>> thank you for clarifying that. number two, a lot of people think that the president of the new york fed works for the u.s. government. but in fact, you work for the private banks that elected you. >> that is not true. >> can you provide for the record the names of the handful of bankers on the board of the new york fed that elected you in 2003? >> that is a matter of public record. of course we can do that. >> thank you very much. >> can i just say what you said 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. >> but the people don't elect you, the heads of the feds around the country don't elect you, it's the individuals who sit on the board of the new york fed who elect you is that correct? >> social security slightly more complicated than that. . the banks are elected by their

board, but it requires the approval of the chairman of the board of governors in washington for them to serve. it is a delicate balance of checks and balances and congress designed that system. >> it is largely private banks that elected you and i would like you to provide that for the record. the cleveland fed is not equal to the new york fed. i'm interested to your answer for the record. number three, goldman sacks was the largest recipient of funds in this counter party arrangement. now as treasury secretary, your 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 you 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. he worked for goldman sacks.

>> thank you very much. you answered my question. let me say this. you have answered the question. you answered the question. thank you. the aig transaction was disturbing to many observers. why did your government not require the bank creditors to take the lead and bear some of the cost in any plan to stabilize aig? you in effect 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 had the types of bankruptcy procedures we have for banks, it is possible that ultimately we could have done that. if it would have been easy and cheaper to separate the riskiest parts of the firm from the

healthy profitable insurance companies, we would do that. in fact that is the core of the restructuring strategy they are undertaking. that choice was not available to us at the time. if it was possible, of course we would have done that. because we didn't have those tool, we did not have that choice. >> your phone logs from the subpoenaed material this committee requested which i would like to insert in the record, thank you, mr. chairman. the critical period when the bailout occur and just after september 15th when the three major agencies downgraded. aig's credit rating, you made hundreds of calls. the most, over 225 to secretary paulson, then secretary of treasury. what firm did he work for prior to his appointment? >> he worked for goldman sacks.

>> as i understand it they got most in counter party payments of any domestic institution, is that true? $14 billion? >> i don't know if that's true. >> the most was from an international firm, but goldman sacks was number one. you made about a hundred calls to ben bernanke, but the next number of calls, you made 103 to a man named dan jester. what firm did he work for? >> as you know, he worked for goldman sacks. >> thank you. i will have additional questions with regard to who you phoned and we will place that in the record. thank you. >> can i say one thing in response? it's very important. congressman, you are suggesting that the people involved in this were not acting in the public interest and suggesting that they were working for the private interest and not the public interest. that is not true. i would never and i believe none

of those individuals would ever be part of a decision like that and these were people of enormous integrity and operating under exceptional circumstances with no precedent, doing the best they could for what was in the public interest. it's important to say for the record. >> i must move. the gentlemen from georgia please. >> thank you, mr. chairman, secretary geithner, when did aig if you can give usa i date. when did they call and say we need money? >> formally i think on that friday. i think it was the friday in september. the 11th or the 12th, i think. >> it was a friday in september. at the time there were advisers

of aig that were also advising the new york fed. were you aware of conflicts among the advisers or were there discussions about what conflict this might bring about? >> when they came to us and started to walk us through their financial condition, they had advisers with them. they were also in discussion with others who were not with us at that time. >> when did that dollar amount become after the discussions. at what point in time did a dollar amount drive that? >> the initial terms of the loan? we had that decision probably just on the eve of the formal agreement. >> okay.

do you remember that date? >> the 16th is when we concluded this. it would have been just before that. >> let me ask, on the counter parties, when was that meeting with the counter parties to discuss what the payment might be to them? do you remember those dates? >> i do not believe there was a meeting with counter parties. what i asked my colleagues to do after looking at a range of options is to approach them individually and try to negotiate consessions. >> there was no actual meeting where the counter parties were in a room? >> i don't think -- i would be happy to check the record, but i don't believe they brought them in a room together. >> when you say the colleagues, they worked for you and were under your direction? >> absolutely. they acted in my direction. >> you were aware of the 100% payment to the counter parties?

