to make sure firms with up for solvent could fund. we did that because of the catastrophic damage caused by decades of previous financial crises. we use that authority because we thought there was no other choice. .. comes down to this basic tragic

choice. if you are prepared to default you can impose haircuts. if you can't accept the consequence default you do not have any leverage. it would have been more expensive to the american tax payer and more damaging to people you and i care about, people you and i worry about if we let that failed. there was no trace between default and restructuring of those contracts and they left taxpayer -- >> there was no shared sacrifice for goldman sachs and the american people. >> the gentleman from massachusetts yield? 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 to had never been a politician. i want to assure you from your answers to you are absolutely a politician. and let me tell you -- >> do you mean that as a

complement? i can't tell. >> one of the answers that troubled me about the issue in your written testimony of the team concluded that the aig's thea lee is catastrophic. you go on to talk about the insurance arms of aig. this is the first hearing this committee has had or other committees and you know we are aware of the independence of this insurance arms of aig. we've got more is greenburg former chairman and ceo of aig set to the best of my knowledge the problems that came to the hit this year did not originate in the insurance businesses which remain fundamentally strong. we had the head of the new york state insurance department superintendent eric dinallo came in and said before i go further and would like to make one critical point it is important for everyone especially policyholders and aig insurance companies to understand that the insurance companies which are regulated by new york and other states are solvent and have the funds to pay policyholders

claims. the independent reserves. you did not bail out the insurance companies of aig, correct? they didn't need it. you build of the parent, right? >> if the parent defaulted -- >> we go through the answer if aig failed the catastrophic effect of all of the insurance companies that were on aig, they were on bailed out. >> that's not true. but maybe this is helpful to go back a little bit. when aig came to us that we can't remember the fed is not the regulator. the fed had no responsibility and authority over how they ran their business. that was the province of other regulators. it was inconceivable to me this was a problem we were going to have to salt and we got all the people we could including new york state insurance commissioner and his staff and other people --

>> did you bailout the insurance arm of aig? >> as insurance companies -- >> did you allow the life insurance arms of aig? >> i wouldn't use those terms -- >> did you help provide insurance -- >> the actions we took of the firm predicted those companies -- sprick mr. geithner, the testimony we've received previously from those looking at those arms was they were substantially sound so the catastrophic of fact that you placed -- we would have all been concerned about. >> i disagree. the people can look at this and come to different judgments, the people responsible for looking at those insurance company frankly have no idea of the risk and you could not separate those companies from the companies that have taken terrible risks. the tragic thing in the structure of the company was they were so closely linked they could and separate them. why would we have not if it had been possible to separate the

place taking the firm down to separate that cleanly, we would have done that in a second and a of the management of the firm is doing today still 15 months later is designed to achieve that objective but they were tightly connected, they could not have been separated and the insurance supervisors responsible did not know the extent to which the financial basis of the insurance companies was so connected to the holding company and the aifp. >> as we look to the counterparties and funds received one of the biggest concerns i have through this process is i believe that when it all becomes public, and it hasn't all become public yet because we don't have everything from you, this may turn out to be the largest theft in history. there were parties that were participating through mortgage-backed securities and

through credit-default swaps to defraud mr. and mrs. american citizen on main street who was receiving the loan on their home that was negative in the loan-to-value ratio and had a greater risk than 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 the loan-to-value ratios were inflated and the risks were being understated? because i truly believe that for throughout the system that brought down the systematic mortgage crisis system on the process that there was a significant amount of the fraud going on and people need to be held accountable and i don't think in your system where you're bailing out taking into consideration those four bad actors. >> i completely agree that this country allowed under the law we of the land a terribly erosion

and underwriting standards, a terrible amount of production and use of practices in mortgage lending and consumer finance. we should never have let that happen and i hope you will join in trying to pass reforms to prevent that from happening. >> the gentleman's -- will, second let me say something to all the members. you know, right now we have 40 some members that still haven't had an opportunity to question so we are quite to have to stick to the time. i want you to respect that. i notice in a couple of situations you go over but i am saying to you when the red light comes on that is eight so i want you to know we are now moving to mr. quigly of ohio. illinois, i'm sorry. is he here? ms. kaptur of ohio.

>> mr. secretary, welcome. can you provide for the record a copy of the refusal agreement you signed when you read the new york fed? >> i didn't sign a recusal agreement. i would do from the day-to-day management policies of the fed and my colleagues both in washington and new york can attest to that. >> so there was no formal agreement? >> no enzus in the testimony what i did is with drew -- this was important to do. again, no president. as it did not need to be the secretary of the treasury, and i withdrew after carefully consulting colleagues from all that in monetary policy decisions i did not go to the meeting in december and i withdrew from these individual cases involving the financial system and day-to-day management and that was the right thing to do at that time. >> thank you for clarifying that. number two, a lot of people think 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 true. >> can you provide the names of the handful of thinkers on the board of the new york fed that elected you in 2003? >> that is a matter of public -- of course we can do that. >> thank you. >> congresswoman what you just said was not true. i work in the public interest. officials of the federal reserve work for the public interest and they work for the government. >> of the people don't elect you. the head of the fed don't elect you, it's the individuals who sit on the board of the new york fed that elect you, is that correct? >> it's more complicated than that. >> in setting up the fed a set up a system where the presidents of the regional reserve banks are elected by their ward and requires the approval of the chairman of the board of governors in washington to serve. so it is a delicate balance of checks and balances and congress decide that system. >> it is largely private banks the elected you and i'd like you

to provide that for the record. the cleveland fed isn't equal to the new york fed and i interested in your answer to the record. number three, goldman sachs was the largest domestic recipient of the funds in this aig counterpart the arrangement. let me ask you now as treasury secretary you are chief of staff is the gatekeeper for access to you could you please provide his name? >> his name is mark patterson. >> thank you. for whom did he work before do selected him as your chief of staff? >> he worked for the president's transition team. >> before that which wall street firm? >> this is a matter of public record and you know the answer to this question if it were not for goldman sachs -- >> you answered my question mr. secretary now let me say this, the aig transaction -- you answer the question -- you answered the question. thank you. the aig transaction was disturbing to many observers.

why that our government of required by bank creditors to take the lead and bear some of the cost in any plan to stabilize aig? you in effect nationalized 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 london unit from the company rather than allowing the unit to infect the entire company? >> if we have had the types of bankruptcy procedures we have for the banks it is possible that ultimately could have done that. it could've been easier and cheaper for the taxpayer to the trustees parts of the firm for the healthy profitable insurance companies we would do that and in fact that is the core of the restructuring strategy the company is undertaking. but that choice was not available at the time. if the had been possible of course we would have done that but because we did not have the

tools that we have on the bankruptcy we did not have that choice. >> thank you. your phone logs from the subpoena material we request which i would like in the record should between september 14th to the 26 -- >> without objection. >> the per code the bank bailout occurred and after september 15th when the three major rating agencies downgraded aig's credit rating and made hundreds of calls it the most over 2025 to secretary paulson was then secretary-treasurer, what from the keyword for prior to is a point of secretary of treasury. >> he worked for goldman sachs. >> goldman sachs as i understand of the most in the counter prepayments at any domestic institution is that true, $14 billion? >> is a matter of public record. they got the most from an international from the goldman sachs was number one you need

100 calls to federal chair ben bernanke but then the next highest number of calls and that burger you need 103 -- to emineth named dan jester -- thank you, mr. chairman. may i ask what firm that he worked for -- >> he worked for goldman sachs. >> i will have additional questions with regard to you phoned and we will place that in the record. >> can i just say one thing in response to this? it's very important, congress and you were suggesting the people involved in this were not acting in the public interest and you were suggesting they were working for the private interest now the public interest and that is not true and i believe none of those individuals would be part of a decision like that and i think these people were people of enormous 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. the gentleman from florida secretary geithner, win did aig if you could give the date when did aig call and say we need money? >> we can to treasury and the fed formerly a thing on that friday which was the calendar which would was friday at timber, the 11th and 12th i think. -- it was a friday and timber. in that time there were advisors of aig that were also advising the new york fed. were you aware of any conflict among the advisers or were there any discussions about what kind

of conflict this might bring about? >> when aig came to us and tried to walk us through the financial conditions they had advisers with them and in discussion with other advisers not with us and they're mad that time. >> when did that dollar amount become -- after the discussions at what point in time did the dollar amount the life that? >> you mean the initial terms of the initial loan? >> we reached the decision probably just on the eve of the former agreement. >> we were trying to do -- >> do you remember -- >> the 16th is when we conclude the transaction so just before that. >> let me ask on the counterparties when was that meeting with the counterparties

to discuss the payment might be to them? do you remember those states? >> i don't believe it was a meeting with counterparties. what i asked my colleagues to do after looking at a range of options is to purge the counterparties individually and try to negotiate concessions. >> so there was no act will meeting where the counterparties or in a room -- >> i don't think -- i would have to check the record and get back to you but i don't believe they brought them in a room together. >> when using your colleagues these are people that work for you, they were under direction? >> absolutely. >> so you were aware of the 100% payment to the counterparties? >> as i have said many times we decided and i fully supported the decision -- >> that is a yes. >> in each of these meetings with the count to produce to

negotiate we were not able to negotiate any of them down? and i mean these four separate meetings i guess. due to question negotiating skills of some of these people? >> no, these were again these are talented people with a lot of experience who knew how to do this. many have done this for a living but unless you can threaten the faults were threatened to pay below par, you understand, you don't have any leverage in the transaction from and in fact if we had negotiated with a flat of the fault like that our concern is that would risk a downgrade and brought about the collapse. >> do you know if aig approach any of these people about any type of negotiations about what some may have been? because once the government gets behind it, like you said it takes away your negotiating skills. >> you are exactly right and i am not sure but i think if i am

not mistaken aig probably tried to do that before the government came in, but i can't speak to that today. >> but these people with the credit the fault swaps, they were bright people. they knew the high risk what they were getting involved with, did they not? >> the tragic lesson of the crisis is lots of bright people with lots of experience who should have known better made bets on the future of the country that assumed house prices would never fall and the judgments aig made were very similar to the mistakes the rating agencies made. >> but these people are making a lot of money off of this. this was a high risk and high reward business; right? >> the people at aig? absolutely. >> it's obvious aig 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 in many ways far better than many of us thought. as i said the u.s. government is still exposed to this risk of loss but we have a new board in place -- >> just answer because i've got one more question -- >> the gentleman's time has expired. and of course the gentleman from maryland is recognized for five minutes. >> thank you, mr. chairman and mr. secretary for your testimony. as you indicated previous administration came to the contras and to the country and said we faced an extraordinary circumstance the failure to act to help rescue the financial industry would hurt people on main street, innocent bystander in the process and you took the action that you did and you properly said we need to learn the lessons from what happened and the administration and congress have been working to do just that. here in the house we 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 it hurts innocent people. second, to make sure there is a failsafe if somehow that happens there is a pool of money raised from the banks of the taxpayers to pay for the rescue and the president has proposed this, a fee on the biggest financial institutions $50 billion plus in assets to recover every penny of t.a.r.p. money at it think it's important to understand that includes 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 gary peters of michigan.

i've got it right here and is is that fi will remain on the biggest banks not just to capitalize a fund to be used in studies and of future problems. they have to pay for their own but this is you keep that feet until you recover every penny and i must say i was surprised i wish all of our colleagues on the other side of the ogle were here. i was surprised this very simple idea was rejected unanimously by the other side in a vote we have on this and that vote would have ensured past but that was a vote to make sure we get back every penny that the tax payer gave to aig and gave to the counterparties. so, if you could speak to the importance of making sure number one we take measures to prevent this from happening in the future but just as importantly making sure we let everybody on main street but their money they held sent to rescue package will

be recovered if we adopt the proposal in the house and the president's proposal. >> if congress joins the president in adopting this proposed financial d the american taxpayer will be exposed to a penny of loss for everything the government had to do to fix this mess and aig are everywhere else. that isn't enough though. we believe it is very important to make sure we work with congress to put in place constraints the 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 operating with enough capital and no oversight and we have to make it clear in the future that we are going to be able to let the firms fail without costing the taxpayers money and causing collateral damage. so i just want to say one thing. the cost to the american people cannot be captured in the simple

financial cost of the t.a.r.p.. we will protect them from those costs if congress passes this feat. but the cost is much more damaging to the cause as much more damage. it can never be captured by the accounting costs of the losses under t.a.r.p.. but we of a great responsibility and obligation to reform the system so they are not in that position again and the least we can do is to make sure the taxpayers are not bearing the direct cost that we took in aig and elsewhere. >> [inaudible] some of these bad decisions obviously [inaudible] if we adopt the amendment or the

president's proposal [inaudible] >> that is right and it's better than that though, congressman, because the specific transaction is the subject of so much attention inappropriate in this hearing themselves are likely to order the taxpayer modest profit but the government is still exposed to risk of loss on the rest of its investments but if we adopt this be the taxpayers will not bear a penny of that cost. >> the chair recognizes [inaudible] >> there's $60 billion worth of loss and 40.4 billion associated with this aig bill we are talking about now, so there is a 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 and consumer protection act? >> i'm not sure of the precise legislative amendment. it's a bill sponsored by barney frank of massachusetts -- >> is this the comprehensive law that passed in the timber? yes i support that. >> and do you support the full volcker rule? >> the president proposed working with the bill that passed the house including provision mr. kanjorski offered to give the government the ability to lead risk-taking by banks that we make sure those translated to the limits that will actually prevent risk-taking in the future. >> so it is consistent with h.r.

