making these decisions and we hope they can shed like on a murky set of facts. under subpoena, the committee obtained more than 250,000 pages of documents from the new york fed tell detailing its handling of the aig counterparties. particularly disturbing is the fact that these e-mails indicate that aig proposed to disclose to the sec and the public the names of the counterparties and the payments, but it was the new york feds that directed aig to withhold this information. as one new york fed staffer put it, any public disclosure by aig is still subject to fed approval. at least two things are clear here. the entire financial regulatory was broken, and there shouldn't be any more bailouts.

the lack of transparency we have seen in the double bailout of aig leads to distrust, which leads to anger. the question that looms over all of this, how do we prevent a repeat of the financial crisis in the future? unless the congress adopt s genuine financial services reform, it will be only a matter of time before we see another aig, bear stearns, another lehman brothers and the next big bank will be too big to fail, and the taxpayers will wind up footing the bill again and again and again. i ask my republican colleagues on this committee to join with me in fixing the system. blame is about yesterday. fixing this system is about today and the future.

in the aig case, we can talk all we want to about complicated business deals, but this all boils down to a simple concept. when average people are losing their homes and jobs, the same big banks that caused the problems got every dollar back courtesy of the american taxpayer. and the federal reserve tried to keep important information a secret. secrecy leads to distrust, and the american people now distrust what happened in these bailouts. congress has the right to know how and why that happened, and the american people have the right to know how and why that happened. i hope that today we can get answers to these and other important questions. i now yield to our ranking member, the gentleman from california, congressman darrell issa for his opening statement.

>> thank you, mr. chairman, and you have our promise that this has been and will continue to be a bipartisan oversight of these and all the issues related to the feds current and future authority. mr. chairman, i'd like to ask unanimous consent pursuant to our rules that spencer bachus, the ranking member on financial services committee, kevin brady of texas, the ranking house republican on the joint economic committee, roy blount, the former majority whip, ron paul, whose credentials on this are well understood and cliffterns of florida be allowed to sit in today and in time ask questioning pursuant to the rules. >> without objection. >> additionally i would ask at this time to submit for the record schedule a, which is, in fact, the shortfall agreements between products since referred to in questions and we want to make sure they're officially in the record. >> observing the right to object.

>> okay. additionally, mr. chairman, i would ask unanimous consent that the eight letters previously sent to secretary geithner and as of today not responded to also be placed in the record at this time, although they will not be reviewed further during this hearing. >> is there a -- observe to right to object. >> thank you, mr. chairman. for all of this and more, working together with you on the subpoena documents has caused both majority and minority toy glean considerable new information. in recent weeks, this committee receiving these documents have causes to better understand the new york fed's pressured aig to abort negotiations designed to obtain a haircut, as it was called, from its counterparties, and keep the details of counterparties payments from appearing on forms, the firms forms at the sec. today, among the questions we'll

ask is, should the american people were kept from knowing the ultimate beneficiaries of this bailout? as i've said before, i condebac. the people giving us testimony today will tell us that they felt that this was essential and necessary. mr. chairman, as you can recall, aig's founder, hank greenberg, has previously testified along with the i ago ceo edward liddy. that that testimony hank greenberg made is very clear that he believed that one hedging should have occur sooner and, two, bankruptcy would have been a cleaner resolve a company in which she the largest stockholder. re-engaged think founder to help a company 80% owned by the american people. not to say that there's a lot of good news at aig. mr. chairman, it's clear that

american people never to be repaid these dollars. i'll try to--did you hear me okay now? you can't? okay. now -- okay. i will focus on this microphone this time. usually the problem is, i'm too well heard. right, mr. chairman? >> generally. >> today we will have an opportunity to ask questions and the american people will have the right, and i believe will receive, straightforward answers. so far, mr. chairman, this is what we know. enal role at some of today's in the decision to bail out aig rather than allow the normal bankruptcy procedures to run their course. we know that one of today's witnesses made the decision to pay aig counterparties at 100 cents on the dollar.

we know that one of today's witnesses was the primary architect of the aig trust agreement, whereby, the taxpayers investment in aig is managed not in the interests of the u.s. taxpayers, but of the united states treasury department. that was from previous testimony, and we rely on that to say, perhaps that is not the right answer. we know that the new york feds sought to cover the counterparty payments made possible by the taxpayers' money. we now better understand that the new york fed transferred their earlier responsibility to the american people after t.a.r.p. was passed. we know that the new york feds succeeding in getting the -- succeeded in getting the sec to continue the cover-up until 2018, ten years from the date the bailout began. and we know that the full amount paid to aig's counterparties will likely never be repaid to the american people. some facts, mr. chairman, remain unknown or uncertain.

secretary geithner has claimed publicly that he has recused himself from the day-to-day management of the new york fed when the cover-up occurred. in fact, he has asserted complete ignorance of the fed's efforts to cover up the bailout details. many people, including members of this committee, have a hard time believing that secretary geithner entered into an absolute cone of silence for those of us old enough to remember what that was, on the day of his nomination, it was announced. where was secretary geithner for the months and months that back-door bailouts were being questioned in the media? did he ever wonder why his decision to pay aig's counterparty was kept secret for so long? these are the questions the american people deserve. mr. chairman, i would askthe re of my opens statement be placed in the record at this time. >> without objection. so yielded. >> i yield back.

>> thank you. at this time we would like to turn to our first witness, treasury secretary geithner. it is committee policy that all witnesses are sworn in. so, mr. secretary, if you would stand and raise your right hand. do you slum olemnly swear to te the truth, the whole truth and nothing but the truth? >> yes, sir. >> let the record so mr. geithner has been duly sworn. >> chairman towns, ranking member issa, members of the committee, thank you for the opportunity to temperature before you today. i welcome the committee's attention to this issue. and we will continue to work closely with this committee, with all other oversight bodies -- >> mr. secretary, pull the mike just a little closer. we're hearing you. >> i'm almost eating it. how's that sound? >> our sound system isn't that good around here. >> i don't think i can make it

any closer. i want to make sure that the american people have a comprehensive view of the actions we took to end this financial crisis. deciding to support aig was one of the most difficult choices i've ever been involved in in over 20 years of public service. the steps that were taken were motivated solely by what we believed to be in the public interests. we did not act because aig asked for help. we did not act to protect individual institutions. we acted because the consequences of aig failing would have been catastrophic for our economy and for american families and businesses. more than a year removed from that terrible week of september 2008, i believe that the government strategy, and it was the government strategy, was the best of the available options and will ultimately cause the taxpayer far less than many

fears and far less than many alternatives many people suggest today would have been bet are. and importantly, if you join with the president in adopting his proposed financial responsibility fee, american taxpayers will not have to pay one cent for the actions we took on aig or the actions we took with the authority congress gave the administration to stabilize this financial crisis. aig's problems became acute just a few days before lehman declared bankruptcy. at that time, our financial system and our economy stood at the brink of collapse. the banks and financial institutions that americans rely on to protect their savings to help finance their children's education, to help pay their bills were at risks in which few americans had ever experienced. the banks and the financial markets that businesses rely on to meet payroll, to build inventory, to fund new investments, to create new jobs,

were threatened like at no time since the great depression. across the country, across the united states of america, people were rapidly losing confidence in our financial system, and in the government's ability to safeguard their economic security. in the midst of this storm, aig posed a much greater threat to lehman. aig was much larger it was spread across the globe and its failure would have been far worse, hitting americans in ways lehman could not. aig was one of the largest life and health insurance companies in the country. one of the largest property and casualty insurers providing insurance to 180,000 small businesses and other corporate entities, which together employed about 100 million people. aig had sold products to protect local and city governments, pension funds, and thousands of public and private companies. through guaranteed investment

contracts and protection for 401(k)s, and as problematic, aig engaged in a broad range of financial activities that strayed well beyond traditional insurance businesses. using a credit rating based on the strength and profitability of its insurance companies, it had become one of the largest providers of complicated financial products in the world. it made hundreds of billions of dollars of financial commitments without the resources to back up those commitments. aig should have never been allowed to take those risks. but it was. its insurance regulators in 20 different states. the regulators in other countries responsible for overseeing their international activities, and its holding company supervisors, the office of supervision did not act to constrain the risks aig was taking. important to recall that the federal reserve was given no

responsibility and no authority to contain risks that aig was taking. no one acted to constrain risk taking by aig and none of those regulators in the moment of crisis had any ability to respond to its failure. the government of the united states did not have the ability to seize aig and wind it down in an orderly way as the fdic can and does for banks. neither the bankruptcy code nor insolvency procedures for insurance companies could have handled the job, and there was no way to draw a line around aig and prevent its failure from wreaking havoc across the system. the federal reserve was at@@@@@ return, the taxpayer took

about an 80% stake in the company and began the process of restructuring management and the board and the firm itself. that initial action helped stem the bleeding for a time, but given the massive losses aig faced and given the force the storm moving across the global financial system, it was not enough. and we had to work very quickly, almost from the beginning, to design and implement a broader, more permanent restructuring. aig needed capital, not just a line of credit. and aig's vulnerability to future losses to the bleeding of cash had to be reduced. on november 10th, the federal

reserve and the department of the treasury jointly announced a series of steps designed to stabilized company. the treasury invested $40 billion of preferred capital under the authority congress provided the executive branch under the t.a.r.p. and the federal reserve helped establish and fund two entities, called maiden lane two and three to purchase a range of assets from the company that were threatening aig's financial solvency. maiden length free in particular has been subject appropriately of a range of questions about how we treated firms that had brought these insurance -- bought these contracts from aig. i want to make this very clear, in this effort, our objective was, as always to get what was, to get the best deal for the american taxpayer and we faced a number of options. if we had let aig default on the contracts, aig would have gone into bankruptcy triggering all

the disastrous economy consequences we had feared since september that led the government to act initially. if we continuesed to lend aig money to meet these obligation, its growing debt would have led to a credit rating downgrade, bringing down the firm itself. and putting more taxpayer dollars at risk. if we had tried to force counterparties to accept less than they were legally entitled to, market participants would have lost confidence in aig leading to the company's collapse. the counterparties could have refused, could have kept the billions of collateral already taken. taken the securitieses they already had and sued aig for breach of contract. we did not have the luxury of time, could not engage in protracted negotiations. aig's financial position was deteriorating rapidly day by day. the prospect of failure was imminent. so we restructured those contracts to stop the bleeding and potentially recover some value for the taxpayer in the future. now, although the government still faces the risk of

substantial losses in its overall exposure to aig, we expected this transaction, the one at the heart of so much controversy, to be paid off in full with interest generating some profit for the american taxpayer. now on november 24th, after president obama announced his intention to nominate me for secretary of the treasury and after broad consultation with the chairman of the federal reserve and others i decided to stay on as president of the new york fed on an interim basis but withdrew from monetary policy decisions, policies involving individual financial institutions and day-to-day management of the new york fed. i had no role before or after november 24th in making decisions regarding what to disclose about the specific financial terms of maiden lane two and three and payments to aig counterparties. mr. chairman, the broad strategy in a the government adopted to attain this financial crisis has been remarkably effective at

stemming the crisis, breaking the momentum of the crisis and repairing the damage. and this has been achieved at much lower cost in taxpayer resources than many people anticipated. confidence in the basic stability of the american financial system is much stronger today. borrowing costs for american businesses and consumers for households, for municipal and state governments have fallen dramatically. the economy is now growing. the support we provided to aig in the context of the broad strategy to put out this financial fire was essential to achieving this early beginning of healing and recovery. banks have already repaid two-thirds of the t.a.r.p. investments that my predecessor appropriately made. the only support this administration has provided to banks since i took office, to banks, was $7 billion to regional, small community banks. more than 75% of the emergency

government guarantees that i inherited when i took into office have now been shut down and closed at a profit to taxpayers. over the last year, the expected costs of stabilizing the financial system has fallen by over $400 billion. that is real resources that we can use to meet the many other challenges we face as a country. and if congress joins with us in adopting the president's professional for a financial responsibility fee, the american taxpayer will recoup every penny of potential losses under the t.a.r.p. now, this economy is still in crisis, but because of the government's actions, the american financial system is now in a position where it can provide the credit necessary for economic growth. and that is essential to lay the foundation for job growth and long-term economic prosperity. now, let me close by saying this -- if you are outraged by aig and you should be, if you are

outraged by what happened with aig, then you should be deeply committed to financial reform. the united states of america should never have let institutions like aig take on a leff of risk that could threaten the stability of the financial system. and the government of the united states should never have been in the position going into a crisis of this severity without the basic tools able to contain the damage and protect the taxpayer. so i hope you will join us in working to put in place a strong package of financial reforms that will protect consumers, protect investors, protect the taxpayer and protect our economy from excessive risktaking by financial institutions, and mr. chairman, one final thought. the public servants involved in making these decisions acted solely in the public interest. acted solely in the interests of the american taxpayer. they are dedicated americans who cling bring to government service enormous experience and

the highest integrity. i would never and they would never be involved in a benefit for private benefit and not the public's interest. the decisions we made together regarding aig was enormously consequential, terribly difficult and with controversy with each of the institutions responsible, and for that reason they were subject to enormous care and deliberation, but i believe a fair reading of history, a careful, fair reading of history of all the judgments we made will demonstration that the actions we took, and i was there, were essential to preventing broader catastrophe and the solutions we took reduced the ultimate cost to the american taxpayer and the american economy is much stronger today as a result. thank you very much. >> thank you very much, mr. secretary. let me begin by asking a couple questions. were you involved in any discussions with aig or your

staff involved where you discussed what aig should or should not disclose to the public? >> mr. chairman a i said i had no role in making those decisions. but as the record shows, and the record for the committee shows, a large number of people at the federal reserve bank of new york and the federal reserve board in washington played a very active role in thinking through those difficult choices. >> but i'm not sure i got the answer in. >> well, let me say it again. i personally played no role before the 24th or after in making those decisions, but you ked whether any employees of the new york fed did, of course, they did. >> when you were the president of the federal reserve bank of new york, when did you recuse yourself from matters involving specific companies and why did you recuse yourself?