as i said many times and we supported my decision to -- that's a yes. >> in each one of the meetings to negotiate, we weren't able to negotiate any of them down? these were separate meetings, i guess. did you question the negotiating skills of some of these people? >> these were again very talented people with a lot of experience who knew how to do this and many had done this for a living. again, unless you can threaten default or threaten to pay below, you understand this. you don't have leverage in the transaction. if we negotiated with the threat, our concern was that would risque downgrade with the collapse. >> do you know if aig approached any of these people about any type of negotiations about what

the sum may have been? when the government gets behind it, it takes away the skills. >> you are exactly right. if i'm not fis maken, aig had probably tried to do that before. i can't speak to that today. >> these people with these creative swaps were all bright people and knew the high risk of what they were getting involved in. did they not? >> the tragic lesson 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. the judgments aig made were similar to the mistakes the agencies made. >> these people were making a lost money off of this. this was a high risk, high reward business, right? >> the people at aig? absolutely. >> it's obvious that aig is a

bad deal for the taxpayers. is this deal being renegotiated and is anybody at the treasury working with aig to try to renegotiate this deal? >> it is a better deal for the taxpayer than the alternatives and is proving in many ways far better. as i said, the government is still exposed to substantial risk of loss. we have a new board in place. >> we have one more question. >> the gentlemen's time has expired. the gentlemen from maryland is recognized for five minutes. >> as you indicated, the previous d main station came to the country and said we faced an extraordinary circumstance and fail tower act. it would hurt people on main street. innocent bystanders in the process. you took the action that you did

and you properly said we need to learn the lessons from what happened. the administration and the 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 that it hurts innocent people. 2nd, to make sure there is a fail safe. if that happens, there is a pool of money raised from the banks and not from the taxpayers to pay for the rescue. number three and the president proposed this, a fee on the biggest financial kmugzs to recover every penny of t.a.r.p. money. that includes every penny

extended to aig and every penny extended to the counter parties. on the house we passed a bill and had an amendment offered by congressman gary peters of michigan. i have got it right here. it says that fee will remain on the biggest banks, not just to capitalize a fund to be used in the event of future problems. they have to pay for their own. you keep that fee on until you recover every penny. i must say i was surprised. i wish all our colleagues on the other side were here. i was surprised this simple idea was rejected unanimously in a vote we had on this. that vote would have ensured it passed. that was a vote to make sure we get back every penny that the taxpayer gave. every penny that the taxpayer gave to the counter parties. if you can 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 that their money that they helped send to rescue the package will be recovered if we adopt the proposal on the house and the presence proposed. >> if congress joins the president in adopting this proposed fee, the american taxpayer will not be exposed to a penny of loss for everything the government had to do to fix this mess. aig and everywhere else. that is not enough. we believe it is very important to make sure we work with congress to place constraints that prevent it 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 where they are operating with not enough capital and no oversight. we have to make it clear that we

were going to be able to let firms fail without costing the taxpayers money and costing collateral damage. i want to say one thing. the cost of the american people cannot be captured in the simple financial costs of the t.a.r.p. we were protected if congress passes the fee. the cost is much more damaging.s of the losses under t.a.r.p. but we have a great responsibility and obligation to reform this system so they're not in that position again and the least we can do is to make sure the tax payers aren't bearing the direct costs that we took in aig and elsewhere. [ inaudible ]@@@@@@@ @

[inaudible] >> that's exactly right and better than that, though, mr. congressman because the specific transaction that is the subject of attention in this hearing themselves are likely to earn. the government is exposed to some risk of loss. if we adopt this fee, the taxpayers will not bear a penny of that cost. cost. >> the chair recognizes mr. --

>> thank you. just to be clear there are $68 billion worth of loss, $30.4 billion associated with this aig deal we're talking about now. so there is 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 hr-4173, the wall street reform and consumer protection act? >> congressman, i'm not sure of the precise legislative amendment you're citing. >> it is not an amendment. it is a bill sponsored by barney frank of massachusetts, the chairman -- >> the conference of financial reform law that passed the house in december? >> yes. >> yes. >> yes, i support that. >> and do you support the volcker rule? >> absolutely. that -- what the president proposed is that working with the bill that passed the house,

which included a provision that i think mr. kanjorski authored to give the government ability to limit risk taking by banks, that we make sure those translating to limits that will actually prevent risk taking in the future. >> so it is consistent with hr-4173? >> absolutely. that bill and this is very important for people to understand, that bill -- >> i understand. i'm on the committee. >> -- included a provision that would give the government the ability to limit risk taking in a way to help prevent future crises. >> wasn't it your legislative staff that really worked to change the kanjorski amendment? >> well, again, we worked closely with members of that committee on a whole range of those provisions to make sure that they met the intent -- >> no you're not answering my question. >> in that amendment, absolutely we worked with them on that amendment. >> you worked with them on that amendment to limit it in terms of its reach. >> no. we worked on it to make sure it -- >> okay. so in essence the volcker rule is something you support? >> yes. >> okay.