4173? >> absolutely. it's important for people to understand this bill -- >> i understand it include a provision that would give the government the ability to limit risk taking any way to prevent future occurrences. >> wasn't your legislative staff that worked to change the kanjorski amendment? >> again we work closely with members of that committee on a range of those provisions to make sure they met the intent -- >> you're not answering my question. spent on that amendment we absolutely worked with them -- >> limit in terms of its reach. >> we worked on the limits to make sure -- >> okay. so in essence the volcker rule is something you support? >> yes. >> you testified last month before the joint economic committee, quote i would of support reinstating glass-steagall and do not

believe that glass-steagall played a role in this crisis. do you stand by that statement? >> absolutely. >> how do you reconcile that belief with this will that in essence limits or forces banks to divest in hedge funds and private equity and all these other additional elements that is in essence glass-steagall? >> well, what glass-steagall did was allow banks to underwrite equity and engage in a whole other range of other financial activities, insurance as well -- >> it limited the ability to be clear. >> we support as i think the bill your site did support, it did provide authority to limit its activities so that access to the safety net isn't subsidizing access of risk-taking. it's a simple principle. does it donald axson of the gramm-leach-bliley reforms?

but it's not what people refer to as glass-steagall. >> so it also says if you engage in a certain type of -- if you have a certain format meaning a bank holding company you have to adhere to certain rules, correct? >> that's right. >> you also testified before the financial service committee of which i said last year that, quote, financial products and institutions should be regulated by the economic function they provide and the risks they present, not the legal form they take. >> i agree with that. >> so you support a rule that says based on the legal form you take you have to adhere to these principles. how do you reconcile this? >> they are consistent with the state the principle again. >> they are perfectly opposite. >> this is important for people to understand. if you are operating in the financial markets, you are helping companies raise credit and raise capital, helping them make markets work, providing

liquidity to the markets. it doesn't matter, shouldn't matter to the american people whether you called a goldman sachs or are called jpmorgan. you should be subject to a set of constraints on capital, leverage and 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's a set of other limits 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 citizen activities that are not essential to -- >> basically you're saying if you simply drop the bank holding company label you are out from under. spec that would be a mistake for the country. >> that is what the one p toole -- bigot does not do that. congressman braley this would be helpful for me to say to you, we will work very closely with members on both sides of the aisle to make sure this legislation results in a set of sensible constraints and risk-taking --

>> that would be something new over the last 30 months because you have not reached out to the republicans to be clear on the financial service -- >> that is not true but i have a going forward as we get the force of law reflected in regulation we do so carefully with full consultation. >> the gentleman's time is expired and the chairman recognizes himself for five minutes. >> thank you, mr. geithner for being here. number what i just want to remind my colleagues on both sides the whole of request for the bailout it had to be administered by the treasury department was at the request of then president bush, and sick and 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 statements he made mr. geithner, about the effect

of the actions taken to stabilize the financial system. i'm not here to argue that. the question i have as has it 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 the self and richmond rhetoric and financing american jobs and american entrepreneurs and transformed itself from an entity that was about creating jobs and to the greatest job killing machine in the history of the country. there's two things that i want to asked. the bank fees that president obama has endorsed, d.c. that is essential to have the folks largely responsible for the financial meltdown because it cost so that it is not the taxpayer, is that correct? >> absolutely in the reforms proposed back in june at the center of the proposal was the

basic principle which in the future government expose the risk of loss the banks paid. in the t.a.r.p. legislation you refer to there's a provision that puts an obligation on me to propose ways to recoup the cost and we propose that in the president's financial responsibility. >> and i am glad you're doing that. second, there's a number of false oliver 60 that are supporting a tax 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 york times" that goldman sachs had bundled subprime mortgages. it then had folks that advocated to the rating agencies to get the highest rating possible. it to then went to its trusted clients and sold those and then went to its trading desk and sold them short. is that the type of conduct you think should be monitored and

curbed buy any financial regulatory monitor? >> congressman, i believe deeply we need tougher laws enforced more effectively and evenly to make sure consumers and investors are not taken advantage of and that the system is not so fragile. the government has to step in the future and take this risk of loss -- let me just ask about the bonus task to the tax because i would be interested. firms like goldman sachs receive t.a.r.p. funds and low-interest money from the open window of the federal reserve and of course goldman sachs and other firms receive direct pass through payments when aig was killed; correct? when mr. paulson, your predecessor, was on the phone requesting this this was not anything he made the request for to he assured us will street learned its ways. goldman sachs and the other 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 in st.. they've been able to set aside 140 to $160 billion. do you have an opinion for the bonus is, they could have lent that out and added to the capitol base and of the third choice is the could put it in their pocket which is the one they've chosen. do you think if you of fact much of the profit was made through thx priate tax bonuses as i suggest in my legislation 50% about 50,000? >> of course i would be happy to take a careful look at that legislation and talk about how to deal with that. the principle that we support 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 we need to work with congress to make sure we bring about fundamental change in how the bankers are paid so they are not taking a risk that it impairs the economy as a whole. doing that is hard to do right.

we tried in the past not very successfully it's an obligation that has shareholders and boards have to eckert it's the government's responsibility in the and to make sure -- >> my time is almost up. we would take the money raised from that and put them in small business lending and as you know the banks that receive the t.a.r.p. funds reduced money to the american enterprise and folks in vermont who run businesses ask if those guys make so much money how come they can't lend me any. >> i think if you sold in the paper today we are close to proposing to the congress that we take a large amount of the resources we've gotten back from banks and devote them to that objective to try to make sure small banks and small businesses have access to credit. saxby for mr. secretary. my time is up. the chair now recognizes the gentleman from ohio mr. jordan. >> thank you mr. secretary for being with us. you were involved with of the

decision 15 from 18 months ago to the initial t.a.r.p. be allowed. you thought it was the right decision to make at the time? >> for the $700 billion? >> it was absolutely essential at that point. >> this committee has had many hearings on the bank of merrill lynch and you were involved in the decision and we have e-mails that talk about you were in the loop and know what was going on and you were supportive of what took place with the merger of the acquisition of merrill lynch by bank of america. yes or no? >> it is right that at that time i was part of an effort to try to find a solution, private solution to merrill lynch and i felt that action was necessary and appropriate, yes. >> today you said that you think the initial decision relative to aig and counterparties you think that's appropriate, he stated that strongly in your testimony that this is in the best interest of the american people.

>> i do. >> we acted because the consequences are failing had that time in those circumstances would have been catastrophic to the american families and american businesses. you think it was the right decision? >> i do. the stuff that work for you at the new york fed would be in agreement with that and now this is? this was so critical this had to get done the sky was going to fall, the world was going to and if you we did not do what you wanted to do in the $62 billion spent; is that correct? >> i believe it is but to be fair to say there were those among us of that were involved in each of the institutions involved, washington, new york treasury, who were deeply troubled by that choice or not comfortable -- >> but he thought it was what you have to do at the time? >> i believe that, guess. >> you have said in your written testimony this morning or your oral testimony that this was critical to american families and businesses. this begs the obvious question why the secrecy of a tiff -- if

it's that important $62 billion, why in the heck not disclose it when it is happening since you subsequently have done that why the secrecy? and frankly why weren't you -- if it is that critical why did you recuse yourself? why weren't you involved? >> again to step back, when the fed disclosed this in march 2009, i thought was the right thing to do it i think reasonable people looking back at this could say why wasn't it possible sooner. i think it is reasonable. >> why was it possible in november when it was going down? >> what i understand was involved in, i was not involved in discussions about decisions about what to do with that particular transaction the counterparties or the details and that's because -- >> let me ask this do you believe the decision made by the folks that work for you at the new york fed do not disclose until march or when it was all taking place, do you support the decision? >> congressmen, as i've said --

>> yes or no. you said this was so critical the world was going to end, everything was free to go -- >> let me tell you something i deeply believe. it's very hard to put yourself in issues you didn't occupy and have a fair sense to evaluate those actions in that case. and i don't feel like i can put myself in their shoes at that time. >> let me tell you what i think happened -- >> i do think they acted with great integrity, care and judgment -- >> mr. lynch was on the right trail. this is a pattern. the congress and the united states gives $700 billion of taxpayer money. i'm saying the government can to the congress -- >> your president at that time. >> i didn't say democrat or republican, gives the money we are going to buy the troubled assets. they didn't do that, or ten days later mr. lynch put out you were in the room when they told the nine biggest banks or not going to buy the troubled assets --

>> that was one of the best decisions, but the most important decisions. >> understand the pattern, the contras was told one thing and ten days later the fed action was taking place. >> i don't think that is correct. with the congress authorized -- secure don't think they understood the money the taxpayers were going to put up would be used by troubled assets? >> i can't put myself in your shoes but the point is to be authority president bush asked forgave my predecessor the authority to put capital in banks and in doing that -- >> here is the pattern. the government comes to the taxpayers is we need more money, we need a boat load, the world is going to end, we want a specific purpose and then the dewitt for something else. did they say we need more of your money and we are going to use the $62 billion they don't disclose what is going on. this is why we never should have traveled down this road, this unprecedented involvement by the government and private sector. we have seen this with --

