2009 1210 - COP - Hearing - Hearing With Treasury Secretary Timothy Geithner

  • 2009 1210 - COP - Hearing - Hearing With Treasury Secretary Timothy Geithner, Congressional Oversight Panel  ---  [BonkNote]
  • AIG - BankLike-?
  • (p63) - Chair WARREN. Mr. Secretary, I come from a world of Chapter 11.
    • People default all the time.
      • They negotiate down on their obligations
    • Secretary GEITHNER. Right.
    • Chair WARREN. And they do not bring down——
    • Secretary GEITHNER. But——
    • Chair WARREN [continuing]. The entire——
    • Secretary GEITHNER. You’re exactly——
    • Chair WARREN [continuing]. Financial system.
    • Secretary GEITHNER [continuing]. Right. And you’re a national expert on this basic issue. But banks are different. AIG is effectively a bank.
    • Chair WARREN. AIG was not a bank.
    • Secretary GEITHNER. It——
    • (p64) - Secretary GEITHNER. Can we do it a minute longer?
      • It’s a very important debate to have.
    • ....
    • Chair WARREN. Go ahead, Mr. Secretary.
    • Secretary GEITHNER. Financial institutions, which Congress has recognized for a long time, need a different type of bankruptcy regime than we have for other companies.
      • Now, AIG is not a bank, but, in effect, it operated as a bank.
        • It borrowed money, it operated on leverage, it did not have capital to support that.
        • We’ve had in place a different type of bankruptcy for banks for many, many decades, however, we need one for complex finances that operate just like banks.
      • Now, in bankruptcy, you have lots of choices.
        • You can negotiate all sorts of different treatments, in this context, and in ways that would be helpful for the country.
        • What we want is a bank-type resolution regime that gives us the choices that we’ve had for banks.
      • But, we did not have that for complex, large financial institutions.
        • And that’s what limited our choices.
  • (p78) - Geithner:  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.
  • (p79) - Geithner: People do not buy insurance products from firms they do not believe have the financial capacity to make good on those commitments over the long term— firms that they do not believe will pay out a life insurance policy...