been able to pay claims to its insurance policyholders.
        • That flies counter to the Treasury Department’s long-held assertion that the bailout was needed to prevent financial loss to AIG’s counterparties in its credit default swap (CDS) transactions.
      • It also belies the facts.
        • AIG’s state-regulated insurance subsidiaries were, and still are, safe and solvent.
        • Money to pay policyholders was protected from being used for other purposes, and was never at risk.
        • That is because of to state insurance regulators’ ability to “ring fence” solvent insurance entities of a group to shield them from the parent’s corporate losses or bankruptcy in order to protect consumers.
      • This change in rationale by Secretary Geithner is confusing at best, misleading at worst.