>> the gentleman's time has expired. >> we have seen it with merrill lynch, bank of america and now aig. >> the gentleman's time is expired. the chair recognizes mr. clay. >> thank you. i want to thank chairman towns and mr. issa for conducting this hearing. secretary geithner, several economists and policy makers assert that aig's ability to provide cash collateral to their counterparties was not relevant and designing their package. what is your opinion on this claim that it was not relevant in designing the system? >> 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 this point this tragic choice which is to let aig default or not, and we thought that default would have been much more expensive. >> help me and i guess help the american people understand why was aig's ability to make payment to its counterparties for their toxic assets even a factor in determining the amount of bailout money to award them? >> for an insurance company or any financial institution to operate, the need to operate with a high credit rating. without that they couldn't borrow money to function, they couldn't write insurance contract because people wouldn't believe it would have the financial wherewithal to back those commitments. so the rating is critical. if we were to have defaulted on any of those contracts, aig

would have been downgraded. the counterparties would have the right to take more money and the salt and bring about the basic collapse of the firm so it is that start tragic choice. if aig hadn't paid the would lost the rating and the firms would collapse, the firm would have collapsed. if we continue to lend the money for them to make those payments the rating would also be in jeopardy because aig did at that point so the choice was again to restructure them so that we limited the treen of cash and left of the taxpayer with potential positive return on the underlying securities. >> so you are seeing the counterparties would have had a right through bankruptcy -- >> a legal right to sue or recoup that claim. >> did anyone involved in the concession negotiations ever

suggest that aig's counterparties should not be relevant in their bailout package? did that issue ever arise among the negotiations or anyone that you encounter during the negotiations? >> that is a complicated question, good question but as i try to explain in the testimony, what we were guided by what was cui to be the best way at least for cost to prevent default and protect the system -- the entire system was at stake than and no firm in the country would have been insulated foley from the collapse of the entire american financial system. our judgment was aig's stifel would have materially raised that broad collapse. so again our trees were terrible choices but they came down to what was the best way to prevent that outcome on the best terms

for the taxpayer? >> that gets to the point of being too big to fail. aig's tentacles were that, and why it spread through the country and the world -- >> it is the right question. there are two things that matter in this case. you have a set of firms like aig , a huge, risky, spread everywhere involved in a whole range of things and a world that was burning so again the first time since the great depression you have financial systems around the world at the brink of stopping in their tracks, and it's those conditions most risky. of the world had been stable everything had been fine and we were not on the edge of the worst recession of generations, then we could have been afforded to be completely in different to the fate of aig for all those institutions. but because aig was so large and interconnected and the system is

fragile, it would have been irresponsible to take the risk of failure would have dramatically amplified the pressures we are living with today. >> can you describe the reaction was in the negotiations to the counterparties pros and cons as far as being counterparts? >> we wrestle with lots of choices as i try to explain in my testimony. we thought about whether it was better to default to impose a hair cut to negotiate concessions under the credit default. we thought about watching the money keeps running out the door to the counterparties still holding the assets. we thought about negotiating over time trying to stretch it out, seeing 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 that if you look back to take a fair reading of this, although the government is still exposed to substantial risk of loss, those losses are lower today because the actions we took in aig and this transaction which again people are so understandably concerned about his the taxpayer in a better position if we kept making the payments or defaulted on them. >> the gentleman's time is expired. i yield five minutes to the gentleman of california, congressman bilbray. >> mr. secretary, we are supposed to do oversight and reform so we are trying to get the information so that we can do the reform to make sure the next time this process comes up we have procedures and the laws that address this. and so it is real important that we identify all 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 said in a speech that one of the major issues you were concerned about was the lack of disclosure causing the american people not to trust the system. i think we all agree that in the latest terms the average citizen disclosure issue they hear cover-up. now why did a system that is supposed to be open, the american people have the right to know where their money goes. why was there 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 that there was a problem that somebody didn't clarify this, was that your staff? basically didn't inform you there had been this cover-up, this disclosure issue? did you make the decision or was that made outside? because aig sent the information

over. there was an internal process within the government itself that said we are not going to disclose to the public this information. >> my colleagues of the fed has put in the public domain a very thoughtful explanation of the judgments they wrestled with and ultimately reached, and i know and i am confident colleagues in washington spent a huge amount of time throughout those months to wrestle with how to meet the understandable public interest in greater disclosure of these things and they ultimately i think appropriately came to the decision they could and should put that information in the public domain. you are right i have been a great proponent of transparency and the centerpiece of the strategy that 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 and all investors the scale of losses they might face in the even to this recession was much more damaging than it proved to

be and that provided the basis for the private investors judging who was strong, was less strong deciding to put capital this institutions. >> in other words did your staff know the coverup was there, the disclosure issue was there before you knew was there? >> was the decision -- >> again, i think again as the record of the committee has been shows there were discussions that were happening about what to disclose and went through that period of time. >> were you involved in the discussions? >> i will say it again i played no role in the decisions but to disclose the transactions to these individual counterparties. >> did your staff make the decision not to inform your or include it in the decision making process? >> they did although -- >> would you want to know about that or would you prefer you

didn't know about it at that time? >> in retrospect i wish i had known but after november 24th i appropriately removed myself from the decisions about a whole range of policy institutions the fed was dealing with, but the people making those decisions in close consultation with people in washington and legal counsel are people of great judgment on the enormous integrity and i have enormous trust and confidence not just in their judgment about in the quality decisions they made through the period of time. >> do you feel today at the time they made the decision to do the cover-up of the disclosure issue that they felt you did not want to know about that time? you think they made a decision -- >> in my entire time they're i was never aware of a situation of which my colleagues sought to shield me from something consequential. all i was president of the new york fed. i was going to be accountable

for decisions made on my watch for reasons i think that our fair and right for the institution. i could no longer run those judgments and i withdrew and think that those were necessary. >> your staff decided to shield you from the cover-up side of it, too? >> i decided i would withdraw -- i didn't decide this alone, i decided in consultation with the chair of the board of governors from the federal reserve system and incoming administration to protect the institution from the condition that was in them. >> what date did you know that there was a cover-up, disclosure issue, when were you informed? >> i only knew about these discussions about disclosure when they started to be in the public domain -- i actually don't know when they first rose to the attention of the contras but when they rose they were in the press and i was aware of them. spec the gentleman's time is

expired. let me thank you, secretary geithner for your testimony, and of course -- >> i would ask unanimous consent all members be allowed to put their questions in writing to the secretary and would ask the secretary if he would respond to the ratings since so many members are not able to ask their questions. >> without objection so ordered. >> mr. chairman, i'm not sure what the right point of order is but i recognize the tremendous legacy the secretary espy also recognize the need for this congress and people on both sides of the aisle to be about ask some questions. we've been waiting patiently all day 3i would hope the chairman -- >> as you know i've been here long enough for you to know because i believe in openness and going as long as it takes but mr. paulson has a problem that this scheduled in terms of the amount of time allowed so if

we continue, then he will not be able to testify so i think that is the issue we have to deal with so that is the reason we are cutting it and it was agreed this would happen and of course i understand several people did not have an opportunity to raise questions but i would suggest you put this to the secretary in writing because he will answer. if not, the second witness will not hear from at all -- >> if i could be so bold my guess is if we were to survey or talk to the people on the panel particularly the people that haven't had a chance to ask questions i think with all due respect we would rather hear from the current treasury secretary in the past treasury secretary who schedule is more schedule to the to flexible and -- >> i understand the point of the matter is we have a hearing that has been scheduled and has been structured and i wish we could

allowing ready to do that but in this situation -- i would be delighted to yield to the gentleman again. >> i appreciate that because you have always been fair and generous and personally very good to me. is there a way that we could vote on which direction to go on this? >> it is actually a to the chairman. let me say what i would like to do. i would give a minute to the to on this side and the to on this side and that's it. we have to move forward. we have a scheduled hearing that this year -- >> with the gentleman yield? >> looking for certain information to get information we need to talk to the president secretary, the past and of course we have others -- >> i join with you and that unanimous consent for two additional minutes per side equally divided. >> reserving the right to object mr. chairman i just want to say that any member of this committee has ability to submit questions in writing.

mr. geithner in response to an earlier question said in the interest of time he would be willing to answer questions in writing. is that not true? >> absolutely. >> anybody that wouldn't get a chance to ask a question can still put it in writing. i withdraw any objection. >> let me say that we will go to minutes on this side, two minutes on that side but remember -- >> reserving the right to object >> i don't know what you're objecting to. spaghetti would recognize me. unanimous consent request i would be happy to forgo my time with secretary paulson to ask secretary geithner -- >> i wish we could operate that way but when you have hearings that are structured they are not structured in the fact someone would give up their time -- that's all the way we do this so the point of the matter is we either accept the two minutes on each side or we move forward. that is what is on the table.

so two minutes on this side and two minutes on that side. spec i withdraw my -- >> mr. connolly, you have a minute to raise a question with the secretary. mr. connolly from virginia. -- before, mr. chairman. >> recognized for one minute. >> mr. geithner, we only have one minute and one has the sense some people in this room brass want to rewrite history and i understand given that history why they might what to do that in reading your statement to talk about the need of the financial regulatory reform. can you expand on why we need that when it comes to regulating that which was resisted from regulation in the past like derivatives and credit the fault swaps? >> i don't think it is a hard case to make. i think you have to look at the record to beat a wreckage caused by the crisis to say that it crashed dramatically the two that have been our people were allowed to take risks without

constraint. we let a system operate where institutions that were huge and consequential operate with no adult supervision, no constraints and they brought the country to the edge of collapse. let me say one thing in common with the following firm. fannie and freddie, the largest investment banks in the country, aig, a said specialized insurance companies, a range of consumer finance companies they all had one thing in common, they were not subject to a set sensible rules that constrain the risk they take. what we propose in the financial reform is to change that. it is a simple and putative. that's not enough so because people will make mistakes in the future so we need to make sure what they make those mistakes we cannot let them sail and feel your can happen without catastrophic damage. we need to contain the damage and isolate, draw a line of conduct, put them out of the misery come out of existence

without taxpayer being exposed and make sure we don't have a system where the taxpayer is exposed to the risk of loss or investors and creditors live with expectations the government will be there again. and again that is something that is i think we all have a huge obligation and responsible the. it was the law of the land that allowed that to happen. they made it impossible for the government to act and i think we need to work together to change that. >> i thank the gentleman and the chairman for his consideration. >> i recognize mr. fortenberry for one minute. >> thank you. mr. chairman, welcome. we've been privatizing profits and socializing risk and if the optics on the aig are not bad enough, the counterparties to the aig who received 100% parity for their liabilities, seven of the top ten are foreign firms so the general was the top recipient of $16.5 billion of american taxpayer bailouts. followed by goldman sachs.

you said the economy is in crisis and this year goldman sachs would get $16 billion of bonus payments about $500,000 per employee. this is difficult to understand why there wasn't at first the desire to have transparency in regards to the counter per transaction. would you address that please? >> i'm not sure if he were here for the conversation -- >> i've been here the entire time. ..

>> thank you very much, mr. chairman. and secretary, mr. secretary. 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've made in the fall of 2008 to rescue aig and pay the counterparty? >> congressman, again, i think about this a lot. and one the greatest things of our country, people will be able to look back and come to their own judges.

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, we did not have the option of default, selected haircuts. it would have been catastrophe to get the institute fail. we didn't rescue welcomes -- rescue aig, we went in so they wouldn't fail. they are mistakes we have to reflect on deeply for a long time on why the government provides competent authorities and why didn't we did have in place the kind of tools we've had for a long time for banks to try to deal with these kind of failures. i think those are tragic mistakes. the lesson of financial crises is if you don't act sooner, if

you stand back and hope it will burn itself out, correct itself, that can cause enormous damage. it'll cause enormous damage, not just to american government. and do things like we need resources for, protect national security, make sure teachers can be in school. i hope we learn that lesson. should never happen again. >> i thank you very much. the time is expired. i recognize the gentleman from utah. >> thank you, mr. chairman and mr. secretary. i was going to ask about 18 phone calls you made to rahm emanuel. i'd like to ask you about the idea that's going to make

profits. we're going to make two statements. second quote later in the same photograph, narrow asserted the taxpayers will be quote, made whole, unquote the. just one part of the transactions, without mentioning the huge losses the treasury expects is simply unexceptable. the american people deserve better the. my question is hoping that you can respond to those two statements is when you refer to profits from the aig counterparty bailout, are you counting the parties aig had in cash to the counterparties or just the 27 billion that got directly from the new york fed? >> i think we agree on this, i

said in my statement, the government is still exposed to substantial risk of loss on it's investments in aig. i think in general, it's likely to face any loss. that's a good thing. the government is stillics posed to risk of loss. we don't know how large it'll be. it's just an estimate based on current marketplaces. i really important thing is -- i hope you join us in this, is if we adopt the financial responsibility fee, the taxpayer will not bear a penny of the burden -- >> sounds like a tax to me. >> you can call it what you want. >> i call it a tax. and i wish you would too. i'll call it what it is. >> in the law the congress passed authorizing these as, congress required the secretary of the treasury to propose a way to make sure taxpayers are 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 for aig. we can make that possible. >> the gentleman's time is expired. thank you for your testimony. of course, you may be excuseed. >> the second witness for today's hearing is former secretary under the bush administration, heck tear henry paulson. mr. paulson 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. all right. you may be seated. let the record reflect that he answered in the affirmative. i'll ask the witness to

summarize his testimony in five minutes and, of course, reknow the procedure. the yellow light means you have 1:00 and the red light means stop. then we will have times to raise questions. you know the procedure. you've been through this quite a few times. >> mr. chairman, thank you. i will go through this quickly. first of all, chairman towns, ranking member, and 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 the government who will labor to pull our nation back from the brink of disaster. the decision to rescue aig was correct. and i strongly supported it. and aig failure would have been devastating to the financial system and to the economy.