>> on november 24th, the president announced his intention to nominate me at secretary to the treasury. that forced me to make a set of decisions about what was appropriate for me to do given the unique circumstances of that time. and after consulting with the chairman of the federal reserve, with the chairman of my board, with my general counsel, and with a range of other officials, collectively we decided that it was in the best interests of the fed and the incoming administration for me to remove myself from day-to-day involvement in the fed's policy issues, to leave that responsibility to my colleagues at the new york fed led by the executive of the first vice president of the new york fed, but not to step down as president. and we made that decision, because we wanted to make sure we were protectinged independents of the fed and i was going to be spending, my necessity, a huge part of my time in helping shape the president's economic agenda and

i was not going to be able to give the care and effort needed to carry on running the fed on a day-to-day basis. our judgment was that was the best decision at the time. i'm confident of that in retrospect. it was unique. it was unique, but i don't think there was a better alternative available. >> secretary geithner, i don't think aig's counterparties should have been paid 100 cents on the dollar, because in this e-mail we have here it's on the screen as well, you had some interests in how much the counterparties were owed. please tell the committee what impact the counterparties exposure had on your decision to pay 100 cents on the dollar. >> mr. chairman, i played no role in that decision. as i said in my opening statements, as i testified before, we had to make a difficult choice about what was going to prevent the failure of

the firm at least cost to the taxpayer. if we had broken those contracts, if aig had not paid them in full, if we had threatened default, if we had imposed haircuts, if we had selectively imposed haircuts that would have brought about a downgraded in its rating. the firm not able to operate and it would have collapsed. it was because of those choice wes took the path we did, to restructure the contracts and leave the taxpayer with some of the potential upside in securities. now, judging what is systemic, and why, and a failure of aig is a difficult judgment to make. there's no black and white choice in that context. but our judgment was, as i said in my testimony, that aig's collapse would have dramatically magnified all of the effects you saw in the immediate aftermath of lehman's failure and in some

ways more consequential, because they would have spread to a set of insurance businesses and that would have been much worse for the country. we were guided by a simple but terrible choice. how best to prevent default, at least cost to the taxpayer. >> thank you very much, mr. secretary. i now yield to the gentleman from california, ranking member congressman issa. >> thank you, mr. chairman and i'm going to pick up where you left off pretty much. secretary geithner, i think -- pardon me? i think you've answered that you played no role in the decision to not disclose the full payment, the 100% payment to the counterparties. that were you not part of what some of us called a cover-up. is that right? >> absolutely. >> okay. let me follow-up, then. if after november 24th you were not involved in any activity,

then one more just to be clear, did you ever become involved with the federal reserve's disclosure decision with respect to counterparty claims after your nomination as treasury secretary? in other words, have you ever participated or questioned or stayed involved with that? >> no, i did not. >> well, from what we were given by the fed, can we put up slide one. this e-mail from you says -- to william dudley, your replacement, on march of 2009, and it -- where's the line to read here? okay. it's easier to read on the screen. where are you on the aig counterparty disclosure issue?

long after you left, you made this e-mail. what was it about and what was the answer? >> well, congressman, as you know, this question of disclosure was the subject of huge amount of controversy. and most people -- >> you think? >> yeah. that's what my son says, and ai glee with you. most people feel, as you do, they said, why shouldn't it be disclosed? and as you know, in march, which i think, if i'm not mistaken -- >> march 15th. >> the time of this e-mail -- it had been subject to testimony by the vice chairman of the federal reserve and the federal reserve was facing a huge amount of pressure are and attention over what it disclosed. so i assume as you might expecth

very supportive since i came into office and before to making sure we were bringing an unprecedented level of disclosure to the transparency around the actions ever the government. i'll give awe few examples. when i came into office we put the financial terms of all of the transactions we undertook under the t.a.r.p. in the public domain for everyone to see. one of the reasons our financial strategy has been successful in bringing measured stability back to our system is we compelled

the largest institutions in the country to subject their balance sheets to -- >> well, secretary, i appreciate what you're been doing as treasury secretary, but i have in front of me from the fed, marked confidential, the details of who benefited, who got these benefits, and currently it's locked up until 2018 by an order that wasn't negotiated and final until may of this year, may of last year, long after you were obviously able to be involved that locks up the public knowing be, and these are assets the american people paid for in full. right? do you believe we should know about these? >> congressman, that's an issue that should be directed to the new york fed and sec. you asked me a question, i didn't quite get a chance to answer before, which is, you said what was my view in effect. >> yes. >> what the fed ultimately did. it's very important to recognize that the fed did in march of

2009 fully release information that counterparties and the details of that transaction, and based on what i know, i thought it was appropriate then. i know a lot of people said should that have come sooner? reasonably, people could come to that judgment, but i did not stand in their shoes at the time. >> now, as a member and the head of the new york fed and also i guess broadly a member ever the board generally, until you were sworn in. >> until time expired. >> finish up this question quickly, mr. chairman. >> you were aware that chairman bernanke in fact had in front, from the staff, a report that said, aig should be allowed to go bankrupt, which was then held back on september 16th based on his decision on september 15th not to disclose this for a broad vote of the board, weren't you? >> i don't -- i'm not aware of the e-mail you're rearing to but

aware the following. >> witness answer the question and then we'll move on to it next questioner. >> thank you. every decision we made in the days before september 16th and afterwards were enormously controversial -- >> no, no. the gentleman's time's expired. recognize mr. kanjorski k. i ask unanimous consent to get an answer to the question. >> each member that five minutes. we'll, without objection, the witness can answer the question. we're going to -- >> the only question we want, were you aware of that, if you weren't, do you think you should have been aware of that for a vote on september 16th. 2459s all. >> i was aware there was enormous concern both in the new york fed and at the federal reserve board about the choices we were confronted. as i said, there was nothing more controversial an difficult than i think anything we faced in this context and i think it should be reassuring and no surprise that those actions and the records will show that those actions were the subject of enormous debate. and they were made before the 16th and afterwards and every time we faced the possibility of

having to do more, we all stepped back and said, d we really need to do that? does that make sense? and that is a good thing for the country. you had people willing to debate that and argue it enforcibly. >> thank you. the chair recognizes mr. kanjorski. >> thank you very much. mr. secretary, there's a famous expression, i think it um cans from one of the fine poets of our era -- we have come to bury caesar, not to praise him, and i hope you appreciate the role of caesar that you play today. but it made me think about the fact that last sunday i watched a ball game and in the closing moments of the ball game, the quarterback made a tremendous decision to pass the football and it got intercepted, and as a result, the opposing team took the ball down the field, kicked a field goal and won the game. and i convened several meetings in new york after that game and

met extensively on monday and tuesday and we have concluded that he just did the absolute worst thing that he could have done. everyone of us at those meetings would have made the correct decision after the fact. i think the point i'm trying to make is, i do share some of the simp theympathies with you beca was on the committee and the task force and woshing with the secretary, the chairman of the federal reserve when the crisis occurred, and i caution some of the members i think even of this committee were able, ever the votes we needed to authorize the saving of the american economy. as i've heard your testimony, you come to the conclusion that if the rescue package had not been passed by the congress of the united states authorizing the secretary and the president to take extraordinary action and commit hundreds of billions of dollars are taxpayers' money, we

wouldn't be sitting in this room today. we probably wouldn't be operating under the constitution that was saved as a result of that precipitous action you had taken in a very short period of time. is that relative think correct? >> i completely agree, and those members of congress on both sides the aisle that voted to authorize that action did the right and the necessary and the courageous thing, and they made it possible for my predecessor and the federal reserve to start to stabilize this thing. and it would not have been possible without that authority and without that legislation. >> i appreciate that. appreciat. i sometimes, as a matter of fact i took that argument to the white house. if i remember the president was not as outspoken and i was convinced that in a democracy such as ours, both in bad news and dangerous news must be

shared with the people. part of the problem -- we didn't share that news. even through today, most people in this audience and throughout america have no idea how close we came to total annihilation and disaster. is that correct? >> that is my view. for the first time since the great depression you were seeing a full-scale run and people were taking their savings out of banks and wondered whether a dollar was a dollar and whether it won worth a dollar. it was a basic break down in the fabric of our system. no recovery would have been possible without starting to stabilize the system and stem the bleeding and that was something that could not happen without the authority that as i said, many people on both sides of the aisle voted to approve. >> there were discussions held at the highest echelons of the

united states government and congress at that very time. as to whether or not law and order could be secured in the united states if we did not take action to assure people that the economic markets of the united states and the world would be held secure? >> i was not in the executive branch at that time, so i could not speak to that, but this was the gravest crisis we had seen and it was not going to solve itself. many people advocated we should let it burn itself out, but that would have been catastrophic. we are living with the consequences of the damage and the wreckage. the scale we face as an economy are rooted in that crisis and they illustrate the force of the pressure and the momentum that was already living with in august of that summer. >> all decisions made in those fateful two weeks were not

correct. >> congressman, i think every day about things we could have done differently and early. i think a great strength of the country is that people in the congress and independent oversight and financial crisis were all going to take a cold hard look at everything that was done. >> time expired. you may continue with your answer. >> that willive us a basis for fixing this mess and preventing it from happening again. we'll cooperate fully in all that effort. >> thank you. >> thank you, gentlemen. chair recognizes mr. burton. >> one of your counsels, james bergen said on march 12th i don't know if there is any way

to manage this so congress doesn't ask for it and won't release it. does he work for you or did he? >> yes, he did. >> does your legal counsel have authority to make comments and decisions without your knowledge? >> of course, but -- >> regarding something of this importance? >> as president and ceo of the new york fed, i was ultimately responsible. it's not a long answer. >> i want to know, do they have the authority to make these comment comments and decisions without you knowing about it? >> of course. >> what's the date on there? on november 11th, when you were still at the fed, an internal

memo said as a matter of course, we do not want to disclose that the concession is at par unless absolutely necessary. are you familiar with that memo? >> not with that e-mail. as i said, i was not involved about decisions about what to disclose about the transactions or the names of counter parties. i have enormous trust and confidence in the integrity and judgment of people who were. >> on march 15th, after that we had up on the board there a few minutes ago the e-mail to mr. dudley. he said where are you on the counter party disclosure? he said my understanding is it could come out as early as today. are you familiar with that? >> i don't recall his response and i don't recall my unit making fun of him, but now i see it. >> you don't remember? >> no,i don't, but at the time there was enormous building pressure to disclose and they

did disclose. >> do you maintain you weren't involved in any of this? >> absolutely. >> were you aware that all of these organizations around the world, society, goldman sacks, do i have bank, ubs were all getting 100 cents on the dollar. >> absolutely. >> you were aware of that? why wasn't this disclosed back in november when you were the head of the fed? >> again, that is a question you need to direct to the people responsible for that judgment. >> you were the head of the fed? >> i was the head of the fed of new york until i was confirmed for this job. >> why wouldn't this have been disclosed back then? what was this, a group? >> i don't know how to say it differently, but when the president announced his

intention to nominate me, i withdrew appropriately from a range of institutions in part to protect the fed so i could do my job of helping the president prepare for how to fix the mess we inherited. because of that, i was not involved in the decisions, but the people who made those decisions did so -- >> this happened on november 11th before you withdrew. >> what happened? >> this knowledge. >> mr. chairman, as i inside my testimony -- >> why wasn't it disclosed back then? >> we didn't face that choice then. i was directly involved in the judgments we made. >> you didn't face the choice back then? >> no, we didn't. the choice i was deeply involved in fully supports and the decision to restructure the contracts in way that was better for the taxpayer. i was supportive and fully aware of that. >> it stretches for us to

believe you had no role and didn't know anything about this when your attorneys and people who worked for you were sending e-mails around the place and you were the head of the fed and didn't know about it. it doesn't make sense to me. a lot of my colleagues feel the same way. >> we were involved in an extraordinarily complicated range of things. the choices around disclosure that understandably were the focus of so much attention. >> do you think there should be an audit of the fed. >> you may answer the question. >> i am supportive as part of financial reform of making sure the fed is subject to a level oa

requested would have come to at least the question mark.

you score you would tell the truth, is that correct? >> i did. >> i assume your written statement is a statement in which you would also swear to? >> absolutely. i'm trying to figure out as far as the initial getting involve and what you did, i don't know what anybody else would have done. i don't think we had a choice. or did you have a choice? let me say that i think we did the right thing there. this is where it gets sticky. we also have a situation, secretary geithner, where the american people are concerned that a lot is being done for wall street, but not enough being done for main street. you understand that? >> absolutely. >> one of the interesting things is you talked about how you had

not taken the action from the beginning and how it might have affected main street. the constituents of all 435 members. you tell us if you had not taken action, how might it affect students in my district or businesses or whatever. can you tell us that? i don't think that is getting through. >> thousands of more factories were to close their doors. millions more americans would have lost their jobs. the value of america's houses and savings would have fallen either further. people would have rushed to take their money out of banks. it would have brought about utter collapse. i don't know a better way to say it than that. if people wonder if that was true, all they have to do is look back at what happened in the fall of 2008. you saw the value of american savings fall by almost 40%.

trillions of dollars in lost wealth and millions left their homes. thousands and thousands of businesses had to close. that's what happens when you let a crisis get out of control. government should never let that happen. if they don't act and this is important for people to understand. people think it's unfair for the government to act to rescue a financial system. you cannot help an economy recover and create jobs. you can't preserve the value of people's savings without a functioning financial system. >> another moment when we requested the hearing that i was concerned about is the counter parties. they are looking into the whole issue. there have been comments that the counter parties were tenuous

and had they not been paid in full, they risked collapse. was this a real possibility. >> in my judgment that was not the most important risk posed to aig and posed direct losses on the major banks. those losses were not the issue. they would not have been significant. the threat to the system and this was a threat to all institutions operating was the threat of collapse to the system as a whole. you would see the crisis spread to insurance companies around the world and seen investors that would have brought a collapse in all financial values. >> my time is running out. real quick, when the public has so much invested, isn't it better to err on the side of transparency as opposed to keeping things secret?

