2011 1119 - GOV (JEC) - Financial Regulatory Reform: Protecting Taxpayers and the Economy

2011 1119 - GOV (JEC) - Financial Regulatory Reform: Protecting Taxpayers and the Economy - Geithner

  • 2009 1120 - NAIC to GOV - to Carolyn B. Maloney, Chair Joint Economic Committee - 1p
  • (p8) - 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, M.D
    • 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.
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2009 1120 - 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.