today's hearing relates to payments to aig's credit default swap counterparties. i was not involved in any of the decisions made with respect to those payments nor was i involved in any of the decisions about aig's public disclosure of those payments. those matters were paneled by the federal reserve bank of new york and the federal reserve board. they sought to make appreciate 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. i believe we have a government that asked to rescue it, including secretary geithner, chairman bernanke acted properly and in the best interest of our country. the reasons the rescue of aig was necessary are well worth

examining. i believe the representative of the clawses of other aspects of the crisis, i believe reform is necessary. there are three reasons we needed to save aig that stand out in my mind. first, aig was incredibly large and interacted. it had $1 trillion balance sheet. a massive derivatives business that corrected it to hundreds of financial institutions, businesses and governments. tens of millions of life insurance customers, and tens of billions of contracts guaranteeing the retirement savings of individuals. aig was seriously unregulateed.

the entity was for all practical purposes an unregulated holding company. consequently, there was no single regulator with a complete picture of aig on our 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 tockic aspects of parts of it's business had infected otherwise healthy parts. third, aig could not be effectively wound down. unlike failed depository institutions, which can be taken over by the fdic with little or no harm to deposit tours or the gse which were placed in the con certaintiveship by treasury and the federal housing finance

agency, there was and is no resolution authority available to wind down a failing institution like aig. the only option is bankruptcy. a process that is simply not capable of protecting the millions of americans who finances are intertwined with aig. the government rescue of aig in the fall of 2008 was directly shaped by these realities. we had to protect the economy and the finances of millions of americans. we could not have anticipated the magnitude of aig and we had no idea of letting it fail without consequences. we had to intervene, and i'm thankful we did. i do not mean to say i'm happy we needed to intervene. taxpayer money should not have to be spent to save a misguyses and mismanaged enterprise. but the fundamental problem lies

not in how we intervene but why we needed to intervene. we with needed to modernize by creating a systemic risk regulator and a resolution authority. so any large firm that fails can be lick liquidateed and will always play a role to our growth. they must be permitted to grow with our economy with a recognition for allowing for them to be safely. thank you, mr. chairman, for allows me to tell my statement. i'll be happy to ask questions. >> you were deeply involved with the financial crisis with aig,

bank of america, and with t.a.r.p.. my question is why did you sit on the sideline and not use your considerable force to call the ceos of the counterparties in to get them to take a haircut. why wouldn't you do that? you're a person that was very influential in all of this, you know? and i can couldn'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 which ever agency had the authority took responsibility for execution. there was clearly a case, it was a federal reserve loan. they had the authorities to make it an administer it.

and they had the technical expertise to do the restructuring. >> but, you know, i just see it 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. then to sit on the sideline in a time like this, i just could find that -- >> mr. chairman, anybody that knows me knows i was not sitting on the sideline. 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? >> this was a federal reserve loan. they had the authority and expertise. and i said my testimony, i had great confidence in the

professionalism, the integrity, the motives, 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 daily lick. >> why wouldn't let aig go into bankruptcy? why not? if aig had failed, there 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 been taken down -- >> talk directly into the microphone. they are having problems hearing you. >> i believe it would have been taken down the whole financial system and our economy. it would have been a disaster. today after all of 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 ofme s, home prices would be much they . so is 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 better than the downturn of the country. >> all right. i yield for five minutes from the california ranking member. >> i would ask that we go to the members that did not have an opportunity to the first round. i would ask would you agree

since the secretary said he would answer my question to join with me in ensuring all questions are answer or bring the secretary back assuming he does not answer them. >> thank you. >> thank you. mr. luke aeremiaier could be next of those waiting. >> mr. paulson, one the things that we're looking into aig, does aig and their financial products, was that subsidiary. or was that part of their business model? >> i believe it was part of the business model? >> there wasn't a separate entity? >> it was clearly -- it was clearly at the holding company. it was a -- part of -- it wasn't part of an insurance wisconsin model. -- insurance business model. >> because it makes a big difference.

it's subsidiary. you can let it go down, and it doesn't effect the insurance part? am i correct? >> i would say this to you, this company was so big and intertwined that it was -- if there was any way that the penal who were working on this could have found a way to just let one small part of the company go down -- >> would the gentleman -- mr. paulson, excuse me. we want to make sure that members can hear your testimony. you know, it's amazing with so many money in the federal government we don't have a better sound system. i'm going to need you to speak as closely to the mic as you can. >> so to just be clear, there was no way to hide off and handle this situation differently. there was a very few days to act to prevent bankruptcy with no

wind down powers to let this company be liquidated and avoid bankruptcy. >> let me move on very quickly. in secretary geithner's testimony, he indicated that he felt that contractually, the contracts that we had, the investments that were made by foreign banks and aig needed to be adhered to and worked with. was the government a part of those contracts? >> 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 of the contracts then? >> this was not something that i was directly involved in. i said that i very must trust

the motives and the abilities and the judgment of the people that made those decisions. but i doesn't party to them. i can't answer that question. >> well, that's one the frustrations. and i appreciate your candor. but that's my frustration with the chair that we can't get all of the questions asked and answers so we can come to you with a good information to get good back and forth. i apologize to you. let me move on with something else. i know we are looking at and the president has proposed too big to fail short of strategies to try to address the issue of too big to fail. where were you in this debate? what do you think about the proposal on the table right now, sir? >> when i was secretary of the treasury, i put out a regulatory blueprint. 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 liquidated outside of the bankruptcy process without taking down the rest of the economy. so i think that is essential. and there are some parts of the proposals that are up here being debated by congress which are the same as in the regulatory bullet print we put forward. a big one being the systemic risk regulators. i'm strongly in favor. >> do you believe we need to take the risk investments that are part of so many of the big banks and take them off of the books and do the subsidiary for this? go back to the glass-steagall act there? >> that is not my recommendation. when you look at the crisis, what i saw in the crisis, it was

across a number of types of financial institutions. and the excessive risk taking, i saw was not limited to one business with@. it was much broader than that. i think we need a broader approach. so again what i favor is the systemic risk regulator and winddown authorities the way i would handle that. >> one the problems is suddenly now we have the taxpayers on the hook for these risk takers who are out here. i think it's important that we take these things off of the books and have the subsidiaries that if goes down, it goes down on the taxpayers as a whole are not on the hook for all of this. i think it's very important we go down the road. i think what you've done with aig is suddenly use the federal government as the official underwriters of all of the investments in the world. if we are underwriting foreign contracts, investments, we've gone down the road.

>> gentleman's time expired. chair, in keeping with the necessity of making sure the members who do not ask questions in the last round are given the chance to go first we recognize mr. tierney. >> thank you. so you were not allowing aig to go bankrupt? >> absolutely. >> that was a -- people see mr. geithner now as treasurer. i think the decisions were all made by him as treasurer. these were decisions made. you were president bush's secretary of the treasury? >> absolutely. >> mr. bernanke was the head of the fed. of course we had the new york fed board participating as well. that's pretty much the group that decided they should give $85 billion in september to

aig. those are the participants, am i right? >> we were -- as i said in my testimony, i very much supported that rescue. >> in a november, it was the same group. you as president bush's secretary of the treasury, mr. bernanke, and new york feds decided to give additional funds to aig. some of which we used to pay the counterparties to the contracts; right? >> yes, in november, in the t.a.r.p., we made a $40 billion capital investments, and then the fed put some additional money into which was used up for the contracts. >> just so we are clear, when we were giving credit here, the t.a.r.p., the $700 billion in t.a.r.p. was during your term as secretary of the treasury. >> implode of that, sir. >> that was your ideaing the t.a.r.p.? >> it was a number of ideas. it was something i'm proud of and it was necessary. >> and the $85 billion that was

loined -- loaned to aig was not done through congress? >> no, that was a decision taken by the fed. >> what source did they use? >> they used their funds. >> and their funds, they emanate from where? >> from the u.s. government. >> where they fees from other banks, they come from your treasury, where? >> they come from fed obviously can print money. >> did they take money that they had from fees charged to number bank or print money? >> you'd have to ask the fed that. >> you were not aware. >> i would not like to answer that question. >> you may not like to. but what is your best understanding? >> my best understanding is all dollars are green. so those are ultimately taxpayers dollars. that was why -- >> we are painfully aware they

are taxpayers dollars, sir. >> that was why the treasury was supportive and we -- we were very supportive of our transaction. >> we all understand that the full faith and a promise comes from the government. i'm asking you whether since they didn't come to congress for appropriation where the $85 billion came from fees charged to member banks, was newly printed, or some combination. >> i don't believe it came from fees charged from member banks. >> 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. it later came to a point of whether or not to pay the counterparties 100% on the contracts or not. once the decision made, you lost the leverage really to argue in terms of being able to pay less than 100%. is that a fair statement? >> i didn't participate in those decisions regarding payment.

and i also said we didn't have the winddown powers. >> you were involved with that. i think again how many congressman said there was phone calls between the new york fed and you, 225 telephone conversations between the head of the new york fed and you during the period of the time. i think we might be fair in assuming you were discussing the matters? >> we had many matters to discuss. the matters we discussed, we clearly discussed the rescue. as i said, i did not have involvement. >> this is my final question. i need your help with this. most people at home here draw the conclusion not to allow aig would have been devastating because the consequences would have been severe. it would be helpful if you could put yourself in the position of the local bookkeeper for a medical firm, or housekeeper, or lawyer, or teachers 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 jobs -- >> how would that have happened. show me from the time you make the decision how it would effect their lives? >> the gentleman's time has expired. the witness would be pleased to answer his question, i hope. >> okay. what i believe -- we were -- around the time of 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 ever everything that was done all of the resources we had 10% unemployment. i believe we easily would have had 25% unemployment. today we have home prices that have dropped 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. >> thank you, chair recognize mr. todder. >> thank you, i have a variation of the same question. one the problems is it appeared

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 the -- in effect, the banks got 100%, but gm creditors, small business withs all across america in other companies that were let go, they got 10 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 ai,000,000,000 -- aig was different inform what sense? in other words, it was a collection? >> it was a big complex collection of companies, correct. q. if the insurance divisions were separated and game 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 the details of that. you said bankruptcy wasn't an option. but it also meant that did you try to put treasure on the people who held the debt to write down some of their debt. or once you made the statement, were they just playing hardball. why didn't they got the same pressure that gm had or somebody else? >> as i said, there isn't me that was trying to suggest anything that was done wrong. i had nothing to do with that. 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 fundamental for you to understand is the government we had antiquated system of authorities. if there was a bank, there is

hawaii -- there is a way to wind that down. >> let me ask you, there's no way expect the threat of real bankruptcy. if you are a bank and a think you can negotiate at par and get a full percent, the question is did anybody threaten them. did anybody say you were not going to get that effect. they played hardball. we had no way to do it. that if in effect you would have threatened to say we could cover the insurance people, but the finance side, you better negotiate down, and then wind up probably having to do in t.a.r.p. anyway which is put cash reserves to try to cover the fact that the bankruptcy went out. had they gone bankruptcy and there was a a catastrophic threat, which i believe because

i voted for t.a.r.p., wouldn't you have had to put more money in the banking system, but not at par. >> i wasn't involved in that. >> i can't comment beyond what i said. >> when you got involved, the decision was already made that i wasn't going to go bankruptcy. >> first of all, i was involved in supporting the official rescue. >> you were involved. it was not when they dealt with the counterparties. i supported the fed on the initial loan. and then later in november, the situation had desperated to the

point. and values on insurance businesses all around the world had desperated to the point that there was a company would go down without capital. now we had capital, 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 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. then we put more money in because we couldn't fail. where in everything from citibank to merrill lynch there were conditions coming in and guidelines and they used the leverage of the threat to do that. then in this case, it appears it was different and it partly is the creditors are different.