>> of course. of course. >> what would push the decision to not be as transparent? what would cause that? >> there very few cases where it is necessary for there to be a lag in disclosure or a gap. i'm not sure the best way to explain it, but like in national security or law enforcement -- >> time z expired. >> like in the supervisory information, but there some areas in which you need to be careful about how you manage it. that's a discussion you should have at the fed. we would not want to disclose information that would be bad or harder for the taxpayer to recoup investment. i completely agree that they are essential. the american people deserve it and we have been very effective

in bringing an unprecedented level of security. the level of transparency and disclosure. it's kind of interesting the way you framed your testimony and your involvement and the decisions before the committee today. you tried to give the impression that huh to do what huh to do because of the financial situation. that's pretty much what you said, right? >> absolutely. you made the decisions together and set a dividing line of november 24th. that's when you received word you would be nominated for

treasury secretary? >> that's when the announcement was made. you tried to distance yourself from decisions made before that, but in fact -- i had not tried to distance. i tried to take full responsibility for all those decisions. >> okay, then you also were aware when the new york federal reserve board ultimately selected november 3rd, 2008 to purchase the underlying assets? >> absolutely. >> you were. >> i take full responsibility. >> you had no knowledge of any cover up, right? or intent not to give full information and disclosure. >> of course not. >> so you took credit for the decision, but not the cover up. >> no, no. >> you distanced yourself from any cover up before november

24th and then of course you were out of the picture from november 24th forward? >> i am not trying to distance myself from anything. i will take complete responsibility for decisions i played a role in shaping, including all decisions up to the 24th in this case. i'm happy to take responsibility for all decisions i made since then too. >> you were aware of 100 cents on the dollar? >> absolutely. >> and the risk posed by that offer. you knew about that, but you weren't attempting to cover up. that's your testimony. >> of course not. >> i believe either you made a bad decision there or in fact there was the attempt to cover up one of the biggest backdoor bailouts in history. now you tried to frame it as you did it because you did it in the

interest of the people and the failure of the system. i believe these are lame excuses. either you were in charge and did the wrong thing or participated in the wrong thing. it appears like when you were being confirmed, a lot of controversy surrounded your not paying taxes. you gave lame excuse then and i believe you are giving lame excuses now. my final question is, why shouldn't we ask for your resignation as secretary of the treasury? i didn't think you should have been secretary of the treasury when it was disclosed you didn't pay your taxes because that's the highest financial responsibility position in the united states government. why shouldn't you? >> that is your right to that opinion. i have worked in public service all my live and have never been a politician. i served my country as carefully and ably as i can.

it's a privilege for me to work with this president to help repair the damage that was here when we took office. i will do so as long as he asks me to do so to the best of my ability and with great pride in this country and in him. >> again, i think you are punning the blame and trying to position yourself. >> you don't know me very well. >> we are not getting the whole story. we are getting a lame story and a monumental backdoor decision of bailout for which the taxpayers will stay on the hook for huge amounts of money and even by estimates of the treasury, there will be billions from this deal which either you should have been overseeing and you said you had knowledge of and you failed to take steps to further protect the taxpayer interest. you are either incompetent on the job or were not doing your

job and that's grounds for removal. >> i was there and i know what i was responsible for. i take full responsibility and great pride in the judgments. >> the secretary may answer the question. >> he takes great pride. >> i do. i take great pride in the judgments. people have a right to disagree and go back and look at them with great care and analysis. i hope you will give the same care and judgment to looking at the decisions in retrospect with the benefit of hindsight that we gave in making the decisions at that time. >> thank the gentlemen. it's my time to ask questions. mr. geithner, the new york fed agreed to goldman sacks demands

for billions to settle counter party claims with aig. 100 cents on $1. goldman and aig were locked into the dispute and they would lose up to 2.5 billion. did you know at the time that goldman sacks concluded it would not receive 100 cents on the dollar in the event of default? >> i did not know and i don't know whether that's true or not. >> goldman said publicly they didn't need the government's money. it was fully hedged and would not be affected if aig defaulted. committee investigators learned that goldman's insurance policy would not pay in the event that the u.s. government bailed out aig. goldman's protection would pay only in the event that aig default defaulted. they hadn't put that contingency. that failure put them at risk of

losing the amount of disputed money when the government rescued aig. did you have knowledge at the time? did anyone at goldman admit to you or anyone working under you that goldman sacks was not fully hedged in the event the government took over aig and goldman was at risk of losing at least $2.5 billion if the government bailed out aig and opposed less than 100 cents on a dollar. >> congressman, i am not aware and i don't see how i could have been aware of the precise details of the hedging strategies of all those firms to the event of a default by aig. we made a very careful effort to try to assess working with the supervisors of all the institutions and exposure to aig about the exposure. >> had you talked to lloyd?

do you remember talking to him? >> in the goldman sacks case in particular because a lot of reports that were consequential, i asked what their exposure was and asked you to show me what the internal system reports showed about the committee. >> we will have a series of questions to submit to you in writing so that you will be given an opportunity to have an extensive answer. mr. secretary, when the government stepped in, there was one way for goldman sacks to get a piece of the 2.5 billion. that was if the new york fed voluntarily agreed to give it to them. if the new york fed had fought for taxpayers, goldman would have lost money they didn't have hope of recovering. the new york fed had arcrr

>> or any market player at any other time? >> congressman, if we had the ability, like we have for normal companies that go into bankruptcy, if we had the ability like we have for banks, to put them into an orderly winding process, wind up process, we could have done many things. but under the laws of the land, we did not have the ability. so we face a very simple choice. let aig default or prevent it. and there was no way financial, legal or otherwise, we could

have imposed haircuts selectively default on any of those institutions, without the risk of downgrade and default. that is the only reason -- >> i just want to say, when did saving the system require that taxpayers to give a better deal than the market would normally deliver, you know, that is what the new york fed did. the government gave goldman sachs more than goldman sachs had any right to expect or at the same time, getting no financial relief, whatever, to millions of americans facing foreclosure crisis. if that doesn't illustrate what the new york fed thought it was working for, or who it was working for, i don't know what does. >> congressman, -- >> you may respond and my time is expired. >> congressman, that is not true and it is unfair to the public servants -- >> what's not there? >> what you just said. it is not true that the actions we took on aig board for the benefit of anybody but them

millions of americans who, at that point, were suffering from the worst financial crisis since the great depression. the only way to help reduce that damage, project that damage, was to fix the system and prevent catastrophic better. that is the only motive that underpins these action by the government. >> i thank the gentleman. my time is expired. >> thank you, mr. chairman. mr. secretary, you talked about looking at these events with the benefit of hindsight. two men who did were peter blum, who is a researcher at the london school economic so and simon johnson, a professor at mit's be good to closer to the mic so we can hear him? thank you. >> simon johnson, a professor at mit, sloan school of management. and they wrote in the new republic magazine in a september 23 issue, the fed may well have mitigated our current crisis by sowing the seeds for the next one. and they say in fact, the fed

has exacerbated the possibility of another. similar even larger crisis. in fact, the way they put, as a result and less real reform happen soon we face the prospect of another bubble bursting bailout cycle. that will be even more dangerous than the one we have just been through. now i assume you know the american people are very, very angry about these bail outs and bonuses and salaries that have come about through what most people see as a big government, big business duopoly. and if you like this big government, big business duopoly has been an appealing in in such a way as to allow such a mind-boggling salaries and bonuses and allow very few a leaders at the top to come out like robber barons, to an extent, really not known in american history. because of the government through the federal reserve system, our free market system

was not allowed to operate. and it seems to most of us that it's not capitalism. when government uses billions and billions of taxpayer money to prop up a very few, well-connected firms. now that leads me to two questions. one, has the treasury and formed any of these financial giants that we will not follow too big to fail policies in the future? and secondly, do you think we should limit the salaries, these ridiculously excessive salaries and bonuses that are being talked about even today? in any of these firms that got taxpayer bailout funds. >> congressman, you asked the right question are in a financial crisis you face financial choice. you can let it try to burn itself out and let the damage spread to all sorts of innocent victims, or you can act to

prevent it. knowing that acting to prevent it will create the risks in the future investors will expect the government to step in in the future and say firms from the consequences of failure. that is the dilemma at the heart of strategy and financial crisis. to stand back and let it burn, is irresponsible. it's what happened in the great depression. it almost happened in this country. the moral, just, pragmatic their choice, and it should be true if you're a republican or democrat, is to act to protect the innocent. but as you said, wisely, by definition, that creates the risk we sow the seeds for future crises. and that's what in the financial reform problem we all have a huge stake in trying to make sure we not just limit risk-taking in the future, but that investors and equity holders and creditors and managers and executives do not run these firms with expectations that government will be there again.

and that's why it's so important we put in place types of bankruptcy mechanisms that we now have for banks but we do not have for institutions like aig. now, absolutely we have made clear in public in crystal-clear terms in reform proposals that are now moving through the congress that we need to in this expectation of too big to fail in government assistance. if you look at what we've done since we came to office, we have moved very aggressively to pull the government out of these institutions, to make sure we are not in these institutions at a longer that is necessary, to replace the public capital with private capital. we've done that by forcing disclosure and forcing firms to recapitalized with private money, precisely because we want to limit the scale of the government's involvement and into this exceptional period as quickly as we could. that strategy has been very, very effective in ways that people on the right and the left should welcome. on the right, it means that the government is out much more

quickly than anybody expected. on the web, people should know with confidence now that we have far more resources now available to help address the long-term challenges we face as a country to reduce our long-term deficits, and try to be the things that we have to do to fix what was broken in this country. mature as a very good question and i agree very much with the thrust of your concern. >> that was a good answer to my first question but my second question was, do you think bonuses, these bonuses and salary should be limited in any way, at least firms that did receive government bailout funds? >> the gentleman's time is expired please answer the question. >> i think what happened across this country and in the financial system was terribly catastrophic. it's just in a wave of huge increase in income and the quality and unite states over decades. in a financial, it was much worse. it was much more consequential because it helped encourage a level of risk-taking that again brought the system to the edge of collapse. so it is deeply important in the public interest of the country

that congress legislatively reforms that will change how bankers are paid. government can't do it alone though. shareholders and their representatives on the boards of these firms have to bring about much tougher limits now. i think that's important to do and i hope we will have support from the cars and making sure we are the basis for doing that. >> the chair recognizes mr. lynch of massachusetts. >> thank you, mr. chairman. mr. secretary, i'm well aware of your families commitment of public service, so it makes it more difficult in a sense, but to ask these questions, but i honestly feel that the conduct of yourself and mr. paulsen were not consistently on the side of the american taxpayer. and i will explain why. i will give you two examples. we had the situation with bear stearns. the circumstances are the same. the world is on the brink, we've got a disaster.

we worried about the whole system melting down. with your support and mr. paulsen, mr. bernanke, we forced them bear stearns shareholders from a position i think was a high of $172 a share in january, we forced them down to $2 a share because the american taxpayer money was in the bailout. and that was something that was supported by the fed, by treasury, because we felt that because the taxpayer was bailing them out, that the shareholders of bear stearns should not be held harmless. now, you have a different situation here, slightly different. number of weeks later where we have aig going under. and these are credit default swaps so the money going into aig is going right out to the counterparties. this is a pass-through.

