AIG Bailout Testimonies of Geithner & Paulson

Treasury Secretaries past and present, Timothy Geithner and Hank Paulson, today faced the still politically fired ire of Congressional questioning.

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AIG Bailout Testimonies of Geithner & Paulson

Must-see TV returned in full force today, with the testimonies of Treasury Secretary Timothy Geithner and former Treasury chief Hank Paulson before the House Oversight & Government Reform Committee. We expected Tim to get tested and testy, as is usually the case for him before an often character-questioning, accusative Congressional panel. Well, neither Congress nor Secretary Geithner disappointed Must-See TV fans! In the end, and please read our conclusion to this post before forming your opinion, we side with Geithner and Bernanke.

Geithner Testimony for Starters

Poor Tim... he just seems to have a face Congress loves to hate on. Or rather, with constituencies standing behind them growling and foaming at the mouth, any Congressman worth his next election campaign spend would be a fool to not at least seem angry about the "Wall Street bailouts," especially when your constituency lives off-Wall. Given America's definition of "Wall Street," where would that really be then? Where in this country is there no bank? Where is there no American who did not benefit from the salvation of the financial system? Yes times are tough, and I taste that myself every single day, but imagine how much worse things could have been. Does that mean that financial companies like AIG (NYSE: AIG), Fannie Mae (NYSE: FNM), Freddie Mac (NYSE: FRE), Goldman Sachs (NYSE: GS), Bank of America (NYSE: BAC), J.P. Morgan (NYSE: JPM), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), PNC Financial (NYSE: PNC), Barclays (NYSE: BCS), Credit Suisse (NYSE: CS), UBS (NYSE: UBS) and Deutsche Bank (NYSE: DB) did not benefit, sometimes disproportionately and even unfairly? No it doesn't.

We ask you, what's important now, crucifying people for making mistakes under pressure while still saving life as we know it, or moving forward? I say, okay, let's find out what happened and see if any overt evil really occurred, but let's not manufacture it nor overblow human flaws. We all have those.

In any event, still unfolding emails forced out of AIG (NYSE: AIG) apparently show a Fed/Treasury effort to keep AIG security counterparty information secret, and the purported fact that these firms apparently got 100 cents on the dollar, where a bankruptcy would have paid less-to-zero.

Congressman Issa noted that some documents are locked up until 2018, thanks to the agencies' efforts to keep them that way. This information apparently shows that some Swiss banks were paid about $5 billion, while they were at the same time being prosecuted for the anonymous accounts they housed, within which account owners' tax debts (to the US) remained hidden from the IRS.

The Greek believes Tim Geithner when he sounds all Ollie Northish, though I think without real culpability. Call me naive, but I do not think he did anything criminal, nor even the least bit sneaky. The same goes for Benjamin. After all, isn't he from the Carolinas, where people are nice?

Silence is quite a powerful way to say something isn't it. In some instances, ignorance looks criminal, but ignorance is not a viable defense for crime. I think that it is possible that if favoritism occurred, it may have been instigated below street level, meaning underneath these top dogs.

Secretary Paulson, now somewhat separated from the events, still stuttered with the same intensity as he did in 2008, when facing questions about the tough decisions he and Fed Chairman Ben Bernanke made in response to the financial crisis. Sometimes though, honest people act like you might expect guilty folks to when accused. Intuitive people understand what we sift for, and that can lead them to present manifested signs of guilt. I'm not sure what causes Paulson's stuttering; I just know it is not good for his image.

Early on, as Congressional questioners began implying improprieties, Paulson responded strongly, saying that (paraphrasing) if we had not done what we did "unemployment might have reached 25% and home prices... would have fallen even more." Let's face it, Bernanke ran the show, since he was really the only one capable in Washington at the time... at least when we examine the top guys who get all the attention in the press. Behind the scenes may be another story, and I reiterate - the Congressional examiners might take a closer look there as well.