further more, that 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 keep it quieter. there was critical, that information to understand what was going on bewith hind. and it is extremely frustrating to all of us on this committee, you can hear it in different types of questions about how this came to be. i don't think there's been a compelling case that aig is unique. >> if mr. paulson wants to respond, you can do that. >> i do not wish to respond. >> all right. thanks. >> welcome back, mr. paulson. i really mesh washington, i assume. >> you can't guess how much. >> those -- i've listened to the comments of the secretary, your

successor and now you. and i'm listening to the members questions and how much in those faithful months which all of us hope we never relive. all of us are different than today. and the coolness of being able to answer. one the questions that i was interested in because i was very involved with that at aig and what was happening with my aspect of having jurisdiction over insurance is that as i understand it, because of financial products in london, was without assets, and had a tremendous involvement of about $2.8 trillion and who's counterparty positions who were starting to fail and they had to honor them. their initial internal decision of aig was to use the assets of the world largest insurance

company. and they sought permission and it was pending. and finally approved by their regulator, their state of new york to take assets out of the insurance companies, about $30 billion and use those assets to cover their exposed counterparty positions. if that happened at that time, they would have converted and enough to wipe out the positions. which in turn would have been effected, and it would have been a collapse of the insurance industry and notwithstanding the counterparty and derivative position. now luckily, the regulator in state of the new york didn't grant the permission to use the $30 million until much later when it was futile. at that point, the losses on the

counterparty i think rose to $55 billion and were climbing on a daily basis. 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 government those counterparty losses. they didn't cover all of those losses. subsequently within probably 30 days, another huge amount of money was infused into aig various corporate structure to get some stability. not that i could stay nothing as changed, there was the significant circumstances in the month or two months after september 18th that everybody was faced with. as i understand it the federal deserve was the checkbook, they were just plugging the money if. it wasn't a decision made at the secretary level, or the

presidential level, it was federal reserve regulator level that was making that decision. i dare say regulator, not for aig, but regulator that had regulation over some of the largest banking institutions in the world. if they counterparty positions were an honor, they would have collapsed. that's what we were with calling the meltdown. everything was going to implode. and you had to stop it at the head waters, got into the damns out of the stream. that was the correct position? >> i would say without signing off, i would say you got it in the sense of that was a very complex company and there was -- if it had gone into bankruptcy, it would have been a huge mess. it would have been -- one party of the company would have contaminated the over and the result would have been

disaster. >> all right. mr. chairman, i know there are other questions. i'd had the opportunity to ask them. i yield back to balance my time. >> i thank the gentleman for his courtesy. for i recognize mr. baucus, i want to take the liberty as chair to recognize students from pottawa high school visiting their capital and seeing the government at work. welcome, you and your teacher. we're pleased that you stopped by, thank you. the chair recognized mr. baucus of alabama. >> welcome, former secretary. secretary paulson -- march 16th was when aig, the payments were made or guaranteed. leading up to that, you

participated in several meetings about aig; correct that? >> prior to march of -- march of 2009. yeah, i had a number of meetings about aig as we were putting in capital. >> i know one the meetings, i'm looking at march 24th my questioning of mr. geithner, secretary geithner, he mentioned that you -- he and you met with aig to discuss lehman's failure. >> to discuss what? >> september 14th. that was two days. >> oh, yes. you're saying so you were talking about in 2009, march. i think you're talking about september 14th, 2008. >> that's right. okay. 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, the weekend was the weekend we had financial institutions to previous the failure of lehman. it was that weekend that we weren't also about aig. and i had two weekends with the officials from aig. >> all right. in those hearings 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 certainly don't recall

any. it was clearly an issue with counterparties. >> we have issues with counterparties. that was the issue. it was the ratings on a potential ratings downgrade. which would cause the company to have to post collateral. >> so the obligation of the counterparties was discussed? >> well, that was the issue. any institution that was facing failure is going to have an issue with paying creditors? >> once the intervention

occurred, it owned 78.9 in aig? that's correct, isn't it? >> that's being the case. i think in the same 3/15 of 2009. secretary geithner remailed william dudley and edward quince and said where are you on the counterparty disclosure issue. you know, are you for disclosing or not. >> could you put up slide one, please? so they can see it. >> what was your advice on whether or not that should have a public disemployee sure of the counterparties and their obligations. with the fact that really the taxpayers own over 79%, almost

80% of the company have made any different? >> 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 with a strong integrity and good will trying to do the right thing. >> just take the situation that you do have a company that's 80% owned by the u.s. government. would that tend to make you think there ought to be disclosures and obligations? >> gentleman's time has expired. but you can answer his question. >> i'll be belief. public companies have disclosure.

i think those need to be adhered to. >> i thank the gentleman. you may proceed. >> mr. paulson, good seeing you again. let me ask you this, do you realize that a lot of the more than people believe that there's sort of wall street club and that -- let me finish -- that y'all play golf together and you have a lot of fun? and then, you know, when the big ones come around, you are able to distribute them? do you know that's how people feel? >> i sure do. >> can you give your voice up. >> i said even though i'm not a golfer, i know that's how people feel. >> yeah, and when they see these deals going on, the next thing they begin to look at where people work. then they see the relationships.

then they say, you know, we don't have a chance. because it seems like they are kind of looking out for themselves. but not looking out for us. and so, you know, you just gave a statement about transparency and, you know, and i think one the things that bothers people when they don't see transparency, they begin not to trust. when they begin not to trust, it becomes very difficult for them to go along with any program. then when you put on top of that, that they can't see themselves benefiting. i know that you mentioned if we didn't do what they did -- it's hard for people to see that. >> you got it. that's people are very, very angry. i understand why. they are rightfully so. they don't see the corrections.

they don't see the connections on what was done for the banks -- they were going to be the victims if we didn't step in. >> among the positions on the top at aig as i set by the stop and summary on the terms. the following position is note thed. the annual bonus pools in respect of each of 2008 and 2009 shall not exceed the average of the annual bonus pools paid to senior partners for 2006 and 2007. do you believe it was appropriate for treasury to allow aig to create any bonus pool for senior partners considering it had found it's necessary to extend $40 billion to the firm for the t.a.r.p. >> i'm not going to get into second guessing decisions that

were made at treasury about bonuses. i realize that was a very difficult decision. because the taxpayer had a lot of money in this company. this company needed to perform well and needed to hold the team together in order to repay taxes. >> right, and the taxpayers were saying to themselves, look, these are our tax dollars. we work hard for the tax dollars. now these guys who screwed up everything are getting bonuses. >> yeah, you're right. no one -- me included, likes to see private business profit from taxpayer assistance. that makes people angry. and to me, i just hope that part of that anger is not a diversion from what we need to do, but is an incentive to fix the system

so we'll have resolution powers and never again we'll have a company that's so big, too big to fail, so the taxpayers have to come and put money in. the company can be lick liquidated and wound down so the taxpayer is not on the hook again. i understand there's the anger and frustration. i think it's very understandable. and i think there's a number of ways to do something about it. but the best way is reform the system so that we don't ever again have to bailout a big institution, rescue a big institution. it can be lick question indicated if it fails. >> with regard to the original t.a.r.p. investment in aig, was this structured as a loan oric quitty investment? >> congressman, it wassic quitty investment. >> was this in the parenting holding company or subsidiaries? >> there was -- there was in the

parent. there was a $40 billion equity investment because the company neededdic quitty. >> was it made subordinate to any other creditors? >> well, a preferred is by definition senior to the common and subordinated to the other creditors. >> and how does that compare to the various federal reserves investments with aig. >> there is supporting it to the federal reserve because the determination was made, the rating agencies basically said, you need to put capital in this institution or there will be a downgrade and then it would have been -- they would have reseptated the failure. >> why was it structured that way? >> it was structured -- it

wouldn't have been capital if it hasn't been subordinated to the other liabilities. >> i see my time is up. thank you, mr. chairman. >> i thank the gentleman. we recognize mr. sterns from florida. you may proceed for five minutes. >> thank you, mr. paulson, mr. geithner has testified that he recused himself during the counterparty negotiation. did you know that while you were secretary of treasury? >> i knew -- >> that's yes or no. >> did you know that he did not -- >> he did not participate in any. i didn't view him as a decision maker. >> did he call you up and advice you that i have recused myself. did he call you up? how did he notify you? >> he told me on the phone that he did not think it would be appropriate? >> did you know he never got a letter. all he did, he testified that he recused myself. he put up a flag. i'm not going to be involved p the counterparty negotiation. didn't get -- like you went to

the white house council and you got a letter. he never got a letter. he never got a written confirmation of his recusal. did you know that? did you know he was doing it on his own by his own volition? >> i did not know the details -- >> okay. did you think a person that recuse himself in the crisis, he could operate in his present job and not a conflict of interest. did you ever occur that chairman of the federal reserve is in crisis, we're having the counterparty negotiations, by folly he's going to step aside and say he's knowing nothing about it. doesn't that seem sort of fakey to you? >> no, it didn't. i thought it was an extraordinary position we had to have a president of the -- >> okay. i understand that. he said in open testimony that his chief of staff while he was chairman of the federal reserve was former employee of goldman sachs. did you know that?

>> yes. >> did you ever call the chief of staff -- his chief of staff, former employee of goldman sachs during the process? if i go to the logs, will i see your name calling him? >> his chief of staff who was a former employee of goldman sachs -- >> he worked for you when you were ceo. >> he didn't take on the job after i had left and he had become treasury secretary? >> did you think -- did you ever call him at all. will i find you called geithner chief of staff, former employee? >> yeah, -- no, i didn't. >> you never called him? >> as i said, the former -- his chief of staff, i think the person that you are referring to -- >> we didn't know about it today -- >> is someone who became his chief of staff when he women treasury secretary. >> he said while he was at federal reserve, he was his chief of staff. >> i don't believe that was the case. >> okay. all right.

>> but in any event when he was -- >> let me just go on. i have a time. >> here's the problem. i think a lot of us are having. mr. geithner says he was not involved, you are saying you were not involved. oh, yes, you heard a little bit about it. but on november 6 when they gave $62 billion to all of these parties that came in and eluded aig, all you guys say you knew nothing about it. appears it happens. recently, the director of the national association told the senate banking committee, he said, if aig had gone in bankruptcy, we were to take care of it. this is what he said, the insurance operations and other companies would have simply bought up aig's insurance assets allowing a seemless delivery of the insurance obligation. so the question is considering that the state insurance commissioners would likely have

seized aig insurance subsidiaries, protected policyholders in an i e.g. bankruptcy, why was it necessary to bailout aig with taxpayers money? based upon the testimony of the director of the national association of the insurance commissioners? >> i respectfully disagree with him. >> you disagree with all of the knowledge and years of experience. >> i will say many people with years of experience had some regulatory responsibility with regard to aig. but this company was at a huge problem. and its case number one on what is wrong with the regulatory system. there is no single regulator that had an align of sight on the total company. there were regulators that look at different pieces of it. if the company had gone done, it would have been a huge mess. >> is your testimony, mr. geithner implies, he scares

members of congress and public. this company would have collapsed. our constitution would not have been able to be enforced. do you think it's that extreme if we let them go bankruptcy we would have had that kind of collapse and spirit in the country. is that what your position is today? >> i certainly never said that. what i've said is i believe he would have had an absolute economic disaster. >> and our -- >> gentleman's time has expired. gentleman ice tire has expired. i will now recognize the gentleman from ohio, mr. kucinich. >> thank you, mr. chairman, secretary paulson, thank you for being here today. in your testimony, you said in your capacity as the united states secretary, you were not involved in any decisions with respect to payment to aig's counterparties. you are not involved in any of the decisions concerning the

