AIG - Reasons for Bailout

  • (p2) - Edolphus Towns (D-NY): As we sit here a year and a half later, after AIG handed out billions in taxpayer dollars, because of this secrecy, we still don’t know why or how the decision to rescue AIG was made...

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

  • 2010 0526 - COP - Hearing - TARP and Other Government Assistance for AIG - [PDF-241p,
    • Damon Silvers - (COP Member / policy director for the AFL-CIO)
    • Jim Millstein - (Chief Restructuring Officer, U.S. Department of the Treasury)

    • (p218) - Mr. SILVERS. Is it not the case that in the week of September 15, 2008, that the cash calls that the company could not meet were in two lines of business and two lines of business only.
      • And but for those cash calls, none of this would have been necessary?
      • And those two lines of business were, and it depends on what— you know you can believe or not—you can argue I guess with the state insurance regulators, they certainly were the swaps business and they may have been the securities lending business.
      •   And but for those two enterprises, none of this would have occurred? Is that not so?
    • Mr. MILLSTEIN. That is not so.  ---  So let me——
    • Mr. SILVERS. Are you seriously asserting that if you wipe those two pieces of business off the books, that AIG was nonetheless insolvent?
    • Mr. MILLSTEIN. Let me——
    • Mr. SILVERS. And are you accusing the New York State Insurance Commissioner of lying to this panel?

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.