you testified last month before the joint economic committee, quote, i would not support reinstating glass to goal and i don't believe the end of glass to goal played a significant role in the cause of this crisis. do you still stand by that statement? >> absolutely. >> how do you reconcile that belief with this rule 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 to goal. >> what glass siegel did was to allow banks to underwrite equities and to engage in a whole range of other types of financial act siftivities, insu as well. >> it limited that ability, to be clear. >> and we support, as i think the bill that you started did support, it did actually provide authority to limit a set of

activities so that the access to the safety net is not subsidizing excessive risk taking. it is a simple principle. does it dial back some of the reforms? it does do that, but it is not what people typically refer to as glass siegel. >> so it also says if you engage in a certain type of -- if you have a certain form, meaning a bank holding company, you have to adhere to certain rules, correct? >> that's right. >> okay. you also testified before the financial services committee of which i sit 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. >> that's right. i agree with that. >> and so you support a rule that says, based on a legal form you take, you have to adhere to these principles? how do you reconcile this? >> they're perfectly consistent. but let me state the basic principle again.

>> they're perfectly opposite. >> no, what we're saying -- this is important for people to understand, if you are operating in the financial markets, you're helping companies raise credit, raise capital, you're helping them make markets work, you're prying liquidity to markets. shouldn't matter to us or the american people whether you call goldman sachs or whether you call jpmorgan. you should be subjected to a set of constraints on capital, on leverage and how you're funded that limit the amount of risks you take. if in addition to that you want to own a bank and operate a bank, then there is a set of other limits that we think are good in the public interest so that, again, you can't take advantage of that access to the safety net to subsidize a set of activities that are not essential to -- >> but bankly you're saying, if you just simiply drop the bank holder label -- >> no, that would be a mistake for the country.

maybe this would be helpful of me to say to you, we will work very closely with members on both sides of the aisle to make sure that this legislation results in a set of sensible constraint and risk taking -- >> that would be something new -- >> gentleman's time has expired. >> -- over the last 13 months because you have not reached out to republicans to be clear. >> that's not true. but i'm happy going forward that as we try to give the force of law, reflect them in regulation, we do so carefully with full consultation. >> the gentleman's time has expired. and the chairman recognizes himself for five minutes. thank you, mr. geithner, for being here. i just want to remind my colleagues on both sides that the whole request for the bailout that had to be administered by the treasury department was at the request of then president bush. and, second, i understand your testimony that the people

responsible for administering this made the best decisions they could under the circumstances. i just want to ask a couple of questions, though, that start with one of the statements you made, mr. geithner, about the effect of the actions taken has stabilized the financial system. i'm not here to argue that. the question i have is has it helped the broad main street economy? and there are many who believe, and i'm among them, that wall street got out ahead of itself, got in the business of self-enrichment rather than financing american jobs, american entrepreneurs, and actually transformed itself from an entity that was about creating jobs into the greatest job killing machine in the history of the country. there is two things that i want to ask. one is the bank fee that president obama has endorsed, you see that as essential to have the folks who were largely

responsible for the financial meltdown pay the cost so that it is not the taxpayers. is that correct? >> absolutely. in the reforms we proposed to the congress back in june, at the center of that proposal was a basic principle, which in the future government exposed to risk of loss the banks pay. in the t.a.r.p. legislation you refer to, there is an explicit provision that puts an obligation on me to propose ways to coupe the costs and we propose that in the president's financial responsibility -- >> and i support that. i'm glad you're doing it. second, there are a number of us, well over 60, that are supporting a tax on wall street bonuses. and i just want to get your opinion on this and i'll give an example of the kind of conduct that was allowed to occur. it has been reported, as you know, in "the new york times" that goldman sachs had a department bundled subprime mortgages. it then had folks who advocated to the rating agencies to give it the highest rating possible.

it 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 that you think should be monitored and curbed by any financial regulatory monitor? >> congressman, i believe deeply that we need tougher rules, enforced more effectively and evenly, to make sure that consumers and investors are not taken advantage of and the system is not so fragile that government has to step in the future and take this enormous risk of loss. >> let me just ask you about the bonus tax because i would be interested in this. firms like goldman receive t.a.r.p. funds. they receive low interest money from the open window of the federal reserve and, of course, goldman and other firms receive direct pass through payments when aig was bailed out, correct? and when mr. paulson, your predecessor, was on the phone requesting this money, this was

not anything that you made the request for, he assured us that wall street had learned its ways. goldman and the other wall street firms are back to their old ways. they have been so successful and let's give them credit, they're good at what they do. the question is whether what they do is good for the economy and for main street. they have been able to set aside 140 to $160 billion. do you have an opinion, for bonuses, they could have lent that out, could have added to their capital base and the third choice, they could have put it in their pockets which is the one they have chosen, do you think in view of the fact that much of their profit was made through taxpayer generosity it would be appropriate to tax bonuses as i suggest in my legislation, the 15% above 50,000? >> of course i would be happy to take a careful look at that legislation and talk to you about how best to deal with that. the basic principle that we support fully is to make sure the american taxpayer is not exposed to a penny of losses from the actions the government had to take under the t.a.r.p.