disclosure of the payments. i would like to accept that at face value. the counterparties were made after the passage of emergency recovery act by congress at your request. and the emergency recovery act made the treasury secretary responsible for the use of funds authorized by congress. negotiations by the federal reserve bank did not begin until november 6,weight, and the funding of the payment of the counterclaims is backed by funds made available under the emergency equipment recovery act. so mr. paulson, doesn't it make it your responsibility to know how those funds were used? >> i think you will find, congressman, and i think t.a.r.p. reported this, that the

t.a.r.p. investment, the $40 million was equity. those funds did not go into this made and lane vehicle where the fed -- that the fed loan -- >> so you didn't have any knowledge of the counterparty payment transactions? >> i did not. >> did you tell us that? >> i did not. >> are you telling us you were not aware of any discussions leading to the counterparty payments with any of the principals? >> that's what i'm telling you. >> and you're telling us as treasury secretary, you had no role whatsoever in the decision on counterparty payments. you didn't even ask anyone any questions that you never expressed an opinion on the matter, and you were completely unaware of the nature of proposed transactions, until it was consummated, and nobody asked any questions about the stabilization act or recovery act funds will be used to stabilize aig, the one financial

institution worth any other that was -- you just didn't know? >> congressman, we asked a lot of questions about the $40 billion t.a.r.p. equity investment. that was something that was our job, and that was our authority. >> did you ask about -- >> and as i said, the loan that was a fed authority and they had the authority and the technical expertise to handle that. that was their job. and we were consumed with other matters. and had for a great confidence in them to carry out their responsibilities very professionally and well. >> well, mr. paulson, no one disputes that you work very hard throughout the crisis. it's well known. you were personally talking with senior executives at all major financial institutions on your now legendary cell phone, which i might add is in the museum of

american history. but how is that you played no role in the handling of this aig relief? :

on we had a lot to do and they had authority and responsibility for dealing -- >> the thing i had trouble with the is the government give goldman sachs your firmer firm a better deal than expected. you heard the previous testimony. it's mystifying how u.s. the treasury secretary this could happen and you not really know anything about unless you recused yourself in any discussions about aig or goldman sachs. >> i didn't have to recuse myself because the fact was no one discussed it with me or

consulted with me. i was involved in other matters. this was a federal reserve authority and the head of the technical expertise and that was their job. >> thank you, mr. paulson. thank you. >> [inaudible] >> why can't hear you. -- we have the votes on the floor and of course we have four votes and that we do to previous agreement with mr. paulson are now going to allow him to go -- >> mr. treen could we ask if mr. paulson would stay five more minutes to complete on our site? to people will split time?

>> let me put it this way who has not had an opportunity? one, two, three. would you give another seven minutes and let me split three and a half -- >> okay. >> mr. chairman? why would be willing to put mine in her writing to secretary paulson if he would be willing to respond in a certain given time. >> mr. secretary? yes mr. secretary there is a request in terms if we get the questions to you in writing you will respond. >> we will get back to you. >> thank you. >> mr. paulson -- >> let's break this down first. you are going to get an additional seven, eight minutes

>> it will be eight minutes, right? you were one of the top officers for goldman sachs, right? >> the top officer. >> some of the people that work for goldman sachs went to work for mr. geithner? >> i believe i know -- >> when you left goldman sachs and went to the treasury were there for three years and about $200 million of tax benefits because you didn't have to pay capital gains on $500 worth of stock, right? >> i would strongly disagree with that -- >> the concern i have is the same concern mr. stern's had. you came before our conference saying my gosh the sky is falling we have to come up with money very quickly and he were visibly nervous when you came before the caucus. then we have this bailout of aig

, you don't know anything about, mr. geithner had nothing to do with it, it boggles the mind some of the biggest people involved in this whole thing from beginning to end had nothing to do with it. they didn't know -- it makes you want to think some clerk someplace was making these decisions i don't think anybody is going to buy that. you and mr. geithner and others were involved in making this decision were you not? >> of course we were involved and i said in my testimony and heard mr. geithner's testimony heard him say the same thing i was very supportive of that decision to prevent the failure of aig. >> who is next? mr. lynch. >> thank you, mr. sherman. >> two minutes. >> i have to make this happen in

two minutes. you were centrally involved with the negotiations regarding bear stearns when you insist upon a very low price on the part of the bear stearns shareholders in order to protect taxpayer who's been reported you were very supportive of a 2-dollar a share price in order to protect the taxpayers' interest, and yet in this situation with aig you were the ceo of goldman sachs back in 2006 there was a longstanding relationship between aig and goldman sachs you are well aware of goldman sachs was a major counterparty on a lot of these credit defaults swaps with aig when you were the ceo at goldman sachs and that continued after

you left. he would have known these people were -- that goldman was exposed with credit-default swaps when the money went from the taxpayer to aig and through to your former company and i guess the question everybody has here is why, when you insisted on bear stearns taking a big hair cut, why did you allow goldman sachs to be reimbursed komondor former company at 100 cents on the dollar in that situation? why did you not weigh in on behalf of the taxpayer? >> as i have said on a number of occasions, i had no knowledge of the size of the claim of any bank and i had no involvement in the decision to make payments to the counterparties, none whatsoever. i was very supportive of the

rescue of aig because a failure of that company would have been disastrous. >> especially goldman sachs? >> the gentleman's time is expired. >> disastrous to the american people. >> i yield two minutes to the gentleman from ohio. >> i want to clarify the chain of events surrounding the request for the t.a.r.p. dollars to congress. you came to the contras -- everyone on this congress committee would admit to came and said we need the money to buy troubled assets, toxic assets. as everyone knows at some point you changed your mind. when did you change your mind and decide you were not going to purchase the troubled assets, you were going to inject in the capitol banks. when did you do that? >> i came to congress september 18th -- spearman the first voted in october 4th -- >> it was our strategy when i came to congress to buy a liquid assets, purchase illiquid assets -- two minutes, when did you change your mind?

>> by the time -- >> before the vote or after the vote? when did you change your mind? >> i had begun considering putting capital into banks as one of chanel's we got near the final vote but i had not changed my mind on the strategy and i will say one other thing to you right up even after we put capital in the things which we were forced -- >> did you change your mind before the vote or after the vote because -- >> i changed my mind after the vote because i did not -- can i just say this i did not change my mind on purchasing a liquid assets until mid to late october after we put the capitol in. >> so you're saying you didn't change your mind until after the votes. i want to point to the book that came out in the fed we trust page 226, to 27 and you've been given a copy. house representatives rejected

the bush administration plan on the 29th 2008. the next morning mr. paulson ran into michelle davis the spokeswoman and quarter in the building. quote i feel we are going to have to put equity in the banks, he said despite what paulson told congress lightning toxic assets was we to take too long. he give a blank stare we haven't even gotten the bill through congress she remembered thinking how were we going to explain this, we can't say that now. he took the advice. i'm asking you he's i started thinking about it but i didn't make the decision to laughter but he sold the congress and the simple fact you're going to buy the troubled assets that is why you need the money and this contradicts that. >> let me answer the question, give me a minute to answer the question. during that period when congress was acting, the situation worsened considerably. as we got near the final vote, i was beginning to be clear to me that we were going to need to

think through other options. but long after, even after we put capital in the bank's -- >> did you express that to the congress? >> the time is expired. >> even when we put capital in the banks it was my intent to proceed with an illiquid asset purchase program until they got into late october. >> let me ask another question -- >> the chairman -- the gentleman's time is expired and i yield two minutes to the gentleman of maryland. >> thank you, mr. chairman. thank you, mr. paulson. i accept your testimony failure to act in the financial rescue plan would have led to as you said economic disaster. when you and the president, president bush came before the congress in an emergency you submitted a plan that did not include the time a mechanism to make sure the tax payer would recoup any dollars that had been extended to the financial sector

the congress as an insert a provision requiring the president to ever that president mabey to submit a plan to recover those funds on behalf of the taxpayer. president obama has done that in proposing a fee and my question to you is do you agree given everything the taxpayer did to save the financial industry that in addition to taking measures to prevent this from happening in the future we should also make sure we put in place a mechanism to recover the moneys that went to wall street and other financial banks as a part of the rescue. >> i do agree with that. but the provision that was put into the t.a.r.p. legislation envisioned, contemplated looking at a five-year window and at the end of that five-year time period if the taxpayer had and to recover the money, then there was going to be a tax. now today as a look at the

circumstance the money is going to come back from the banks in my judgment with a profit to the taxpayer and it's too early to tell about to what extent the money is going to come back from the rest of the program. i frankly think the taxpayers will end up being pleasantly surprised and much more will come back. so my only question about the tax that is being suggested is is it too soon to make that judgment, number one, but most importantly i don't want that to take our focus off of dealing with what is the real problem. we better fix the system so it doesn't happen again. >> would you agree there would be a mechanism in place to ensure that at the end of the day the taxpayer recoups hundred%? >> that was in talks with congress and the right thing to do i agree. >> thank you, mr. paulson. >> thank you, mr. paulson -- >> i had agreed to stay for

another eight minutes. it's been ten minutes. >> for that reason i dismiss the gentleman who had the time to tell him his time had passed and for the committee and especially for germantown's me i think you for not only eight minutes but ten minutes. >> thank you. i would like to call the third panel.

british foreign secretary david mellor and spoke in the house of commons about the release of u.s. intelligence information concerning the alleged torture of a british resident. earlier a british court order the government to publish details about the treatment of mohammed captured in 2002 in pakistan as a terrorist suspect

and later held the u.s. detention facility at guantanamo bay. he waselead with all charges against him dropped in february, 2009. this is about 45 minutes. >> with your permission, mr. speaker i would like to make a statement on the house on the case of mr. binyam mohamad following the judgment handed down this morning in the report of appeal. mr. speaker the court of appeals has ruled in the light of disclosures by the united states court in december, 2009 which i shall describe below, the seven paragraphs which have been redacted from the original judgment of the divisional court in this country of the 21st august, 2008 should be published. the seven paragraphs contained summaries of american intelligence relating to mr. mohamed's caisse held in the u.k.. i accept the court's ruling which concludes a very complex and various ways apparently

unique case and made the relevant paragraphs available this morning on the foreign office web site. mr. speaker the judge what is significant not used in respect of the seven paragraphs, but also for important principles which are at the very heart of both our national security and our democracy. the facts are as follows, mr. speaker. mr. mohamed, an ethiopian national former resident in the u.k. was detained in pakistan in 2002. in 2004 he was transferred to guantanamo bay. in august, 2007 by honorable friend the then secretary and i wrote to the u.s. secretary of state to seek mr. mohamed's release from guantanamo bay and return to the united kingdom along with four other residents. mr. mohamed was released from guantanamo a year and a half later, then your last year. mr. speaker, may have 2008 mr. mohamed brought proceedings against the british government and effort to secure disclosure to his counsel of any material held by the british government

that might assist the defense of his case before a u.s. military commission. the question in our appeal against the judgment of the divisional court was not this disclosure which we support it and secured. it was instead of whether the intelligence provided on a confidential basis by one state to another absolute trust that will be kept secure should be disclosed to the public domain in the interest of open justice or whether instead the breach of trust would be so great as to endanger intelligence relationships and therefore affect national security. as i sit in this house on a number of occasions in this case it was u.s. intelligence and that english court but it could easily be british intelligence and a foreign court. as i am also said to the house often a issue in this case was not the content of the seven paragraphs. the principal of the disclosure by an english court against u.s. wishes. mr. speaker, and grateful for the confederation the court of appeal gave to the controlled principle. this principle which states that

intelligence belonging to another country should not be released without its agreement under his the flow of intelligence between the u.s. and the u.k.. this unique intelligence sharing relationship is vital to the national security in both our countries. crucially, mr. speaker, the court has upheld the comptroller principle today. the judgment describes the principle as integral to the intelligence sharing. specifically vindicates the assessment that releasing the seven paragraphs without the consent of the united states would have damaged public interest. it also specifically makes clear, and i quote, this litigation endorsed the application of public interest and unity and maintenance of confidentiality of secret information. this is important for the future of intelligence sharing with u.s. and others. however on the 17th of december, last year we received notice of a u.s. court ruling in the case of another guantanamo bay detainee, binyam mohamed, that made a finding of fact of the

allegations of mistreatment. the judgment doesn't stop the content of the seven paragraphs per say but it does include references to the treatment of mr. mohamed covered in the seven paragraphs. we brought this to the attention of the court of appeal and mr. mohamed's council immediately. the court of appeals today ordered the publication of the seven paragraphs because in its view the contant were placed in the public domain by the united states district court. without the disclosure it is clear the court of appeals would have upheld a were appealed and overturned the system judgment of the divisional court. the court of appeal was also clear the judicial should overturn the view of the executive on the matters of national security in the most exceptional circumstances. it states and by quote its integral to the intelligence sharing the material provided by one country to another remains confidential to the country that provide it added that there will never be disclosed directly or indirectly by the receiving country without the permission of the provider of the information. this understanding is rigidly applied the relationships

between the u.k. and usa. mr. speaker i spoke last night to secretary clinton about this case. it's been followed carefully at the highest levels in the u.s. system with a great deal of concern. recent events have shown the importance of the u.s. and u.k. intelligence relationship and fight against terrorism. equally that termination of the u.s. authorities to protect confidentiality of the intelligence has been absolute throughout this case. we will work carefully with the u.s. in the weeks ahead to discuss the judgment and its implications and the light of our shared goals and commitment. mr. speaker, mistreatment of prisoners want to see torture violates the most basic principles of the country, never mind our national and international legal obligations. there is a fundamental, but on the part of myself, responsible for the security and intelligence service and my honorable friend the secretary responsible for the security service and heads and stuff of these agencies to uphold the highest standards of conduct not just of ourselves but the country with whom we cooperate.