and the folks on the other side are goldman sachs. , largely. that's principal beneficiary of all this. and we don't negotiate a nickel, not 1 cent off of what they are getting. you're in the same position, you're supposed to be negotiate on behalf of the american people. now, you're saying, oh, the regulations were different. let me tell you something. we were changing the rules and regulations every single day. we were taking action, but that, on the extraordinary circumstances. you had every opportunity, every opportunity to weigh in on behalf of the american people and make these people take a new deal. making take a haircut. you scout for the folks on bear stearns, $0.02 on the dollar they got. $0.02 on the dollar. the folks at goldman sachs got $0.100 on the dollar. and that is just unacceptable. totally unacceptable. you had the opportunity, and you

know, i think was a terrible decision on your part and also on mr. paulsen sport. and he is a play. and we will talk to him. but how do you expect -- look, and the thing about changing over to the obama administration, you got the same people who are relying on you. the american taxpayer, when you're in one job and the american taxpayers relying on the other job. i don't see a conflict. i really don't. you could have done the right thing by those people, by the american taxpayer, because their money was being put into this deal. it just takes to the high heavens what happened here. and i don't like the -- and to top it all off, the disclosure was not there. the disclosure was not there at the proper time to tell the american people and tell this congress what was going on. and that is just inexcusable, and it makes me doubt -- it makes me doubt your commitment to the american people. it makes me doubt mr. paulsen's commitment to the american

people that and i think the commitment to goldman sachs dropped the responsibility that our officials had to the american people. >> congressman, i respect your opinion. but i completely disagree. the american taxpayer would not have been better off if the government had made it possible for equity holders in bear stearns to get more money. the american taxpayer would not have been better off if we had let aig default. none of us did anything out of any -- >> the difference between giving them $0.100 on the dollar and letting them default, this was a new game. you were creating new facilities every week to help we were letting people go to the discount window that never had an opportunity do that. we were changing the rules day by day, and we had the banks at a position where we could have exercised a lot of leverage. and you chose not to do it. you chose not to do is. >> i disagree with you. >> it doesn't mean we have to

pay them $0.100 on the dollar or we let them fail. there are implements year. we never used that leverage -- >> not in this case. >> in this case, exactly. under 13-3 we could've taken different steps than we do care. >> 13-3 had nothing to do with this case. 13-3 had authority given to the federal reserve to protect the financial system from broad-based runs. to give us the authority only to lend against collateral to make sure that firms that were solvent could fund. we did that because of the catastrophic damage caused by decades of previous financial crises. we used that authority because we thought there was no other choice. we use that authority -- >> let me just say. when hank paulson polled nine banks into a room and said, you're taking bailout money, that was extort an action. >> the gym as time has expired. i'm a -- >> he could've done a better

thing. i yield back. >> if it would have been possible, we would have done it. why would i want to be sitting here before you today, having to defend actions that look like they could've been avoided? there is nobody who is part of that decision that would not have done that. it would've been impossible. i tried to be as careful as i can't explain the reasons why it was not possible, what it comes down to this is a tragic choice. if you're prepared to default, you can oppose haircuts. if you can't accept the consequences of the ball, you do not have any leverage. it would have been vastly more expensive for the american taxpayer pick a would've been much more damaging to people you and i care about, people you and i wake up every day worrying about if we let that prevent. there was no choice between default and the restructuring of those contracts. and they let the taxpayer --

>> there was no shared sacrifice for goldman sachs. >> will t massachusetts you? the gentleman's time has expired and i now call on mr. turner from ohio. >> thank you, mr. chairman. mr. geithner, in answer to one of my colleagues, you previously stated that you have never been a politician. i want to assure you from your answers today that you are absolutely a politician. and let me tell you -- >> do you mean that as a comp lit or not? i can't tell. >> one of the answers that trouble me about the issue in your written testimony of the team include aig said would be catastrophic, you go on to talk about the insurance arms of energy. this is not the first thing at 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 got maurice greenberg, former chairman at aig, said to

the best of my knowledge the problems that came to ahead this year did not originate in aig's interest businesses which remain fundamentally strong. we had the head of the new york state insurance department, superintendent eric banal, came in and said this. to forgo further, i would like to make one critical point that it is important for everyone, especially policyholders and aig insurance topic to understand that the insurance companies which are regular by new york and other states, are solvent and have the funds to pay any policyholders claims that they had independent reserves. you did not bail out the insurance companies of aig, correct? they didn't need. you bailed out the parent, right? >> just. if the parent had the ball to -- >> so when we go through your answer, if aig had failed, the catastrophic effect of all of the insurance companies that were on aig, they were bailed out by your? >> that's not true.

but maybe this is helpful to go back a little bit. when aig came to us that we can, remember, the fed is not their regular. the fed had no responsibility authority over what -- how they render business. that was the province of other regulators. it was inconceivable to me that this was a problem we are going to have to try to solve. and we got all the people we could come include the new york state insurance commissioner and his staff under people to look at -- >> did you bill of the life insurance arm of aig? >> those insurance companies and -- >> did you bail out a life insurance arms of aji? >> i wouldn't use that term. the actions we took -- >> did you bailout the health insurance arm of aig? >> it protected those companies from the risk of their. >> the testimony we've received previously from those who are looking at those arms was that they were substantially sound and so the catastrophic effects that you list are something that

we all would have been concerned about. >> i disagree completely. the people who responsible for looking at those insurance companies, frankly, had no idea of the risks. 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. why would we have not, if it had been impossible, to separate the place that was taking the firm down, to separate that clinic, separate that? we would have done that in the second. and that, much of what the management of this firm is trying to do today still, 50 mutchler, is designed to achieve that objective. but they were tightly connected that they could not have been separated. the insurance supervisors were responsible did not know the extent to which the financial base of the insurance companies was so connected to the holding company and the ai fp that taken

all those risk. >> mr. secretary, as you're going to the bailout and as we look to the counterparties and the funds that were received, one of the biggest concerns i've had to all of this process is that i believe that what it all becomes public, and it all has become public yet because we don't have everything from you, that this may turn out to be the largest theft in history. that there were parties that were participating through mortgage-backed securities and through other credit default swaps in two to 40 mr. and mrs. american citizen on main street, who was receiving a loan on their home that was negative in loan-to-value ratio and also had a greater risk than was what was being reported as the mortgage-backed securities and credit default swaps were passed up the chain. do you have any information of aig knowing that a loan-to-value ratios were inflated? and that the risks were being

understated? because i truly believe that throughout the system, that brought down the systematic mortgage crisis system in the process, that there was a significant amount of defrauding going on and that people need to be held accountable? i don't think a new system where your bidding outcome you're taking into consideration those that were bad actors. >> i completely agree that this country allowed come under the laws of the land, a terrible erosion in underwriting standards, a terrible amount of predation and abusive practices in mortgage lending in consumer finance. we should never have let that happen. and i hope you will join with us and tried to pass reforms that will prevent that from happening. >> hold a the second. let me say something to all the members. you know, right now we have like 30 some members that still have an opportunity to question, so

we're going to have to stick to the time. i want you to respect that. i may, i noticed that a couple of situation where you're going over but i'm thinking that when the red light comes on, that's it. so i want you to know, we are now moving to mr. quigley of ohio. >> illinois, i'm sorry. mr. quigley of illinois. is a year? >> thank you, mr. chairman. mr. secretary, welcome. can you provide for the record a copy of the recusal agreement that you signed when you were at the new york fed? >> i did not cite every to the agreement. i withdrew from day-to-day manager operations policy procedure of the new york fed, and my colleagues both in washington and a newer can't attest to that. >> so there was no formal agreement? >> no. as i said in my testimony, what i did is i withdrew from -- this was are important to do. again, no precedent for the to a

sitting president of the new fed being nominated for the treasure. and i withdrew after carefully consulting my colleagues am involved in monetary policy decisions, i did not go to the fomc meeting in december and i withdrew from all decisions about these individual cases involving the financial system, and that was the right thing to do at the time. >> thank you for clarifying that. number two, a lot of people think that the president of the new york fed works for the u.s. government. but in fact, you work for the private banks that elected you. >> that is not to. >> can you provide for the record the names of the handful of bankers and the board of the new york fed that elected you in 2003? >> that is a matter of public record. of course we can do that. >> thank you very much. >> can i just say? what you said is not true. i worked in the public interest, officials of the federal reserve board for the public interest and they work for the government. >> but the people don't elect you. the heads of the fed to run the country don't elect you.

it's the individuals who sit on the board of the new york fed that elected, is that correct because it's slightly macabre look at the net. was the congress did in setting up the fed is set up a system where the president of the regional reserve banks are elected by their board, but it requires the approval of the chairman of the board of governors in washington for them to serve. so it is a delicate bows of congress designed a system. >> but it is largely private banks that elected you and invite you to provide that for the record, please. i'm very interested in your answer to the record. number three, goldman sachs was the largest domestic recipient of funds in his aig counterparty arrangement. let me ask you, now as treasury secretary, your chief of staff is the gatekeeper for access to you. could you please provide his name because his name is mark patterson. >> thank you.

for whom did he work before you selected them as your chief of staff? >> he work for the president's transition team. >> no, before the. which wall street firm? >> this is a matter of public record and you know the answer to this question that he work for goldman sachs. >> you answered my question, mr. secretary. now let me say this. the aig transaction -- you've answered the question. thank you. the aig transaction was disturbing to many observers. why did our government not require the bank creditors to take the lead and bear some of the cost in any plan to stabilize aig? you, in effect, nationalize the company and let the bank creditors off the hook. why did you, as president of the new york fed, not work out an arrangement to remove the lending unit from the company rather than allowing the unit to affect the entire company?

>> if we had had the types of bankruptcy procedures we have for banks, it is possible that ultimately we could have done that. and if it had been easy and cheaper for the taxpayer for us to separate the riskiest parts of the firm, from the healthy profitable insurance companies, we would do that. and in fact, that is the core of the restarting strategy the company has now undertaken. but that choice was not available to us at the time. if it had been possible, of course we would have done that. but because we didn't have the tools that we have under bankruptcy, we did not have that choice. >> thank you, mr. secretary. your phone logs requested which i would like to insert in the record show between septembe september 14, -- >> without objection solar. >> thank you, mr. chairman. and just after september 15 when the three major rating agencies downgraded, aig's credit rating you made hundreds of calls, and

the most over 225, to secretary paulson who was then secretary of treasury, what term do the work for pride to his appointment as secretary of treasury? >> he work for goldman sachs. >> he work for goldman sachs to goldman sachs as i understand it got the most and counterparty payment of any domestic institution, is that true, $14 billion bequest i actually don't know if that is to. that is a matter of public record. >> goldman sachs was number one. now, you made about 100 calls to fed chair ben bernanke, but the next higher number of calls in that period, he made 100 free -- >> the gentlewoman's time has expired. with the gentle lady yielded? >> magis asked what firm he worked for? >> as you know, he work for goldman sachs. >> thank you. i will have additional questions with regard to who you phoned and will play set in the record. thank you. >> mr. chairman, can i do say

one response it's very important. congressman, you are suggesting that the people that were involved in this were not acting in the public interest. and you are suggesting that they were working for the private interest, not the public interest. and that is not true. i would never and i believe none of those individuals were ever part of any decision like that. and i think these people were people of a dogged integrity and experience operating under exceptional circumstances with no precedent doing the best they could for what was in the public interest. >> i must move. i must move on. the gentleman from georgia. >> thank you, mr. chairman. secretary geithner, when his aig, if you could just give us a day, wind and aig call and say, we need some money? >> well, they came to treasury and the fed formally i think on

that friday. >> friday, the -- >> i think was -- accountable show. it was the friday in september, the 11th or the 12th, i think. >> so is a friday in september. and at the time there were advisers of aig that were also advising the new york fed. were you aware of any conflicts amongst these advisers, or were there any discussions about what kind of conflict this might bring about? >> when aig came to us, and started to walk us through their financial condition, they had the buyers with them, and they were also in discussions with other advisers that were not with us in the room at the time. >> when did that dollar amount become -- after the discussions, at what point in time to a dollar amount arrived at? >> you be the initial terms of

the initial loan? >> the initial. >> i think we reach that decision probably just on the eve of the formal agreement. >> okay. >> again, we were trying to do the -- >> and what would that be have been, do you remember? >> the 16th was when we conclude that transactions that would've been just before the. >> let me ask you, on the counterparties, when was that meeting with the counterparties to discuss what the payment might be to them? do you remember those they? >> i do not believe there was a meeting with counterparties. what i asked my colleagues to do after looking at a range of options is to approach the counterparties individually and try to negotiate concessions. >> so there was no actual meeting where all the counterparties were in on? >> i don't think -- i'm have to check the record. i would have be to check the record and get back to, but i do not believe my colleagues at the

newark fed, did the. >> they were under your direction? >> absolutely and it acted in my direction. >> so you were a were of the 100% payment to the counterparties? >> as i have said many times, we decided, and i fully supported, decision to -- >> that's a yes. >> that is a yes. >> now, in each one of these meetings with the counterparties to negotiate, we were not able to negotiate any of them down? >> yeah, i mean, i think it's -- >> these were separate meetings i guess. i mean, did you question a negotiable skills of some of these people? >> these were, again, these were very talented people with a lot of experience who knew how to do this. many have done this for a living. but again, unless you can threaten to fault or threaten to pay below par, you understand is

that you don't have any leverage in a transaction. and in fact, if we negotiate with the threat of the fault like that, our concern was that would risk a downgrade, would have brought about the collapse spinet do you know if aig had approached any of these people about any type of negotiations about what a some may have been? because once the government gets behind it, like you said, it takes away your negotiate skill? >> you're exactly right. i'm not exactly sure but if i'm not mistaken, aig have probably tried to do that before, before the government came in but i can't speak to that today. >> these people with these credit default swaps, they were all bright people. they knew the high risk of what they were getting involved with, did they not? >> the tragic lesson of this crisis is lots of bright people with lots of experience who should have known better made bets on the future of the country that is in house prices would never fall. and the judge and aig made were

very similar to the mistakes the rating agencies made. >> but these people were making a lot of money off of is that this was a high risk high reward business, write? >> you mean the people at aig? absolutely. >> is obvious that aig deal is a bad deal for the taxpayers. and is this deal being renegotiated and is anybody at the treasury working with aig to try to renegotiate the steel? >> it is a better deal for the taxpayer than the alternatives, and it is proving anyways far better than many of us thought. although as i said, the u.s. government is still exposed a substantial risk of loss. we have a new board and place the d just answer because i've one more question. >> the gentleman's time has expired. of course, the gentleman from maryland is recognized for five minutes. >> thank you, mr. chairman. thank you, mr. secretary, for your tessler.