Seems like the Congressmen who voted for TARP were lined up perfectly with the testimony of Paulson, and so the questioning geared to Hank carried a somewhat allied tone. Maybe they just felt a little sorry for the old guy, after the hell he went through. Guess he really earned those millions, as he responded to a remark about how much he must miss Washington by stating (something like), "you could never guess how much." The tone of his response revealed some serious problem, at least in my view. The Congressmen also posed some specific questions about why the company had not been allowed to fall into bankruptcy, working to remind Paulson bashers of where we stood at the time (read: on the brink).

Commentary relayed by a Bloomberg guest commentator noted that state insurance commissioners testified that they "would have taken care of it," had AIG fallen into bankruptcy. Reportedly, the insurance assets would have been seized and sold to other companies in an orderly manner, thus implying the prevention of the end of the world scenario painted by messengers Geithner and Paulson. But what about the rest of the trillion dollars of financial assets AIG had webbed around the globe...

Paulson's thoughts: "If AIG had been allowed to go bankrupt, we would have had absolute economic disaster"

I highlight "absolute" for you for good reason. I think meant it!

Representative Kucinich (I'm a fan) is always good for a verbal barrage of strong-based questioning, and he dug into Paulson about his and other government employee favoritism toward their old firm, Goldman Sachs (NYSE: GS). It seems Goldman, the single largest creditor to AIG, would have gotten a lot less back on its investments in AIG securities had the insurance company gone bankrupt. You think?!? Actually, the answer to that is better than yes, considering they got it all back (supposedly).

Clearly this saga is far from concluded. We have attached Treasury Secretary Geithner's written testimony here for the perusal of those of you interested in reading more. We think every American should read this letter. We noted a few specific excerpts for you here below, and conclude this piece thereunder.

1. "The decision to rescue AIG was exceptionally difficult and enormously consequential."


2. "The steps the government took to rescue AIG were motivated solely by what we believed to be in the best interests of the American people. We did not act because AIG asked for assistance. We did not act to protect the financial interests of individual institutions. We did not act to help foreign banks. We acted because the consequences of AIG failing at that time, in those circumstances, would have been catastrophic for our economy and for American families and businesses."


3. "But everyone should realize that because of the actions of the Treasury and the Federal Reserve, the American financial system is now in a position where it can provide the credit necessary for economic growth, not stand in its way."


4. "The extraordinary events surrounding AIG took place during what was already the most severe financial crisis the United States and the global economy had seen since the Great Depression. This context is critical to understanding the decisions we made."


5. "AIG is one of the largest and most complex financial firms in the world. At its peak, AIG had more than $1 trillion in assets..."


6. "AIG's parent holding company, which was largely unregulated, engaged in a broad range of financial activities that strayed well beyond the business of life insurance and property and casualty insurance."


7. "AIG used its strong credit rating, which was based on the strength and profitability of its insurance subsidiaries, to become one of the largest providers of credit and rate-of-return protection for other financial products. Imprudent risk-taking in better times meant that, when the financial cycle turned, AIG had hundreds of billions of dollars in commitments without the capital and liquid assets to back them up. Such excessive risk-taking should not have been allowed. But it was.


8. "The Federal Reserve was the only fire station in town."

We suggest you read Geithner's entire testimony, as it will remind you of the firestorm we stood within and what hell we stood before. After you have read it and remembered those horrid days, ask yourself, if faced with the same circumstances and given the responsibility, could you have risked doing anything but what the government representatives did. I believe if you can honestly place yourself in that position, you will affirm they did what they had to, and they did it the best they could.

Given the time constraints upon them, the high stress they worked under, and the demands on them physically, can we really expect them to have done a perfect job at saving are asses? I think not. So instead of hanging the general who saved us, we might better allow him to take his lessons learned, to place us in better position for the future. I'm speaking of Mr. Bernanke, but I believe in the sincerity of Mr. Geithner's testimony as well. I think we should lay off them. In retrospect, the Financial Crisis Responsibility Fee seems to be geared to correct the imperfection of the medicine, to cure its side effect, which is the bad taste in our collective mouth.


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