a wide range of obligations are being made during the course of this case. today some of the facts can be publicized in some cases for the first time. first, the paragraphs released today describing information received by our intelligence agencies concerning the conditions of mr. mohamed detention by the united states and pakistan in april, 2002. they note specifically he was subject to sleep deprivation, subject to threats and inducements and was held shackled and the treatment or it conducted by the united kingdom would be contrary to undertaking the first given to this house and 72. to repeat it was not conducted by the u.k.. second, now that they're in the public demand will also be evident para dustin not contain information on mr. mohamed's most serious claims of mistreatment, notably respective alleged donato mutilation. during his detention until the release from guantanamo last year. we at the united kingdom have no information to corroborate those

obligations. these matters have been raised quite properly been mr. mohamed the symbol claim for damages and will be addressed. third, during the course of the proceedings allegations of possible criminal wrongdoing by british officials were made to the depository for the allegations to the attorney general for reconsideration and they are not subject of a police investigation. mr. speaker, the most basic values of the country are at issue in the debate that will follow the court's decision today. our position is clear the u.k. firmly opposes torture and cruel and inhumane treatment or punishment. this is not just about legal obligations. it's also about the use as a nation and about what we do not just what we say. we've taken a leading role to eradicate torture internationally both through organizations such as the united nations and by assisting other countries. where possible wrongdoing is found it is fully investigated. mr. speaker i also want to put it on the record that we are lucky to have the best intelligence agencies in the

world. other staffers second to none in the commitment in public service. they are respected across the world and the work they do to keep britain safe respects our admiration and gratitude but there is a fervor and fundamental myth that needs to be addressed. it's that the security services operate without independent oversight. mr. speaker ministers and agency heads of the first responsibility for the conduct of their organizations. the intelligence and scrutiny committee -- security committee provide scrutiny of agency activities. independent judicial oversight is provided by the commissioners to bye law must be given access to whatever documents and information they need. but report annually to the prime minister and parliament. then there are the courts whose role is to protect the rights of individuals and provide reports to justice when they think they've been infringed. this gave them and continue to do in this case. this judgment today is not evidence that the system is

broken. rather it is the evidence the system is working and the full force of laws available wind citizens believe they have just cause. the six judgments in this case show plus a closed judgment. a seriousness of purpose in our legal system that is a vital part of our system of accountability. we have fought this case and brought the appeal to a principle we believe is fundamental to the national security. the intelligence shared with us will be protected by us. no one likes to lose a case. but the force of this judgment is that it firmly recognizes that principle and in doing so is fulfilling its constitutional role protecting this country and of holding the law. >> mr. speaker on this side of the house we have always held that the intelligence corporation between the united states and the united kingdom is unique in the world of immense value to both countries and its destruction would have serious

consequences for the national security and i echo the tribute paid to the security services by the foreign secretary in his statement. at the same time we have consistently argued for full investigation of all credible obligations of the u.k. complicity and torture and for the government to find a way in this particular case to balance the needs of national security with the need for justice and accountability and our space society. and we therefore welcome today's judgment which upholds the principal of control and for openness in this particular case. the alleged treatment of binyam mohamed described in the seven paragraphs now released by the foreign office is utterly unacceptable and the alleged treatment described in the u.s. court judgment in december so dramatically and acceptable that these things if true are not only morally wrong but harm efforts to combat terrorists, play into the hands of the

propagandists and weaken rather than strengthen our national security. we've always believed on this side of the house the principal of control could be upheld while seeking an exception in this case from the united states. the foreign secretary will recall i put it to him in the house a year ago this week the government could have positively asked the united states for permission to publish these paragraphs. if they had done so and if the united states had agreed we would have arrived at the same outcome as today's court judgment without a further year of legal proceedings. more quickly and more smoothly and a way that left the government less open to the attack that it was withholding from the public evidence of complicity in torture. doesn't the fact the relevant information has been published in any way in the united states strengthen the case that this would have been the right cause of action a year ago? in other respects we agree with the statement made by the

foreign secretary particularly on maintaining the principal of control of intelligence, which indeed the court ruling reaffirms and we fully support. the ford and secretary has long argued that the intelligence sharing relationship would be damaged by the release of these paragraphs. is it still his view that that relationship will be damaged now that the information has been published whacks can he say whether there are any other cases pending involving allegations of torture in which he expects the principal to be challenged? and in the light of the failed dietrich bombing attack and threat at the moment to go countries from terrorism can he assure the house the sharing of information at this critical time has not been affected in any way? have any other countries with which we share intelligence warning that what they will reconsider that sharing reconsidering the basis which they share information in light of today's developments? my final set of questions, mr. speaker, the overriding need

to draw the line under this episode and restore the u.k.'s moral authority on the matter of the obligations of complicity of torture. as the court ruling states, the rejection of torture has a constitutional residence for the british people which cannot be overestimated. many have criticized the use of extraordinary ambition and possibility that it can sometimes lead to torture and a third country. the court ruling in the united states which was decisive in making the court of appeals change its view on publication states unequivocally that as a matter of fact binyam mohamed was tortured over a period of two years. is this a statement the government now accept? the foreign secretary is confirmed that the police are currently investigating possible criminal misconduct in the case of binyam mohamed. will he confirm whether there are additional investigations into other parallel cases and how many cases the attorney general was reviewing. mr. speaker, this case has come

to a epitomize the challenge of international terrorism the way that we deal with it. and however difficult this challenges we must be clear winning the battle against the perpetrators of terrorism and their ideas require moral as well as military strength. the government must be able to assure the country and the world a line has been drawn and that we are far more confident allegations of complicity and torture cannot be made against the united kingdom in the future and that all the necessary lessons of this episode have now been learned. >> mr. speaker, i concur with the gentleman that this case has come to symbolize or ebit mize the most difficult issues that were raised by the terrorist campaign over the last nine years since september 11th and has also come to symbolize some of the key judgments that need to be made about how to ensure our values and security are

brought together. it's absolutely the case that it shared commitment across the house against torture and in favor of meeting all our commitments, ogletree amedori title part of making this a safe country far from being undermined they go to the heart of it and also go to the heart what we are seeking to defend. he and we read the decision not to what i called last year launched a campaign for the release of the documents in the united states and he's right we don't launch the campaign for the u.s. to release the documents of the we were absolutely clear they must be released to the defense counsel of mr. binyam mohamed as they were. he said he felt this an outcome would have been achieved if we had launched a campaign and succeeded. that isn't the case but obviously the commitment the court has made today about the

contract principal would not have been made in those circumstances and the commitments and comments the court has made are valuable and important in that respect. i also said last year and i stick by this today the united states administration under president obama should clearly their commitment in respect of anything done it was torture or inhumane treatment that they are reviewing the cases and have clearly decided so far not to release the documents. released today are summaries of the intelligence we told not the actual documents so don't think it would have been right for us to launch a campaign apart from suggested a degree of uncertainty about the commitments the u.s. administration made which have not been merited. he asked a very important question about any constraining effect that this case might be having or have had on the intelligence sharing more in the future and that is obviously something of great concern to me

and the government and the country. i sit in my statement we will be working with u.s. administration of justice to depart with across all aspects of the government to analyze the judge read and understand its implications, to draw attention to the commitments the court needs in respect of the contract printable and also to discuss with the united states how we continue to defend the principal in the future. i'm absolutely clear it is an important job for me and my colleagues to minimize any potential effect on the intelligence sharing what least showing the recent events how important it is but it is too early to come to the house and say that there will be no such effect. we need to work to ensure that is the case. the fact that the court of appeals have clearly said that was the disclosure in the u.s. court that led them to make their decision today that the seven paragraphs should be published results easily very material aspect in the discussion about whether or not the country principle has been

breached. let me also -- he also asked what the judgment of fact the district court made in the united states. we await the u.s. government view on whether they are indeed the judgment matters of fact. they have not had corroborated or committed to that but we recognize as far as the court is concerned they this established fact force to query in that respect. let me conclude on the following position mr. speaker. one key aspect of lessons drawn or conclusions that will arise or consequences that will arise from this case concerned following allegations of notre that all. one is there is no oversight that is wrong. the second allegation it is our policy not to torture or commit acts of inhumane treatment ourselves but to become president and. that is not true and it is also not true to a ledge where

possible it is covered up. the case shows carly both in the case of the work of the attorney general and of the courts that this country is committed to uphold its commitments and it does so for good reason. >> i eckert the support for the excellent security services and the importance of the close relationship with our american allies. when one of the most senior judges in the land criticizes the representatives were accusing other judges for being the responsible and dismisses the appeal he should be more contract when he comes to make the statement today. can i say immediately we respect the control principal for the way the foreign intelligence is handled but unlike him and like the member for richmond, we believe it was a duty of the government to ask the american authorities at the highest level of they would release this information, given the gravity of the accusations and the information that is now being published who would have thought

that was the exact right thing to do mr. speaker what can i bring the secretary to the content of the seven paragraphs he's been forced to publish today? is it not clear the british authorities knew the united states were using the torture techniques against binyam mohamed? with the foreign secretary now tell the house what steps the british government took at the time to deplore the use of torture? will the secretary tell the house what steps the british government took to ensure britain was not cut was said with that torture at the time? will the secretary guarantee today that no stage in this case was britain in breach of the third hour domestic or international obligations of torture? mr. speaker anyone full of this case closely including evidence even by the security service office involved in the courts will recognize knowledge of the american use of torture did not remain within the secret service but was almost certainly pass on to the highest levels of government so he now tell the house if he knows whether the ministers were told that the u.s. were torturing binyam mohamed and when?