as you can get a previous administration came to congress into the country and said we face an extraordinary circumstances the failure to act to help rescue the financial industry would hurt people on main street, innocent bystanders in this process. and you took the action that you did and you probably said that we need to learn the lessons from what happened. and the administration, the congress have been working to do just that. here in the house we already passed a wall street accountability bill to try to do two things. number one, provide the fed and others with the tools to make sure you don't have a situation where a firm becomes too big to fail in a manner that it hurts innocent people. second, to make sure that there's a failsafe if somehow that happens, there's a pool of money raised from the banks, not from the taxpayers, to pay for the rescue. and number three, and the president has proposed this, of

the on the biggest financial institutions, $50 billion plus in assets to recover every penny of hard money. and i think it's important to understand, everyone understands that include every penny extended to aig, and every penny extended to the counterparties. now, in the house we passed a bill and we had an amendment to that bill. offered by congressman of michigan. i've got it right here. and it says, that that he will remain on the biggest banks, not just to capitalize a fund to be used in the event of future problems. they have to pay for their own, but it says you keep that fee on until you recover every penny. and i must say i was surprised, i wish all our colleagues on the other side of the aisle were here, i was surprised that is very simple idea was rejected unanimously by the other side in a boat. we had on this.

and that vote would have ensured it past. but that was a vote to make sure we get back every penny that the taxpayer gave to aig, every penny that the taxpayer gave to the counterparties. so if you could just be to the importance of making sure, number one, we take measures to prevent us of happening the future, but just as important, making sure we let everybody on main street, that their money that they helped send to rescue the package, will be recovered if we adopt the proposal of the house and the president's proposal. >> if congress joins the president in adopting this proposed financial fee, then the american taxpayer will not be exposed to a penny of laws for everything the government had to deal to fix this mess. and aig or everywhere else. that is not enough though. we believe it is very important to make sure we work with congress to put it in place

constraints that would prevent this from happening again. it was a tragic failure of the country not to act sooner to limit risk taking by some of the largest institutions that robbery with not enough capital and no oversight, and we have to make it clear in the future that we were going to be able to let firms fail without costing the taxpayers money and without costing collateral damage. now, i just want to say one thing. the cost of the american people cannot be captured in the simple financial costs of the t.a.r.p. we will protect them from those costs, if congress passes this fee. but the cost of the prices are much more damaging, cause much more damage that it can there be captured by the account because of the losses under t.a.r.p. but we have a great response to build an obligation to reform the system so they are not in that position again, and the least we can do is to make sure that taxpayers are not going to direct costs that we took in aig and elsewhere.

[inaudible] [inaudible] [inaudible] >> that's exactly right and it's better than that though, congressman, because the specific transaction that is subject to so much attention and appropriate in this hearing, themselves are likely to earn

the taxpayer a modest profit. but the government is still exposed to some risk of loss on the rest of its investments but if we adopt is the the taxpayers will not bear a penny of that cost. >> just to be clear, there are $68 billion worth of loss, 30.4 billion associated with this aig deal we're talking about now. so their significant loss to the taxpayers already through t.a.r.p., and so this new tax is simply about making up for that revenue. mr. secretary, do you support h.r. 4173, the wall street reform of consumer protection act? >> congressman, i'm not sure of the precise legislative amendment you're citing your. >> it is not an amendment that it is a bill sponsored by barney frank of massachusetts, --

>> that passed in the simmer? yes, i support the. >> and to you support the volcker rule? >> absolutely. what the president proposed is that working with the bill that passed the house, which include a provision that i think mr. conjures the author, to give the government that would make sure those translate into limbs that lacks a prevent risk-taking in the future. so it's consistent with h.r. 4173? >> absolutely. that bill and this is very important, that bill speed i understand, i want a committed. >> that would give the government the ability to limit risk taking. and the way that help prevent future crises. >> wasn't it your legislators doubt that really work to change the country ski am in? >> well again, we worked closely with members of that committee on the whole range of those provisions to make sure that they met the intent -- >> you're not answering my

question. >> limit in terms of its reach? >> no, we were taught to make sure -- >> let's go on. in essence, the volcker rule is something you support. >> gas. >> you testified last month before the joint economic committee, quote, i would not support reinstating glass-steagall and i don't actually believe that the end of glass-steagall played a significant role in the cause of this crisis. do you still stand by that statement? >> absolutely. >> how do you reconcile that believe with this rule that, in essence, limits or forces banks to invest in hedge funds and private equity and all these other additional elements that is in essence, glass-steagall? >> well, what glass-steagall did was to allow banks to underwrite equities and to engage in a

whole range of other types of financial activities, insurance as well, -- >> it limited that ability. be clear. >> as i think the bill you cited to support. it did actually provide authority to limit a set of activities so that the access to the safety net is not subsidizing excessive risk-taking. it's a simple principle, does it dialback some, it does do that but it's not what people typicallyeferred to as glass-steagall. >> so it also says that if you engage in a certain type of -- if you have a certain form many a bank holding coming, you had to utter to certain rules. correct? >> that's right. >> you also testified he for the financial services committee, of which i said, last year that quote financial products and institutions should be regulated by the economic function they provide in the risks they present, not the legal form a

take. >> i agree with that. >> and so you support a rule that says based on a legal form you take, you have to adhere to these principles. how do you reconcile this? >> they are perfectly consistent. >> they are purposely opposite? >> no this is important for people to understand that if you are operating in the financial markets, you're helping companies raise credit, raise capital. you're helping make markets work. you're providing liquidity to markets. it doesn't matter, should matter to us whether you call goldman sachs whether you're called jpmorgan, you should be subjected to a set of constraints on capital, on leveraged, on how you are funded, that limit the amount of risks you take. if in addition to that you want to own a bank and operate a bank, then there is a set of other limits that we think are good in the public interest so that again, you can't take advantage of that access to the safety net to subsidize a set of

activities that are not essential to spirit but basically you're saying if you simply drop the bank holding company label, you're out from under that? >> absolutely not. that would be a mistake for the country your. >> that's what the webpage will -- >> that's not a fair reading of the rule. maybe this be helpful for me to say to you. we will work very closely with members on both sides of the aisle to make sure that those legislation results in a set of sensible constraints and risk taking. >> that would be something new. >> the gentleman's time has expired. >> because you have not reached out to republicans to be clear on the financial side. >> that is not to. i'm happy going forward to make sure as we try to get these, we do so carefully with full consultation. >> the gentleman's time has expired, and the chairman recognizes himself for five minutes. thank you, mr. geithner, for being here. number one, i just want to

remind my colleagues on both sides that the whole request for the bailout that had to be administered by the treasury department was at the request of then president bush. and second, i understand your testimony that the people responsible for administering this made the best decisions they could under the circumstances. i just want to ask a couple of questions though that start with one of the statement you made, mr. geithner, about the effect of the actions taken have stabilized the financial system. i'm not here to argue that. the question i have is, hasn't helped the broad mainstream economy. and there are many who believe, and i am among them, that wall street got out ahead of itself, got in the business of self-enrichment rather than financing american jobs, america entrepreneurs. and actually transformed itself from an entity that was about

creating jobs and to the greatest of job killing machine in the history of the country. there's two things that i want to ask. one is, the bank the that president obama has endorsed, you see that as an essential to have the folks who were largely responsible for the financial meltdown pay the cost so that it is not the taxpayers, is that correct? >> absolutely. in the reforms we've opposed to the congress back in june, at the center of that proposal was a basic principle. which in the future governments risk of loss, the bank they. and the t.a.r.p. legislation you refer to, there is an explicit provision that puts a publication on me to propose ways to coop the cost. and we proposed that in the present financial responsibly. >> and i support that that i am glad you are doing it. second, there are a number of us well over 60 that are supporting attacks on wall street bonuses, and i just want to get your opinion on this.

and i will give an example of the kind of conduct that was allowed to occur. it's been reported as you know in the new times that goldman sachs had a department that bundled subprime mortgages. it didn't have folks who advocated to the rating agencies to give it the highest rating possible. it then went to it trusted clients, and so both. and then went to its trading desk and sold in short. is at the time of conduct that you think should be monitored and curbed by any financial regulatory monitor? >> congressman, i believe deeply that we need tougher rules, and force more effectively and easily, to make sure that consumers and investors are not taken advantage of. and the system is not so fragile. the government has to step in future and take this. i deeply believe that. >> let me just ask you about the post because i would be interested in this.

firms like goldman received t.a.r.p. funds. they received a low interest money from the open window of the federal reserve, and of course golden and other firms received direct pass-through payments when aig was bailout, correct? and when mr. paulsen, your predecessor was on the phone requesting this money, this was not anything that you made the request for. he assured us that wall street had learned its ways. golden and the other wall street firms are back to their old ways. they've been so successful, and let's give them credit. they are good at what they do. the question is, whether what they do is good for the economy and for main street. they been able to to set aside $14,260,000,000,000. do you have an opinion for bonuses, and they could have let that out, they could've added it to their capital base, and a third choice they could have put in their pockets which is the one they have chosen. do you think into effect that much of the profit was made through taxpayer generosity it would be appropriate to tax bonuses as i suggest in my

legislation, 50% above 50000? >> congressman, of course i be happy to take a careful look at that legislation and how to best deal with that. the basic principle that we support fully is to make sure the american taxpayer is not exposed to a penny of losses from the actions the government had to take under the t.a.r.p. authority. and i completely agree as i said earlier, that we need to work with the congress to make sure we bring about fundamental changes and how bankers are paid so that they are not taking risks that will imperil the economy as a will. doing that is hard to do right. we tried in the past, not a successfully, it's an obligation that shareholders have also but it's the governments responsibly in the end to make sure -- >> my time is almost a. we would take the money that was raised from that and put it in the small business lending. and as you know the big banks have received t.a.r.p. funds have reduced lending to american enterprise. folks in vermont who run businesses asked me if those guys make so much money, how come they can't lend any? >> i agree. i think if you saw in the paper

today, we are close to proposing to the congress that we take a large amount of the resources that we had gotten back from banks, the large banks, and devote them to exactly that objective that you try to make sure that small banks and small businesses have access to credit. >> thank you, mr. secretary, my time is up. and the chair now recognizes the gentleman from ohio,. >> thank you, mr. chairman. mr. secretary, you were involved, you said is many times involved with the decision, 15, 18 months ago relative to the initial t.a.r.p. bailout that you thought it was the right decision to make at the time. >> sir, speed is i felt was essential at that point. the country had no choice. >> you were involved in that decision. we had e-mails that talk about you in the loop. you knew what was going on there. you were supportive of what took place with the merger of -- with the acquisition.

yes or no? >> that is right. at that time, i was part of an effort to try to find a solution, private solution, to merrill lynch at the point. and i thought it was necessary and appropriate, yes. >> and today you said you think the initial decision relative to aji, if you think that was appropriate. you stated that strongly in your written testimony you talk about this is in the best interest of the american people. we did not act to help for banks. we acted as a consequence of having at the time in those consequences would've been catastrophic. do you think it was deadly the right decision? >> i do. >> and the staff that work for you at the new york fed would be in agreement with that analysis, that this was so critical this had to get done, the sky was going to fall, the world was going to and if we did not do what you decide to do relative to the counterparts, is that correct? >> i believe it is, but i think to be fair to say, there were

those among us involved in this, in each of the industries that were involved, washington, new york treasure, who were deeply troubled by that choice. >> but you thought it was what you have to do at the time? >> i believe that. >> and it was so important as you said in your written and your testimony here this morning, or old testament, that this is critical to american towns, american businesses. it begs the obvious question, why the secrecy relative to disclosure? if it's that important, $62 billion, why in heck not disclose it when it's happening, since you've subsequently done that, why the secrecy? and frankly, why weren't you involved -- if it's that critical, why did you recuse yourself? why would you involve? >> again, just a step back a second, when the fed disclose this i thought it was the right thing to do. and i think reasonable people looking back at this good say, why wasn't that possible suitor?

