House - Committee on Oversight and Government Reform
(p150) - Hank PAULSON. And that is, people are very, very angry, and I understand it, why they are angry, and they are rightfully so, because they don’t see the connection.
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(p150) - Hank PAULSON. And this company needed to perform well and needed to hold the team together in order to repay taxpayers.
Panel 1 - Tim Geithner
(p54) - Mike TURNER (R-OH). We had the head of the New York State Insurance Department, Superintendent Eric Dinallo, came in and said this,
‘‘before I go further, I would like to make one critical point. It is important for everyone, and especially policy holders in AIG insurance companies, to understand that the insurance companies, which are regulated by New York and other States, are solvent and have the funds to pay any policyholders’ claims; they had independent reserves.’’
GOV (House) - The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing, Panel 1 - [PDF-171p,
(p1-2) - The problems stem from the operations of AIG’s holding company, its financial products division, and its securities lending division, regulated at the Federal level by the Office of Thrift Supervision (OTS).
(p54-55) - Michael R. TURNER. (R-OH): Let me tell you one of the answers that troubled me about the issue in your written testimony of the team concluded AIG’s failure would be catastrophic.
You go on to talk about the insurance arms of AIG.
Now, this is not the first hearing that this committee has had or other committees, and you know that we are aware of the independence of the insurance arms of AIG.
We have Maurice Greenberg, a former chairman and CEO of AIG, said, ‘‘to the best of my knowledge, the problems that came to a head this year did not originate in AIG’s insurance businesses, which remain fundamentally strong.’’
We had the head of the New York State Insurance Department, Superintendent Eric Dinallo, came in and said this, ‘‘before I go further, I would like to make one critical point. It is important for everyone, and especially policy holders in AIG insurance companies, to understand that the insurance companies, which are regulated by New York and other States, are solvent and have the funds to pay any policy holders’ claims; they had independent reserves.’’
You did not bail out the insurance companies of AIG, correct?
They didn’t need it.
You bailed out the parent, right?
Secretary GEITHNER. Yes. But if the parent had defaulted——
Mr. TURNER. So when we go through your answer of if AIG had failed, the catastrophic effect of all of the insurance companies that were under AIG, they weren’t bailed out by you.
Secretary GEITHNER. No, that’s not true.
But maybe this is helpful to go back a little bit.
When AIG came to us that weekend— remember, the Fed is not their regulator; the Fed had no responsibility or authority over how they ran their business, that was the province of other regulators.
It was inconceivable to me that this was a problem we were going to have to try to solve, and we got all the people we could, including the New York State insurance commissioner and his staff, other people to look at and explain to us——
Mr. TURNER. Let’s pause a second.
Did you bail out the life insurance arms of AIG?
Secretary GEITHNER. Those insurance companies——
Mr. TURNER. Did you bail out the life insurance arms of AIG?
Secretary GEITHNER. Well, again, I wouldn’t use that term.
The actions we took helped prevent——
Mr. TURNER. Did you bail out the health insurance arms of AIG?
Secretary GEITHNER. Again, the actions we took to prevent default of the firm protected those companies from the risk of failure.
Secretary GEITHNER. I disagree completely.
People can look at this and they can come to different judgments, but the people who were responsible for looking at those insurance companies frankly had no idea of the risk—and you could not separate those companies from the companies that had taken terrible risk.
The tragic thing in the structure of the company was they were so closely linked they couldn’t separate them.
Mr. TURNER. Mr. Geithner, the testimony we have received previously, from those who were looking at those arms, was that they were substantially sound, so the catastrophic effects that you list certainly are something that we would all have been concerned about, but nonetheless——
Panel 2:Hank Paulson
(p152) - Cliff STEARNS (R-FL).
Now, recently Michael McRaith, who is director of the National Association of Insurance Commissioners, told the Senate Banking Committee, he said, you know, if AIG had gone in bankruptcy, we would have taken care of it.
It would have been an orderly disposition.
This is what he said: ‘‘AIG’s insurance operations and their other companies would have simply—we would have simply bought up AIG’s insurance assets, allowing a seamless delivery of AIG’s insurance obligations.’’
[Bonk: Where is the Hearing that Michael McRaith said this?]
So the question is, considering that the State Insurance Commissions would likely have seized AIG’s insurance subsidiaries, protected policyholders in an AIG bankruptcy, why was it necessary to bail out AIG with taxpayers’ money, based upon the testimony of the director of the National Association of Insurance Commissioners?
Hank PAULSON, former Secretary, U.S. Department of the Treasury. I respectfully disagree with him, and I believe that it is——
Cliff STEARNS.
So you disagree with this guy, with all his knowledge, his years of experience?
Hank PAULSON.
I will just say many people with years of experience had some regulatory responsibilities with regard to AIG, but this company was had a huge problem, and it is case No. 1 on what is wrong with our regulatory system.
There was no single regulator that had a line of sight on the total company.
So there were regulators that looked at different pieces of it, and if the company had gone down, it would have been a huge mess.
(p-?) - Hank Paulson [continuing]. I believe it would have taken down the whole financial system and our economy. -- It would have been a disaster.
Today, after all the actions that have been taken by the U.S. Government, we still have this terrible 10 percent unemployment level.
I believe that if the system had come down and failed, we could easily have had unemployment reaching or exceeding the 25 percent level we had in the Great Depression; we would have lost many additional billions of dollars in American savings; home prices would be much lower than they are today.