and we now ensure all such evidence is given to the police in charge of investigating the allegations of the british complicity in torture in the binyam mohamed case. mr. speaker i accept totally the foreign secretary fought this case for honorable and just reasons but will he now take another honorable step, given this and other obligations of the british torture and set up a wide ranging judicial inquiry? >> foreign secretary? >> mr. speaker, while i am glad the honorable gentleman says that the welcomed work by the security forces and intelligence service similar to their work i honestly believe he does himself no justice by first asking questions which he knows for reasons of legal circumstance i cannot answer more repeating as questions allegations he knows the answer to. let me go through them. he asked about the case that involves the witnesses. he knows i cannot talk about

that case because it is currently in front of the courts and i think that it is not right to seek answers to questions that would prejudice, could prejudice an ongoing police investigation. equally he asked whether or not the police have been given access to all of the relevant papers and he knows very well all of the relevant papers have been handed over to the police because that's that is the base is the attorney general made her decision to ask for a police investigation. now, he also asked what will be the effect i think was the word he used of this case and how will it be seen through. i think on that it depends on how the debate is carried forward but he will know from the reports of the intelligence and the security committee that

significant changes have been made in the nature of the guidance that is issued to the security intelligence service, a significant changes have been made in the way that policy is promulgated and individual cases as well as the generic issue have been examined and set out by the intelligence and security meeting and the recommendations have been followed and the government has said clearly what it has done in those respects. there's one outstanding issue that concerns the publication of the current guidance, reformed guidance in the light of the binyam mohamed case that is currently sitting with intelligence and security data as the prime minister promised the house it would be for publication. stomach's the circuitry where many people in this debate this afternoon would be surprised to hear this court ruling described as a vindication of our as in fact it's been forced to reveal information he struggled for a very long time not to do even

when information was legally available to the united states? and is the foreign secretary aware to describe the information released today s completely clearing the the government of any involvement past or present in the extraordinary rendition and thus the torture that cannot be right and he must be aware whatever is happening now under the new american administration there are still questions to answer about past british involvement and extraordinary renditions on the torture. >> mr. speaker, the indication is often controlled principal and that is made clear by the court. second, the court makes clear that in the absence of the judgment of december, 2009 and would have found in favor of the

government, and that is very important. feared, respected and extraordinary rendition and i don't recognize her description of complicity in the rendition come ekstrand nouri -- the questions have been asked about extraordinary rendition with respect to diego. she knows very well the two cases have emerged from american studies, they were immediately publicize to the house in the appropriate way, and there's been subsequent questions but also subsequent answers to each and every one of those questions in respect of diego and i think it's important we don't allow the impression to go abroad. there are outstanding issues in that respect when there are not. >> david davis -- >> i thank the secretary for making this statement today. it's very good he's doing that.

just before he stood up earlier, the garden published on its website a copy of a letter from jonathan, his lawyer, and raising the matter the government is still seeking a reduction it would appear from the judge's rulings and is a very long letter but i will read in short extract and ask him to comment their observations likely to receive more public attention than any other judge. they will be read as the statements by the court that the security service does not in fact operate with respect to the human rights of the officials of the service to lubber planas lead the intelligence security at this point, this reflects the suppression to the committee, the foreign secretary and the court which penetrates the service to such a degree as undermining the u.k. government has based on the information and advice and the service has interest in suppressing information which is shared by the office which he is responsible. could he comment on this?

>> mr. speaker i will comment but it's very important that the facts are on the record, not the obligations and i hope he will allow me to go through this, first of what is not correct to say that the government or more specifically the council for the government sought fraction of the judgment. reduction suggests there's an item we want to see deleted but we accepted was true. what our council did was to provide -- once he had been provided with a copy of the judgment and the draft as is normal practice there was real concern that one set up conclusions that went beyond the evidence presented and raised, as well as raising prejudice in respect of the ongoing peace and respect of the witness be. the council took the view that should be brought to the attention of the judges in the case. the three judges addressed that letter and decided then to amend the paragraph so it took the

final form that it did. the court concluded the concern was well-founded so it revised its in the light of that. i think it is very important that the -- we also remember in the open court today the council has apologized unreservedly for releasing this private-label document which is a normal part of the practice that it should take place. i also think it's very important there is no suggestion anywhere to impugn the integrity of the judiciary in making their own judgment. with the judiciary say in a draft judgment or final judgment is their business and their independence is at the heart of their final words and the words that appear today in public are the words of the justices in the case and it's their decision to put them on that basis.

>> is my right honorable friend aware that for some of foss the heart of this issue is simply this deep security officials and british security officials no torture was being applied and if in fact no action was taken by us, and no information given to the minister's i consider that to be a state of the reputation of our country. it should never happen again. it's not simply good enough, mr. speaker, to say to torture. if in fact we know the torture is being carried out by our closest ally we have a responsibility to act, and i'm afraid in the case of mr. mohamed we didn't do so. >> mr. speaker, my honorable friend is absolutely right we do not just have a responsibility with respect to our own conduct for our own officials but responsibilities if we come to know that torture or cruel and

the main treatment is being undertaken by others with whom we work and have responsibility to act when we have that information and we should do so. there is a criminal case being studied at the moment to see whether or not the actions were taken in accord with the principles he and i and this house shares and that is the way the system should work and that is the way which the system is working. i can also say that for all the talk of lessons which is right there been significant changes since 2002 in the way which guidance has offered to all the offices and the way they are trained and in which the system is patrolled and police and that is also -- that is absolutely right. respect of what happened at the time it is in front of our police at the moment and will, if they proceed to the charges congo in front of the courts to find out exactly what did happen in this particular individual case. >> dr. louis.

>> mr. speaker according to the great theorist of the counter insurgency robert thompson over 40 years ago prisoner abuse is not only morally wrong it is lethal to any counter insurgency campaigns. i appreciate the foreign secretary cannot or does not wish to comment on the particular case that is currently before the courts but in response to the honorable gentleman for kingston can he addressed the question of what representations the government made to our american allies marginally when it became known that waterboarding for example -- mr. speaker injury happy to see clearly the government has detailed in the success of intelligence and security committee reports did follow up both in terms of our own system the way in which the practices were taken forward. also in ways i think i should set out in a letter and i would

be happy to do that what happened. it is also documented what didn't happen and what should have happened not with respect to the individual case but example of training and guidance for officials. that means we are in a stronger position today than we were in 2001, 2002. we always keep it under review and the publication of the current guidance which is currently in front will be an important occasion for not just the whole house that the country to see the way that is taken. >> can i join with him and others in congratulating the security services on their professionalism and take you back to the police investigation? i wrote on behalf of the select committee a year ago to the attorney general about this and you referred this to the police. is it right this has been ongoing for a whole year? if it has been ongoing for hold your could we expect an update as to when these investigations will be drawn to a conclusion?

>> no, mr. speaker, i am afraid there is this short answer to that. it's not to the police to provide running commentary on the investigations. they have to come finish until they are concluded and make the decisions. i understand when the case is in front of the attorney general my friend made a presentation for her to speed up her work and she did conclude that and it's now in front of the police but i can't give any joy about a running commentary the police might provide. >> mr. speaker the secretary's statement makes it plain that in 2002 and the united states custody mr. binyam mohamed was subjected to a systematic maltreatment probably amounting to torture. can he tell the house when the government first learned of those facts, at what level in her government were those facts known? what steps were taken to make urgent a presentation to the united states government that this must stop? what steps were taken to prevent

extraordinary rendition in practice which we were a party? was not the concealment of this document very damaging to mr. mohamed's claim to civil damages? >> you recognize the critique the gentleman was deploying, but unless my arithmetic failed lie counted six questions to which one answer was suffice. foreign secretary -- >> [inaudible] >> the best way i can answer the legitimate questions the honorable gentleman has is to be killed for him what has in fact been reported through the audience seek about what the government knew and what action it took. i want to say one thing to answer one of the questions that it was the actions of the government as recorded in the divisional court that got the documents to mr. binyam's legal counsel. that is why the constant confusion between the quote on quote suppression of evidence with regard to mr. binyam, and the publication of the evidence is so damaging. it was at the heart of the government case we had the responsibility to ensure

mr. mohamed was able to protect himself and that is why we made the representation and that is why the divisional court congratulated the government on achieving that. that is not the same as publishing the document into the domain. one of the concerns is for individual and the other concerns, the public interest in open debate but i will give him a detailed explanation of the other questions he answered. >> mr. speaker speech to clear to everybody once again torture or complicity of torture is totally unacceptable. could i add to that a sinking for the statement he made about the work of the intelligence and security committee of which i sit. i believe it scrutinizes the agency's forcefully and purposefully, but could also ask him the question because it is crucial for all of us, is there going to be a brief on the way

in which intelligence sharing between britain and the u.k. is planned to continue? i ask that question because it is important for all of us to acknowledge that relationship is crucial to great britain's future security. >> mr. speaker my friend is right. there will be taking stock as i sit out in my statement. we will seek to ensure the full intelligence sharing is vital to the countries continue on unabated but there's no point in denying that there will be a taking stock as a result of the judgment. >> the secretary said the most basic value as the nation are at stake and i agree. it's only by giving to the troops about all this the we can bring closure to the whole sorry episode that is now called extraordinary rendition of which the u.k. appears to have allowed itself to become an implicit in kidnapping torture and indeed other cases said we had facilitated a rendition.

so the issue of the principle is no longer in doubt. given all of that, wealthy foreign secretary now finally discuss with the prime minister the need for the inquiry supported by the watch terrorist watchdog and by the liberal party as well as others? >> mr. speaker and interested to know the opposition is recommitting himself to a inquiry and i will pursue the inquiries with opposition to see if that is the case. mr. speaker inside the government we have discussed with there were not a judicial inquiry would be right and be concluded that it would not be right to read the would not be right not least because the judicial system in this country has performed a very effective function in the courts which is where it belongs. also what will record of those are dangerous confusion is

emerging between red vision sometimes called extraordinary rendition and tortured. those are not the same thing although both of them are reprehensible, both of them are reprehensible and contrary to the laws and the spirit of this country but it's important that we don't confuse the two. in mr. mohamed's ks he was the subject to both. they are separate, they're both deval and they both need to be addressed. however to the main point i do not think the conclusion to be drawn from today's event is the inquiry is necessary. the reason i would draw it is they are performing the function at extremely vigilant. >> jeremy corydon. >> thank you. can i take the secretary back to mr. binyam mohamed and what happened in 2002 in pakistan. when did the british government know, what protests have been made and are they satisfied there is not a continuation of the practice either in pakistan or other places where the u.s. tax prisoners of an athlete is another destination and does he

not think that guantanamo they should have been closed many years ago and we should have done more to close it? >> [inaudible] -- seeking to imitate on fell level of the speaker of the north. but again one answer from the foreign secretary will suffice. >> mr. speaker, yes, the government stood out against guantanamo bay for a very long time. but it is also a fact the current administration is committed to closing guantanamo bay and as fast as possible, quite rightly. the right honorable -- with respect of whether or not those practices are continuing i think it is up slightly clear from the order is president obama issued amongst other things those practices have been completely banned by the u.s. and that puts them in line with our position.

>> is for the paragraph mr. mohamed is an ev open national former resident of the u.k.. otas the current immigration status and why was he allowed back in the u.k. when was obvious he was going to seek legal aid to demand a challenge in the courts? >> mr. speaker, the government judged that our interests in securing the closure of guantanamo bay was so strong that it was right the british residents as well as the british citizens be given the chance to come back to the u.k.. we did that in the case of the nine british citizens and five british residents, one british resident is continuing to reside at guantanamo bay and we continue to press the case for his release. the basis on which we took the decision was that the closure of guantanamo bay was right. we have to play our part but it was also right that mr. mohamed along with others was a resident of the u.k. at the time of his

extreme rendition, not from this country but rendition from within south asia. >> disgraceful conduct is alien to our history and our principal and certainly will increase the risk of terrorism to this country. in his stocktaking but he looked up the possibility of returning to a fully independent british foreign policy but served so well in the vietnam war? >> speaker, i am happy to agree with my honorable friend that the british foreign policy is fully independent but it is not the topic. we pursue our foreign policy with our allies and also have to pursue with people who are not allies to pursue the goal so we are absolutely committed to doing what is right for the united kingdom and that involves a close relationship with the united states but that doesn't mean we always agree with the united states and i am pleased to say we agree with the current

administration more than other administrations but that doesn't amine we agree on everything and that is the right way which to proceed. >> will this case speed up the release and the return of mr. [inaudible] -- the foreign secretary referred? is there any intelligence material about torture in the position and could this be a reason behind the reluctance of u.s. government to agree to the return to the country? >> mr. speaker, i don't believe this case has any bearing. we continue to press the case for the release of him and we will continue to do so. we know he was a very strong man.