>> why wasn't it impossible in november when it was all going to of? >> all i can say is i understand what was involved in. and i was not involved in discussions about decisions about what to do with that particular transaction, that counterparts or the details, and that's because -- >> let me ask this. do you believe the decision that was made by the folks who work for you at the new york fed, do you support that decision? >> congressman, as i said speedy's it's a yes or no. you said this was so critical the world was going to end, everything was going to go, you know the pot. why not? >> let me tell you something i deeply believe that it is very hard to put yourself in shoes you did not occupy. and have really a fair sense to evaluate those actions in that case. and i don't feel like i can put myself in their shoes at the time. let me tell you what i think happened -- >> but i do believe they acted with great integrity, care and

judgment. >> here's what happened. mr. lynch was on the right trail. i mean this is a pattern. u.k. to the congress of the united states and said give us $700 billion. >> i did not do. >> i said the government. i understand. i didn't say democrat or republican. i understand the government. we're going to go by the t.a.r.p. assets. 10 days later mister lynch poured out you were in the room when they told the nine biggest banks were not going to buy the troubled assets. you will take department. >> that was one of the best decision, one of the most important decisions speedy's i understand the pattern. we were told one thing, 10 days whether an entirely different action was taking place. >> i don't think that is correct. congress authorized was -- >> you don't think congress passed that bill because there's to the money that taxpayers are going to put up was going to be used by troubled assets? >> i think the authorities the president bush asked for gave my predecessor the authority to put

capital in banks. and doing that -- >> here's the pattern, mr. geithner. the government comes to the taxpayers and say is we need a boatload of your money couple we won it for a specific person. then they go for something else. then they come to the taxpayers and say we need more of your money and were going to use 62 billion ipo dollars. this is why we never should have traveled down this road. this unprecedented involvement by the government in the private sector. we have seen it with -- >> the gentleman's time has expired. >> we have seen now with aig. i thank the chairman. >> the gentleman's time has expired. thank you. the chair recognizes mr. clay. >> thank you so much, mr. chairman. i want to thank chairman towns and mr. issa for conducting this hearing. policymakersthner, several

assert that aig's ability to provide cash collateral to their counterparties was not relevant in designing their assistance package. what is your opinion on this claim? that it was not relevant in design in the assistant. >> i agree. what was relevant and necessary was how to restructure this firm in ways to protect the taxpayer to the extent we could from the risk of greater losses. and our choice was at that point, this very strong stretch tragic choice, which was let aig default or not. and we thought that default itself would have been much more expensive. >> okay. help me and help him i guess help the american people understand. why was aig's ability to make payments to its counterparties for their toxic assets even a

factor in determining the amount of bailout money? >> for an insurance company or any financial institution to operate, they need to be able to operate with a high credit rating. without that they could not borrow money to function. they could not write insurance contract because the people would not believe they had the financial wherewithal to back those commitments. so the writing is critical. if we were to have defaulted on any of those legal contracts, aag would have been downgraded. the counterparties would have the right to take more money and to default on -- and to bring about the basic collapse of the firm. so it's that stark tragic choice that a aig had not paid they would have lost the rating and the firms would have collapsed. the firm would have collapsed. if we had continued to lend the money for them to make those payments to the rating would also been in jeopardy because aig had a lot of debt at the

point. so the choice was to restructure them so that we limited the drain of cash and left the taxpayer with any potential positive return on those underlying securities. >> so you're saying that the counterparties would have had a ride through bankruptcy speed is a legal right to sue to recoup that claim. >> okay. did anyone involved in the concession, negotiations, ever suggest that aig's counterparty should not be relevant in their bailout package? did that issue ever a rise among the negotiations, or anyone that you encounter during the negotiations? >> that's a complicated question. good question, but as i tried to explain in my testimony, what we were guided by, what was going to be the best way at least cost

to prevent the fall and protect the system, a and entire system was at stake than. and no firm in the country would have been insulated fully from the collapse of the entire american financial system. and our judgment was that aig default would have materially raise the probability that brought a collapse. so again our choices was terrible choices, but they came down to what was the best way to prevent that outcome on the best terms for the taxpayer. >> okay. so then that gets to the point of being too big to fail. aig's tentacles were that widespread throughout the country and the world? >> it's exactly the right question. there are two things that mattered in this case. one is you had a set of firms like aig, huge, risky, spread everywhere, involved in a whole range of things. and you had a world that was

burning. so again, the first time since the great depression you if financial systems the world, really at the brink of stopping, stopping in their tracks. and it's those two conditions that are most risky. is the world had been stable, everything would have been fine. we were on the edge of the worst recession in generations, then we could have afforded to have been completely indifferent to the fate of aig or all those institutions that but because aig was so large and so interconnected and because the system was so fragile, it would have been irresponsible to take the risk the federal would have dramatically amplified the pressures were still in with today. >> could you help describe what the reaction was in negotiations to the counterparties, pros and cons, as far as you know? >> again, we wrestle with lots of choices. as i try to explain in my

written testimony. we talked about whether it was better to default, to impose a haircut, to negotiate concessions under the threat of default. we thought about watching that money run out the door for the counterparties to holding the assets. we thought about negotiating over time, trying to stretch it out, see if we could find a better way to solve that problem. none of those options were realistic, none of them were feasible. they were not better than the choice we chose. and again, i think if you look back and you take a fair reading of this, although the government is still exposed to substantial risk of loss, those losses are much lower today because of the actions we took in aig, and this transaction which again, people are so understandably concerned about, it put the taxpayer in a better position than if simply we kept making those payment or if we default on them. . . leman from california,

congressman bilbray. >> thank you, mr. secretary. we're supposed to do oversight and reform. we're trying to get information so that we can do the reform to make sure the next time this process comes up we have procedures and laws that address this. and so it is real important that we identify how this went so we can try to correct it and make sure it doesn't happen again. not only in march you knew that there was a so-called disclosure issue, but in february you had said in a speech that one of the major issues that you were concerned about is the lack of disclosure that was causing the american peo >> now, i think we'll all agree that in layman's terms with the average citizen when they heard disclosure issue, they hear cover-up. now, why in a system that's supposed to be open, the american people have a right to know where their money goes. why was there even a disclosure

issue? why were we even discussing the so-called cover up of the $160 billion, where it was going, in this process? why was that even an issue that as soon as you knew there was a problem there that somebody didn't clarify this? was that your staff that basically did not inform you that there had been this cover-up, this disclosure issue, and did you make that decision, or was that decision made outside? aig sent the decision over. it was an internal process within the government itself that said we're not going to disclose to the public itself this information. >> my colleagues in the new york fed put in the public domain a very thoughtful assessment of the judgments they reach, and i know and i'm confident that their colleagues in washington spent a huge amount of time throughout those months trying to wrestle with how to meet the understandable public interest in the disclosure of these things and they ultimately, i

think appropriately, came to the decision that they should put that information in the public domain. you're exactly right. i have been a great proponent of greater transparency, and the centerpiece of the strategy we adopted to fix this mess in the financial system was to force the largest banks in the country to disclose for the first time to the public, to all investors the scale of losses they might face in the event this recession was much more damaging than it proved to be. and that provided the basis for private investors judging who was strong, who was less strong and deciding to put -- >> were you told, in other words, did your staff know the cover-up was there, disclosure issue was there before you knew it was there? was the decision to -- >> again, i don't -- i think, again, as the record the committee's already put in shows

there were discussions that were happening about what to disclose when throughout that period of time. >> were you involved in those discussions? >> as i said in my thing, i'll say again, i played no role in decisions about what to diss close about transactions to these individual counterparties. >> did your staff make the decision not to inform you or include you in the decision-making process? >> yes, they did, although -- >> would you want to know about that or would you prefer -- >> i think in retrospect i wish i'd known, frankly, but after november 24th i appropriately removed myself from a range of decisions the fed was dealing with, but the people that were making those decisions in close consultation with people in washington and with legal counsel are people of great judgment, enormous integrity, and i have enormous trust and confidence not just in their judgment, but in the quality decisions they made throughout that period of time.

>> do you feel today that at the time that they made the decision to do the cover-up, the disclosure issue, that they felt you did not want to know about it at the time? do you think they made -- >> i do not, i do not -- in my entire time there i was never aware of a situation in which my colleagues sought to shield me from something consequential. i was president of the new york fed. i was going to be accountable for decisions made on my watch. but after the 24th for reasons that i think are fair and right for the institution, i could no longer run those day-to-day judgments, and i withdrew from those, and i think those were necessary. >> and your staff decided to shield you mr. the cover-up side of it the too? >> no, i decided i would withdraw myself -- i didn't decide this alone, i decided this in consultation with the chair of the board of governors and with the incoming administration to protect the

institution from the unique position i was in then. >> mr. speaker, what date did you know there was a cover-up, a disclosure issue, when were you informed? >> i only knew about these discussions about disclosure when they started to make, to be in the public domain. i actually don't know when they first rose to the attention of the congress. but when they were in the press, i was aware of them. >> gentleman's time has expired. >> thank you very much. >> let me thank you, secretary geithner, for your testimony and can, of course, we -- >> mr. chairman? mr. chairman? i would ask unanimous consent that all members be allowed to put their questions in writing to the secretary and would ask that the secretary, if he would respond to them in writing since so many members were unable to ask questions. >> without objection, so ordered. >> mr. chairman? >> thank you. >> mr. chairman? i'm not sure what the right point of order here is, but i recognize how tremendously busy

the secretary is, but i also recognize the need for this congress and people on both sides of the aisle to be able to ask some questions. we've been waiting patiently here all day, i would hope that the chairman would. >> you understand what the problem is. i'm one as you know -- and you've been here long enough to really know me because i believe in openness, but mr. paulson has a problem with his schedule in terms of the amount of time that he would be allowed, so if we continue, then he will not be able to testify. so i think that's the issue that we have to deal with, so that's the reason why we're cutting it -- because -- and it was agreed that this would happen. and, of course, i understand that there's several people that did not have an opportunity to raise questions. but what i would suggest is that you put the questions to the secretary in writing, and he will answer because if not, then the second witness we will not be able to hear from at all -- >> mr. chairman, if i could be so bold, my guess is if we were

to survey or talk to the people on this panel, particularly people that haven't had a chance to ask questions, i think with all due respect, we'd much rather hear mr. the current or -- from the current treasury secretary than the past treasury secretary. >> i understand that, but we have a hearing that's been scheduled and structured, and i wish we could stay here and allow everybody to do that, but i think in this situation -- >> mr. chair -- >> i'd be delighted to yield to the gentleman again, yes. >> and i appreciate it. is there a way that we could vote on which direction to go on this? >> well, you know, it's actually up to the chairman, but let me say what i'd like to do. you know, i would give a minute to two on this side and a minute to two on this side, and that's it. i mean, we have to move forward. we have a scheduled hearing --

>> would the gentleman yield? >> looking for certain information, in order to get the information we need to talk to the present secretary, we need to talk to the past and, of course -- >> would the gentleman yield? >> mr. chairman, i join in you for two additional minutes per sideervi e the right to object. mr. chairman, i just want to say that any member of this committee has the ability to submit questions in writing. mr. geithner in response to an earlier question said that, you know, in the interest of time that he would be willing to answer questions in writing. is that not true, mr. geithner? >> absolutely, of course. >> so, mr. chairman, anybody here can put it in writing. i withdraw any objection. >> let me say that we will go two on this side, two on that side, but a minute -- >> mr. chairman, reserving the right to object? >> yeah. i don't know what you're objecting to. >> if you'll recognize me.

unanimous consent for two minutes each. i'd be happy, mr. chairman, to forgo my time with secretary paulson -- >> well, i wish we could operate that way, but, you know, when you have hearings that are structured, they're not structured in the fact that someone will give up their time. i mean, that's not the way we do it. so the point of the matter is we accept the two minutes each side, or we move forward. okay? so that's what's on the table. so two minutes on this side, two minutes on that side. >> i withdraw my objection. >> designate the two on this side, mr. connolly, you have a minute to raise one question with the secretary. mr. connolly from virginia. >> [inaudible] >> okay. >> [inaudible] >> thank you, mr. chairman, and -- >> recognized for one minute. >> thank you, mr. chairman. mr. geithner, we only have one minute, and one has the sense that some anemia this room perhaps want to rewrite history, and i understand given the history why they might want to do that.

in your opens statement you -- opening statement, you talked about the need for financial regulatory reform, could you explain why we need that? >> i, i don't think it's the a hard case to make. i think you just have to look at the wreckage cawed by the crisis to say the system collapsed dramatically. people were allowed to take risks without constraints. we let a system operate where institutions that were huge and consequential operated with no adult supervision, with no constraints, and they brought the country to the edge of collapse. one thing in common with the following firms, fannie and freddie, the largest investment wangs in the cup, ai -- country, aig, a set of specialized insurance companies, a whole range of consumer finance companies, a bunch of -- they all had one thing in common

which they were not subject to a set of sensible rules. what we propose in financial reform is to change that. it's a simple imperative. that's not enough, though, because people will make mistakes in the future. so we need to make sure when they make those mistakes that we can let them fail, and failure can happen without catastrophic damage. we need to be able to contain the damage, isolate it, put them out of their misery without the taxpayer being exposed, and we need to make sure we don't have a system where the taxpayer is exposed to the risk of loss where investors and creditors live with the expectation that government will be there again. , and again, that's something that is a -- i think we all have a huge obligation, responsibility. it was the laws of the land that allowed that to happen, the laws of the land that made it impossible for the government to act, and i think we need to work together to change that. >> i gentleman for his consideration. >> thank you.

now recognize mr. force berry for one minute. >> thank you, mr. chairman. mr. speaker, for the last year and a half we've been privatizing profits, and the counterparties to the aig who received 100 parity for their liabilities, seven of the top ten are foreign firms. so cit was a top recipient of $16.5 billion of american taxpayer bailouts, in effect the, followed by goldman sacks. you said this -- goldman zachs. about $500,000 per employee. this is really difficult to understand why there wasn't at first a desire to have transparency in regards to counterparty transaction. would you address that, please? >> oh, i'm not sure if you were here for the prior conversation -- >> i've been here the entire time. >> okay. but, again, the angsts we took -- actions we took were necessary in the public

interest, better than the alternatives to help prevent catastrophic damage. and if you are outraged, as i think you should be, about how the economy and our system was in this mess, i hope you will join with us in trying to work to make sure it won't happen in the future. this is not something that should be democratic or republican. there is a deep obligation to try to put in place reforms. if the government had done that sooner, this would have been less damaging, and a critical part of the failure was we ran a country, largest economy in the world, largest financial system in the world, without having the kind of bankruptcy type powers we had for banks -- >> let's try to do that on a bipartisan basis, six please. >> i'm sorry, the gentleman's time has expired, and now i recognize the gentleman from ilis, congressman davis, for one minute. >> thank you very much, mr. chairman.

