AIG - Securities Lending - Government Hearings

  •  GOV (House) - The Causes and Effects of the AIG Bailout- AIG Bailout Oversight Hearing, Panel 1 - [PDF-171p,
    • Testimony of E Dinallo Before the House Oversight Committee_1.pdf - 8p
  • 2008 1014 - GOV (Senate) - The Role of Financial Derivatives in the Current Financial Crisis, aka Hearing to Review the Role of Credit Derivatives in the U.S. Economy - [PDF-135p,
  • 2009 0305 - GOV (House) - Perspectives on Systemic Risk - [PDF-254p
  • 2009 0402 - GOV (House) - The Collapse and Federal Rescue of AIG and What it Means for the U.S. - [PDF-87]
  • 2010 0701 - FCIC Hearing - 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel - [PDF-313p - CSPAN-Video
  • 2017 1024 - GOV (House) - The Federal Government’s Role in the Insurance Industry - PDF-140p - Daniel Schwarcz / Wade (NAIC - CT)
  • 2018 0307 - GOV (House) - Legislative Review of H.R. 5059: The State Insurance Regulation Preservation Act - [PDF-86p, VIDEO-youtube] 
  • Eric Dinallo
  • 2017 - Wade, Schwartz
  • Mcraith
  • NAIC Letter
  • 2010 0127 - GOV - Geithner - reference Mcraith Comment
  • Brad Sherman - Royce

(p35) - Mr. ROYCE

  • Earlier, Mr. Bachus alluded to this notion that the underwriting side of AIG overseen by the State insurance regulators was somehow walled off from the abstract securities lending division.
  • Unfortunately, news reports, such as the Wall Street Journal article that was dated October 10, 2008, which I would like to insert into the record, detail the inaccuracy of this perception.

2009 0305 - GOV (House) - Perspectives on Systemic Risk - [PDF-254p

  • 2008 1010 - WSJ - AIG Increases Borrowings While Racing to Sell Assets, by Liam Pleven, Carrick Mollenkamp and Craig Karmin - [link]

2010 0701 - FCIC Hearing - 2008 Financial Crisis and Derivatives, Day 2, Regulators Panel - [PDF-313p - CSPAN-Video

  • 37:00 / (p205/206) - Dinallo, Born (FCIC) -
    • COMMISSIONER BORN: Thank you. Mr. Dinallo, some people have suggested that the real problem at AIG related to its securities lending program, and that its exposure to AIG Financial Products through that company's credit default swap business was a mere secondary problem that it had.
      • Do you agree with that?
    • DINALLO: I don't--no, I don't believe that's true.
      • I mean, at least the calls that I received and the reason that we all ended up at the Fed and working at AIG throughout that week was the problems with the Financial Products Division, whose issues I think dwarfed the securities lending issues.
      • The securities lending issue was an issue, and it certainly exacerbated the situation.
  • 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?
  • (p) - Chairman DUFFY.  ...Ms. Wade ... When you look at AIG and the insurance aspect of AIG versus the holding aspect of AIG, did the insurance portion of AIG fail that was supervised by the—this—under our State insurance model? Or did the holding company with financial products fail? Do you know the answer to that?
  • Ms. WADE. It was the holding company related to the financial products. So the Office of Thrift Supervision was the consolidated regulator for—for AIG at the time.
    • The States had identified this— the securities lending issues and were winding those down. It was the result of the derivatives, the financial products, that caused a liquidity crisis that resulted in AIG’s challenges during the financial crisis.
  • (p14) - Mr. <Daniel> SCHWARCZ.  In my view it is incorrect. It is a narrative that State insurance regulators have pushed that they are not at fault at all for AIG’s failure.  AIG’s failure was absolutely just as much a product of its securities lending operations at its—as its default operations.
    • It would not have failed were it not for the fact that it had lent out the assets of its insurance companies to other entities, taken that money and invested it in mortgage-backed securities.  
  • (p18) - Mr. <Daniel> SCHWARCZ.  It is well-recognized with respect to AIG that there were two major problems.
    • There were problems with its credit defaults swaps and there were problem—problems with its securities lending operations.
    • And the problems, as I mentioned, with the securities lending operations we are—were not caught in time by State insurance regulators.
      • That is the conclusion of the—of the GAO, not just my conclusion. 

2017 1024 - GOV (House) - The Federal Government’s Role in the Insurance Industry - [PDF-140p, VIDEO-youtube] 

2017 1024 - GOV (House) - The Federal Government’s Role in the Insurance Industry - [PDF-140p, VIDEO-youtube]

  • Chairman DUFFY. And I wanted to look forward to legislative fixes, but before I do that I do want to take a look back. And Mr. Schwarcz had mentioned AIG.
    But maybe I will go to Ms. Wade first. When you look at AIG and the insurance aspect of AIG versus the holding aspect of AIG, did the insurance portion of AIG fail that was supervised by the— this—under our State insurance model? Or did the holding company with financial products fail? Do you know the answer to that?
  • Ms. WADE. It was the holding company related to the financial products. So the Office of Thrift Supervision was the consolidated regulator for—for AIG at the time. The States had identified this— the securities lending issues and were winding those down. It was the result of the derivatives, the financial products, that caused a liquidity crisis that resulted in AIG’s challenges during the financial crisis.
  • Chairman DUFFY. So just to repeat again, who was the regulator of the holding company of AIG.?
  • Ms. WADE. The Office of Thrift Supervision.
  • Chairman DUFFY. Now, are they a State insurance regulator?
  • Ms. WADE. No, and in fact State insurance regulators were preempted from addressing the issues that caused the—
  • Chairman DUFFY. And so the problems were not on the insurance side that was regulated by the State. Is that correct?
  • Ms. WADE. Correct.

In addition, State insurance regulators missed risky investment activities by AIG involving the lending of securities.

  • AIG loaned out securities owned by its insurance company subsidiaries.
    • And with the proceeds from these loans, AIG invested $76 billion at its peak in long-term subprime residential mortgage-backed securities.
  • When the borrowers of the AIG securities returned the securities, requesting the return of their cash, AIG did not have the cash because of severe -market devaluations of the residential mortgage-backed securities.
  • The Federal Reserve stepped in to provide liquidity.  (p10-11)

--  Birny Birnbaum - Center for Economic Justice

2012 0724 - GOV (House - Financial Services) - The Impact of Dodd-Frank's Insurance Regulations on Consumers, Job Creators, and the Economy - [PDF-110p , No Video]