2010 0127 - GOV (House) - The Federal Bailout AIG - [PDF-652p]

• (p133) - Statement of Henry M. Paulson, Jr., Former Secretary, U.S. Department of The Treasury

There are three reasons we needed to save AIG that stand out in my mind.

• First, AIG was incredibly large and interconnected.
• Second, AIG was seriously underregulated.
  • Although many of AIG’s subsidiaries, including its insurance companies, were subject to varying levels of regulation, the parent entity was, for all practical purposes, an unregulated holding company its business had infected otherwise healthy parts.
• Third, AIG could not be effectively wound down.
  • Unlike failed depository institutions, which can be taken over by the FDIC with little or no harm to depositors, or the GSEs, which were seamlessly placed into conservatorship by Treasury and the Federal Housing Finance Agency, there was and is no resolution authority available to wind down a failing institution like AIG.
  • The only option is bankruptcy, a process that is simply not capable of protecting the millions of Americans whose finances are intertwined with AIG’s.
• The Government rescue of AIG in the fall of 2008 was directly shaped by these realities.
  • We had to protect the economy and the finances of millions of Americans.
  • We could not have anticipated the magnitude of AIG’s problems and we had no way of letting it fail without disastrous collateral consequences.
• We had to intervene, and I am thankful we did.