and thank you, mr. speaker. let me just ask if you had to do it again, to do it all over, would you change any of the decisions that you made in the fall of 2008 to rescue aig and pay the counterparties? >> congressman, again, i think about this a lot, and one of the great things of our country is, again, people will come to their own judgment whether we make the best choices. but i am very confident that we made the best of a set of terrible choices, that there were no better alternatives. we did not have the option of bankruptcy, default, selected haircuts. it would have been catastrophic to let the institution fail. we didn't rescue aig, we intervened so that we could dismember it safely without it wrecking the country and the system. i think the big mistakes we made as a country -- and they are

mistakes that we have to reflect on deeply for a long time -- were why the government didn't act sooner to risk taking, competent authority to contain risk taking and why we didn't have in place the kinds of tools we've had a long time. the lesson of the financial crises is if you don't act sooner, things get to the point where they can cause catastrophic damage, and if you let it, if you stand back and hope it'll burn itself out, correct itself, that can cause enormous damage. and it'll cause enormous damage not just to american lives that people will be living with for a long time, but to the revenue base of the country deeply impairs the capacity of the government to do things that are necessary like do we need resources for? protect national security? make sure teachers can be in the schools? these things are deeply connected.

if you stand back and try to hope the market will fix itself, you court catastrophe. i hope we learned that lesson, should never happen again. >> thank you very much. >> thank you very much. >> gentleman's time is expired. and i reck recognize the chairman andm utah. mr. speaker. i was going to ask about the 18 phone calls you made to rahm emanuel, but we'll have to save that for another day. i would like to ask you about the idea that they made profits. i'm going to ask you two questions from neil barofsky's testimony coming up. first one is, quote, on page 13, treasury's own financial statement summit estimates this treasury will not be made whole but is projected to lose more than $30 million on aig investments. second question, just one part of the aig counterparty transactions without mentioning the huge losses treasury expects

to suffer on other inextricably-linked parts is simply unacceptable. the american people deserve percent. so my question and hoping that you can respond to those two statements is when you refer to profits from the aig counterparty bailout, are you counting the cost of the $35 billion in cash aig handed over to the counterparties, to the counterparties, or just the $27 billion they got directly from the new york fed. >> congressman, i think mr. barofsky and i agree on this, and i was very clear in my statement, the government is still exposed to substantial risk of loss on its investments in airks g. aig. the federal reserve in this transaction and i think more generally is unlikely to face any loss. that is a good thing, we should welcome that. but the government is still exposed to the risk of loss. we don't know how large those losses will be. it's just an estimate based on current market prices, but the really important thing, and i hope you'll join us in this, is

if we adopt this financial responsibility fee, the taxpayer will not bear a penny of the burden -- >> sounds like a tax to me. >> under the t.a.r.p.. >> sounds like a tax to me. >> well, you can call it what you want -- >> i call it a tax, and i wish you would too. >> congress required the secretary of treasury to propose a way to make sure taxpayers are held harmless. we did that, i hope you will join us in supporting that because there is no reason why the american taxpayer should be exposed to a penny of loss in what we did in gentleman's time -- >> gentleman's time is expired. thank you very much, mr. speaker, for your testimony, and of course, you may be excused. [inaudible conversations]

>> the second witness, the second witness for today's hearing is former treasury secretary under the bush administration, secretary henry paulson. mr. paulson, will you, please, stand as i administer the oath? do you solemnly swear to tell the truth and nothing but the truth? if so, answer in the affirmative. >> i do. >> you may be seated. >> [inaudible] >> let the record reflect he answered in the affirmative. i'll ask the witness to summarize his testimony in five minutes and, of course, we know the procedure, you know, the yellow light means you have a minute left, and do red light mean -- the red light means stop and then, of course, we will have time to raise questions with you. you know the procedure, you've been through this quite a few times, so good to have you back. >> mr. chairman, thank you, and

i will go through this quickly. first of all, chairman towns, ranking member issa and dished members of the committee -- distinguished members of the committee, i appreciate the invitation to testify before this committee. i was secretary of the treasury in 2008. in that role i had the privilege to work with many talented men and women in government and the private sector who labored to pull our nation back from the brink of disaster. the decision to rescue aig was correct, and i strongly supported it. an aix failure would have been -- aig failure would have been catastrophic to the economy. i was not involved in any of the decisions made with respect to those payments, nor was i ininvolved in any of the decisions about aig's public disclosure of those payments. those matters were handled by

the federal reserve bank of new york and the federal reserve board. they sought to make appropriate decisions on those matters, and i am confident that this review will show that they did. i have limited knowledge on the topics of immediate interest to the committee, but i will share the following observations: the rescue of aig was necessary, and i believe that we in the government who acted to rescue it, including secretary geithner, chairman bernanke and me, acted properly and in the best interests of our country. the reasons the rescue of aig was necessary are well worth examining. i believe the representative of of the causes of other aspects of the crisis and indicate where regulatory the reform is necessary. there are three reasons we needed to save aig that stand out in my mind. first, aig was incredibly large

and interconnected. it had a $1 trillion balance sheet, a massive derivatives business that connected it to hundreds of financial institutions, businesses and governments, tens of millions of life insurance customers and tens of billions of dollars of contracts guaranteeing the retirement savings of individuals. if aig collapsed, it would have buckled our financial system and wrought economic havoc on the lives of millions of our citizens. 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 the was, for all practical purposes, an unregulated holding company. consequently, there was no single regulator with a complete picture of aig or a

comprehensive understanding of how it was run. it was not until aig started to fail that regulators began to understand how badly managed it had been and how much the toxic aspects of parts of its business hadinfected otherwise healthy parts. third, aig could not be effectively wound down. unlike failed depository the institutions which can be taken over by the fdic or the gses which were seamlessly placed into conservatorship by the treasury, there was and is no resolution authority available to wind down a failing institution like aig. the only option is bankruptcy. a process that it 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 the 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'm thankful we did. i do not mean to say that i'm happy we needed to intervene. taxpayer money should not have to be the spent to save a misguided and mismanaged enterprise. but the fundamental problem lies not in how we intervened, but why we needed to intervene. we need to modernize our regulatory structure by creating a systemic risk regulator and resolution authority so any large firm that fails can be liquidated without destabilizing the system.

large financial institutions in this country will always play a role that is essential to our economic growth. but they must only be permitted to grow and interconnect throughout our economy under careful oversight and with a mechanism for allowing those connections to be broken safely. thank you, mr. chairman, and i'd be happy to answer any questions. >> thank you very much for your testimony. let me say that you were deeply and aggressively involved in dealing with the financial crisis, and we saw that with aig, of course, and bank of america, and with the t.a.r.p.. my question is, why did you sit on the sideline and not use your considerable influence to call the ceos of the counterparties and to get them to take a haircut? i mean, why wouldn't you do that? i mean, you're a person that was very influential in all of this,

you know, and i can understand why you wouldn't -- can't understand why you wouldn't do that. >> well, mr. chairman, as you indicated, i had no involvement at all in the payment to the counterparties. no involvement whatsoever. now, to explain this, we worked very collaboratively during the crisis. there was a lot going on coming at us from all sides, and whichever agency had the authorities took responsibility for execution. and this was clearly a case it was a federal reserve loan, they had the authorities to make it and administer it, and they had the technical ec per tease to the -- expertise to do the restructuring. >> but, you know, i just see it a little strange that you would sit on the sideline and not help the american people in terms of -- i mean, you were so involved in the early stages, and, i mean, throughout the

process -- >> mr. chairman -- >> and then to sit on the sideline at a time like this, i just find that -- >> mr. chairman, anybody that knows me knows i was not sitting on the sidelines. i was not involved in this issue, but i was involved in many other issues every single day of the week and including weekends. so i didn't -- >> why not? why wouldn't you be involved in this? >> well, because, this was a federal reserve loan. they had the authority. they had the technical expertise, and i said in my testimony i have great confidence in the professionalism, the integrity, the mote i haves, the abilities of the people that were handling this. so this was their job to handle, and i was working on many other things which were in my bailiwick. >> let me ask another question. why wouldn't you let aig go into

bankruptcy? why not? >> f -- if the aig had failed, this was a huge financial organization, interconnections throughout the economy. if it had failed with the system as fragile as it was, i believe it would have taken down -- >> talk directly into the microphone, they're having problems hearing you. >> 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% unemployment level. i believe that if the system had come down and failed, we could easily have had unemployment reaching or exceeding the 25% 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. so as unattractive as the government rescue of aig was -- and none of us that supported that found that to be an attractive or desirable option -- it was just much, much better than the alternative. which would have been economic disaster in this country. >> right. i now yield five minutes to the gentleman from california, the ranking member. >> mr. chairman, i would ask that we go to the members who did not have an opportunity in the first round and, mr. chairman, i'd also ask just one thing, will you agree since the secretary said he would answer our questions to join with me in insuring that all questions are answered or that we bring the secretary back assuming he does not answer them for some reason? >> so ordered. >> thank you. mr. liker meyer would be next of those waiting. >> thank you, mr. chairman.

mr. paulson, one of the things that we're looking into here with aig, can you explain to me, aig and their financial products, was that a subsidiary of aig, or was that part of their business model? >> i believe it was part of the business model. >> there wasn't a separate entity that was separately capitalized? >> it was, it was clearly, it was clearly at the holding company, and it was, it was part of -- >> because i think -- >> it wasn't part of an insurance business model, but it was certainly a part of the company's business strategy. >> because it makes a big difference. if it's a subsidiary that's separately capitalized, you can let that thing go down, and it doesn't impact the insurance part of it which i believe it was, is that not correct? >> well, i would say this to you, this company was so big and intertwined, that it was -- if

there was any way that the people who were working on this could have found a way to just let one small part of the company -- >> would the gentleman suspend? mr. paulson, excuse me. we want to make sure members can hear your testimony, and it's amazing with so much money in this federal government we don't have a better sound system, but i'm going to need you to speak as close to that mic as you can. thank you, you may continue. >> so to just be clear, there was no way to handle this situation differently. there was a very few days to act to prevent bankruptcy with no winddown powers to let this company be liquidated and avoid bankruptcy. >> well, with all due respect if it's a separate entity, the rest of it could stand on it own, sir, but let me move on with another question here very quickly. and secretary geithner's

testimony he indicated that he felt contractually the contracts that we had, the investments that were made by foreign banks into aig that they were involved with needed to be adhered to and worked with. was the government a part of those contracts? >> i, as i've said in my testimony, i had no involvement with the payment of any of those contracts. i just was not involved in that matter. >> so the government wasn't a party to the contracts then? >> [inaudible] >> the government wasn't a party to those contracts? >> again, this wasn't something that i was directly involved with. i have said that i very much trust the motives and the abilities and the judgments of the people that made those decisions, but i wasn't party to them, and i can't -- >> okay. >> i can't answer that question. >> well, that's one of the frustrations, and i appreciate the candor in the frustration with the chair that we don't get

full testimony in getting the questions answered so we can come to you, so i apologize to you. let me move on. i know we're looking at and the president's proposed too big to fail sort of strategies to try and address the issue of too big to fail. where are you in this debate? what do you think about the proposal that's on the table right now, sir? >> when i was secretary of the treasury, i put out a regulatory blueprint, and i still believe that that is the way to go. i am very, i think it's essential that we have winddown authorities, resolution authorities so that any financial organization no matter how big can be lick liquidated outside of the bankruptcy process without taking down the rest of the economy. and so i think that is essential, and there are, there are some parts of the, of the

proposals that are up here being debated by congress which are the same as in the regulatory blueprint we put forward. a big one being the systemic risk regulator, and i'm strongly in favor of a systemic risk regulator. >> do you believe we need to take the risk investments that are part of some, many of the big banks right now and take them off the books and have a subsidiary for this so we could sort of go can back to a glass steigel firewall there? >> that is not my recommendation. i believe that when you look at the, at the crisis, what i saw in the crisis was it was across a number of financial types of financial institutions, and the, the excessive risk taking i saw was not limited to one business activity. it was much broader than that, and i think we need a broader approach. so, again, what i favor is a systemic risk regulator and

winddown authorities is the way i would hand that. >> one of the problems i have with what you're suggesting, sir, is suddenly now we have the taxpayers through fdic insurance on the hook for these risk takers out here. i think it's important we take these things off the book. if it goes down, it goes down, and the insurance fund and the taxpayers on the whole are not on the hook for this. i think what you've done with aig is suddenly used the federal government as the official underwriter of all investments in the world. if we're underwriting form contracts -- foreign contracts investments, what have we done? we've gone down that road. i appreciate your comments -- >> gentleman's time's expired. chair, in keeping with the necessity of making sure the members who do not ask questions the last round are given a chance to go can first, we recognize mr. tyranny. thank you for your patience. >> thank you, mr. chairman. mr. paulson, thank you for being here this morning.

so you were in full agreement with not allowing aig to go bankruptcy. >> absolutely. >> i think back home people don't know where to the give the credit to this. that was a good decision. people see mr. geithner now as treasurer, and they think the decisions were all made by him. in fact, these were decisions made in 2008. you were president bush's secretary of the treasury, correct? >> absolutely. >> and mr. bernanke was the head of the fed, and then, of course, we had the new york federal reserve board participating in these conversations as well. so that's pretty much the group that decided they should give $85 pl in september -- billion in september to aig. those were mostly the participants, am i right? >> yeah, we were -- as i said in my testimony the, i very much supported that rescue. >> right. okay. and then in november it was the same group, you as president bush's secretary of the treasury, mr. bernanke and the new york fed decided to give additional funds to aig, some of

which were used to pay the counterparties to the contracts, right? >> yes. in november in the t.a.r.p. we made a $40 billion capital investment, and then the fed put some additional money in which was used up for the contracts. >> just so we're clear, we're giving credit here, the t.a.r.p., in fact the, was during your term as secretary of the treasury. >> yeah. i'm not, i'm proud of that. >> okay. that was your idea, was it? >> that was a number of our ideas but, yes, and that's something i'm proud of, and it's something that was very necessary. >> and the $85 billion that was loaned to aig was not appropriated by congress. nobody asked congress to make a vote on that, right? >> no. that was a decision taken by the fed with support -- >> what source of money did they use to get that $85 billion? >> they used their funds. >> and their funds emanate from where? >> from the u.s. government.

>> well, were they fees from other banks? did they come from treasury? where did they come? >> they come from the fed, obviously, can print money. >> okay. and did they take money that they had from fees charged to member banks, or did they print money to accommodate this $85 billion? >> you'd have to ask the fed -- >> you're not aware? >> i'd like them to answer that question. >> well, you may not like to answer the question, sir, but if you know, i'm asking you to share where is your best understanding of where that money came from? >> my best understanding is all dollars are green, so those are ultimately taxpayer dollars, and that was why -- >> we're painfully aware that they're taxpayer dollars, sir. >> that was why the treasury was supportive, and we were very supportive of that transaction. >> we all understand that the full faith in the department, but i'm asking you since they didn't come to congress for an

appropriation whether the $85 billion came from fees charged to member banks, was newly-printed money or some combination of the both. >> i don't believe it came from fees charged from member bank. >> all right, thank you. now, we got to the point where a decision had to be made about whether or not to let aig go bankrupt, later came to a point whether or not to pay the counterparties 100% on those contracts or not, but once the decision made not to let them go budget, you lost any leverage to argue in terms of being able to pay less than 100%. is that a fair statement 124. >> as i said, i didn't participate in the, in those decisions regarding payment, and i also said we didn't have the winddown powers. >> but, you know, you were involved -- i think i forget how many congressmen said there were phone calls between the new york fed and you -- >> [inaudible] >> 225 telephone conversations between the head of the new york fed and you during this period of time, so i think we might be fair in assuming you were

discussing some of these matters? >> well, we had many matters to discuss -- >> and this was one of them? >> over a range of things, and the matters we discussed we clearly discussed the rescue. as i said, i did not have involvement and was not -- >> he's my final -- here's my final question, i need your help with this. most people at home draw the conclusion that not to allow aig to go into bankruptcy would have been devastating. it would be enormously helpful if you could put yourself in the position of the local bookkeeper for a medical firm or housekeeper or lawyer or teacher's aide. how specifically would that individual have been harmed if you had not made the decision to not allow aig to go bankrupt? what would have been the consequence to them? >> that's the right question, congressman, because they were the real victims. they would have lost jobs, would have lost -- >> but how? how would that have happened? show me from the time you made

the decision what would have spiraled down -- >> the gentleman's time has expired, but the witness would be pleased to answer his question, i hope. >> okay. what i believe -- we were at around the time of the aig rescue the markets were frozen. we had a situation in this country where even blue chip industrial companies were having trouble financing. i knew we were on the brink. that if aig had gone down, i believe that we would have had a situation where main street companies, industrial companies of all size would not have been able to raise money for their basic funding. and they wouldn't have been able to pay their employees, they would have had to let them go, employees wouldn't have paid their bills, this would have rippled through the economy. the today, congressman, we have after everything that was done all the resources we have 10%

unemployment. i believe we easily would have had 25% unemployment. today we have home prices that have dropped precipitously in some parts of the country. home prices would have gone much lower. aig guaranteed tens of billions of dollars of savings for retirement savings for americans. there would have been great losses. this would have been an economic nightmare. >> thank you, mr. paulson. chair recognizes mr. souter. >> thank you. i've got a variation of the same question you were just going through because one of the problems we have is that it appears that aig was treated differently than other companies throughout this whole thing in this sense, that the holders of the debt were paid at par which means that, in effect, the banks got 100% but, for example, gm creditors, small businesses all

across america and other companies that were let go, they got ten cents on the dollar, 30 cents on the dollar, and it's part of a fact, but a perception that that was unfair that wall street was covered but main street wasn't in debt. now, aig was different in what sense? now, i know it was at 120 separate finance companies and 80 insurance, or is that flipped? something like that. in other words, it was a collection -- >> a big complex correction of company, correction. >> in that if the insurance divisions were separated and came under state, part of the argument is state regulation, that they were so intertwined with the finance. but let me ask one other question before we get into details of that. you said bankruptcy wasn't an option. but it also meant that did you try to put pressure on the people who held the debt to write down some of their debt, or once you made the statement we weren't going to bet let it

fail, why didn't they get the same pressure that gm suppliers had and everybody else to write down their debt? >> as i've said, this isn't me trying to suggest anything was done wrong, i had nothing to do with that. so i, i was not involved in negotiation, i was not involved in anything surrounding those payments. but i will explain one thing to you which is fund themental -- fundamental for you to understand is the government we have an antiquated regulatory system and a lack of the necessary authorities. and so if there was a bank, there is a way to wind that down. but this was, this was a nonbank -- >> i understand that. >> there's no way to avoid it. >> let me ask you, there's no way except the threat of real bankruptcy. if you're a bank and think you can negotiate at par and get a full percent and you don't have a threat of bankruptcy, the

question is, did anybody threaten them? did anybody say that if we're not going to -- i mean, did we, in ifect, yield the debate at the beginning, they played hardball and we had no way to do it, you would have threatened to say, hey, we can cover the insurance people, but the finance side you better negotiate down or that side will go bankrupt, and then you'd wind up having to put cash reserves into the banking system to try to cover the fact that the bankruptcy went out. would that not be true? in other words, had they gone bankrupt and there really was a catastrophic threat which i believe because i voted for t.a.r.t., wouldn't you just have had to put more money in the banking system but not necessarily at par? >> as i said, congressman, i didn't -- as i said, i wasn't involved in that. so i can't -- >> you're saying the new york fed did that. >> i can't comment beyond what i've said. >> at some -- when you got

involved once t.a.r.p. was there the, the decision was already made that it wasn't going to go bankrupt, is that correct? >> when i -- first of all, i was involved in supporting the initial rescue, and then -- >> so you were involved. just a second. you were involved? >> yes, i -- >> and did you advise the fed to try and do what they could? >> well, the fed, the initial rescue was not the, was not when they dealt with the payment to counterparties, so i was supported the fed on the initial loan and then later in november the situation had deteriorated to the point and values in insurance businesses all around the world had deteriorated to the point that this was a company that would go down without capital. and so now we had capital, and my team and i participated in making that decision, made the

decision to put $40 billion of equity into aig. >> the problem that i have is that it appears to me that aig was treated differently so much so even listening to that it's like, well, we put some money in initially, and then we put more money in because they couldn't fail. everything from citibank to merrill lynch to everything else, there were processes where there were conditions on money coming in, where there were guidelines coming in and they used the leverage of the threat of bankruptcy to do that. then in this case it appears that it was different, and it partly is that the creditors are different. furthermore, some of the critical information here was withheld from being public at the request of the new york fed. that had that been public, people would have seen it, and there was an attempt to even keep it quieter because that was critical, that information, to

understand what was going on behind. and it is extremely frustrating to all of us, you can hear it in different types of questions, about how this came to me, and i don't think there's been a compel being case made -- >> the gentleman's time has expired, but i would say thatf mr. paulson wants to respond to the gentleman, you may do so, and if not, we'll go to the next question. >> i have no response. >> okay. i thank the gentleman. chair recognizes mr. kanjorski. >> thank you very much, mr. chairman. welcome back, mr. paulson. you really miss washington, i assume. [laughter] >> you can't guess how much. [laughter] >> i, i, those -- i've listened to the comments of the secretary, your suck says sor -- successor and now you, and i've listened to the members' questions and how much memory is lost in a year or 14 months from those fateful days in september and october which all of us hope we never relive. but, in in in in fact, were verh

significantly different than today. one of the questions i was particularly interested in because i was very involved at that time with aig from my as pension of having some jurisdiction over insurance because i understand financial products in london was without assets and had tremendous involvement for about $2.8 trillion and whose counterparty positions were starting to fail, and they had to honor them. their initial internal decision of aig was to use the assets of the world's largest insurance company. and they sought permission, and it was pending, and finally approved by their regulator, the state of new york, to takes a sets out of the insurance -- assets out of the insurance companies, about $30 billion, and use those assets to cover their exposed counterparty positions.

now, if that had happened at that time, those insurance companies would have failed because their assets would have been taken, converted, and they wouldn't have been enough to cover the counterparty position, so it would have wiped out the insurance companies which, in turn, would have affected every insurance holder in the country that was involved with aig at the time and would have been a catastrophic collapse of the insurance industry. and not withstanding the counterparty and derivative position. now, luckily, the regulator in the state of new york didn't grant us permission to use that $30 million until much later when it was futile. and at that point the losses on the counterparty positions, i think, rose to $55 billion and were climbing on a daily basis, and that's when the infusion of funds that you talk about adding equity to aig or the capacity through the use of government funds to cover those counterparty be losses. they didn't cover all those losses, and subsequently within

probably 30 days, another huge amount of money was infused into aig's various corporate structures to get some stability. and not that i could say nothing has changed from that, but that was the significant circumstances in this month or two months after september 18th that everybody was faced with, but as i understand it the federal reserve was the person with the checkbook under 313 powers. they were just plugging that money in. and it wasn't a decision made at the secretary's level of treasury or at the presidency, it was a federal reserve regulator level making that decision. and i dare say regulator not for aig, but regulator that had regulation over some of the largest banking institutions in the world that if they had been, if their counterparty positions weren't honored, they would have immediately collapsed, and

that's what we were calling the meltdown. everything was going to implode, and you had to stop it at the head waters, not wait until it got out to the little dams out in the stream. is that relatively the correct position? >> i would say without signing off on every fact you mentioned, i would say you've got it in the sense that there was, this was a very complex company, and there was -- if the it had gone into bankruptcy, it would have been a huge mess, and it would have, it would have -- one part of the company would have contaminated the other, and it would have rippled through the u.s. economy, and the result would have been absolute disaster. >> right. mr. chairman, i know there are other questioners, i've had the opportunity to ask some, so i yield back the balance of my time. >> i thank the gentleman for his courtesy. before i recognize mr. bachus, i want to take the liberty as chair to recognize students from

franciscan high school in ohio and seeing their government at work. so welcome, you and your teacher, and we're pleased that you stopped by for a visit. thank you. the chair recognizes mr. bachus of alabama. >> welcome, former secretary. secretary paulson, march 2009, march 16th was when aig was, the payments were made to aig or garon the teed the -- guaranteed. leading up to that, you participated in several meetings about aig, is that correct? >> prior to march of -- >> 2009? >> prior to march, yeah, i had a number of meetings about aig as we were putting in capital.

>> i know one of the meetings i'm looking at march 24th, my questioning of mr. geithner. he mentioned, secretary geithner, that you -- he said that he and you met with aig to discuss lehman's failure. >> discuss what? >> september 14th? now, that was two days -- >> oh, yes. you're saying, you were talking about 2009, march, and i think you're talking about september 14, 2008. >> that's right. okay. all right. and i, i stand corrected. i am. that discussion -- but you participated in some of the discussions about aig and their financial condition leading up to -- >> yes. and that weekend of september 13th and 14th was the weekend

when we were, had financial institutions together working to come up with a solution to prevent the failure of lehman. and it was that weekend that we learned, also, about aig, and i had two meetings over the course of that weekend at the new york fed with tim geithner, with officials from aig. >> right. in those meetings was there any discussion of asking the counterparties to take less than 100%? >> was there any discussion of what? >> any discussion of the counterparties taking less than 100%? >> i, i sure don't recall any. we were talking about the financial problems that, that aig had, and it was clearly, they clearly had issues with counterparties. >> right. >> they clearly had issues with counterparties because that was the crux of the issue, was a

ratings, a potential ratings downgrade which would cause the company to have to post collateral. and so, so that would lead to the -- >> so the obligation to the counterparties was discussed? >> well, obviously, that was the issue -- any institution that's facing failure -- >> sure. >> -- is going to have an issue with paying creditors. >> you know, once that intervention occurred, then really the taxpayers, the u.s. government owned 79.8% of aig more or less, that's correct, isn't it? >> yep. >> that being the case, i see in this same 3-15-2009, now, this is skipping forward to march of

2009, secretary geithner e-mailed william dudley and edward quince, and he said, where are you on aig counterparty disclosure issue? you know, are you for disclosing or not? now -- >> would the gentleman yield? >> could you put up slide one, please, so they could see it? thank you. >> what would your advice have been on whether or not that should have been a public disclosure of the counterparties and their obligations? and would the fact that really the taxpayers own over 79%, almost 80% of the company have made any difference? >> well, as a general proposition i'm very much for disclosure, but i wasn't part of this. i had nothing to do with that decision. and i am not going to sit here now and second guess others that

were, you know, that i know people -- >> sure. >> -- with strong integrity and good will trying to do the right thing. >> well, just take a situation where you do have a company that's, you know, 80% owned by the u.s. government, would that, would that tend to make you think that there ought to be disclosures of their obligations? >> well, public -- >> the gentleman's time -- mr. paulson? the gentleman's time has expired, but you can answer his question. >> i'll be brief. public companies have disclosure obligations governed by the sec, and i think those need to be adhered to. >> thank you. >> okay. i thank the gentleman. chair recognizes mr. couple cannings of maryland, you may -- cummings of maryland, you may proceed. >> mr. paulson, good to see you again. let me ask you this, do you realize that a lot of the american people belve