authority. and i completely agree, as i said earlier, that we need to work with the congress to make sure we bring about fundamental changes and how bankers are paid so that they are not taking risks that could imperil the economy as a whole. doing that is hard to do right. we tried in the past, not very successfully, it is an obligation that shareholders and boards have too. but it is the government's responsibility in the end to make sure -- >> my time is almost up. where we would take the money that was raised from that and put into small business lending and some are reduced lending to american enterprises. folks in vermont who run businesses ask me if those dies make so much money, how come they can't lend me any? >> i agree with you. if you saw in the paper today, we are close to proposing to the congress that we take a large amount of the resources that we have gotten back from banks, from the large banks and devote them to exactly that objective, making sure that small banks and small businesses have access to credit. >> thank you, mr. secretary. my time is up.

and the chair now recognizes the gentleman from ohio, mr. jordan. >> thank you plrk chairman. mr. secretary, you are involved -- you said this many times, involved with the decision 15, 18 months ago relative to the initial t.a.r.p. bailout, you're involved in all that, you thought it was the right decision to make at the time. >> i thought it was absolutely essential at that point. the country had no choice. >> and we had several hearings on bank of america and merrill lynch and you were involved in that decision. you were supportive of what took place with the merger of -- the acquisition of merrill by bank of america, yes or no? >> that is right that at that time i was part of an effort to try to find a solution -- private solution to merrill lynch to that point and i thought that that action at the time was necessary and appropriate, yes. >> and today you have said that, you know, you think the initial

decision relative to aig and the payment to the counterparty, you think that was appropriate, you stated that strongly in your written testimony, you talk about this is in the best interest of the american people. >> i do. i do. >> we did not act to help form banks, we acted because the consequences of failing at that time in those circumstances would have been catastrophic to our economy, american families and american businesses. you think it was definitely the right decision? >> i do. >> and the staff that worked for you at the new york fed would be in agreement with that analysis, that this was so critical, this had to get done, the sky was going to fall, the world was going to end if we did not do what you decided to do relative to the counterparties and the $6.2 billion spent. is that correct? >> i believe it is. but i think there are -- to be fair to say there were those among us involved in this, in each of the institutions involved, washington, new york treasury, who were deeply troubled by that choice, were not comfortable with this -- >> but you thought it was what you had to did at the time. >> i believe that, yes.

>> you said in your written and your oral testimony this morning that this was critical to american families and american businesses. >> i believe that. >> it begs the obvious question, why the secrecy relative to disclosure? if it is 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 involved -- if it is that critical, that important, why in the heck did you recuse yourself -- why weren't you involved? >> well, again, just to step back a sec, when the fed discloses this in march, i thought it was the right thing to do. and i think reasonable people looking back at this could say why wasn't that possible sooner? i think that's a reasonable -- >> why wasn't it possible in november when it was all going down? >> right. but all i can say is what i understand i was involved in and i was not involved in discussions about -- decisions about what to do with that particular transaction that contribu

counterparties or the details. >> let me ask you this. do you believe the decision that was made by the folks who work for you at the new york fed to not disclose until march and not disclose when it was all taken place, do you support that zb s decision? >> congressman -- >> it is yes or no. you said it was so critical, the world was going to end, everything was going to go to -- >> it is very hard to put yourself in shoes you did not@@g i can't put myself in their shoes at that time but i do believe they acted with great integrity, care and judgment. >> here's what happened. mr. lynch was on the right trail. this is a pattern, we have seen it. you came to the congress and said give us $780 billion -- >> i did not do that. your government at that time. >> i understand. i didn't say democrat or

republican. give us the money, we are going to buy the troubled assets. they didn't do that. you were in the room when they told the nine biggest banks, you're going to take the tarp money. what congress authorized -- >> you don't think congress passed that bill because they understood that the money the taxpayers were going to put up was going to be used by troubled assets? >> i can't put myself in your shoes but the authority that president bush asked for gave my predecessor the authority to put capital in banks. and doing that -- >> here's pattern, mr. geithner, here's the pattern. the government comes to the tax payers and says we need more of your money, the world is going to end, we want it for a specific purpose and then do it for something else. they come to the taxpayers, we need more of your money and

we're going to use $62 billion and don't disclose to the taxpayer what is go on. this is why we never should have traveled down this road, this unprecedented involvement by the government in the private sector. we have seen it with -- >> gentleman's time has expired. >> we see is now with aig. >> i thank the chairman. >> gentleman's time has expired. thank you. the chair recognizes mr. clay. >> thank you so much, mr. chairman. and i want to thank chairman towns and issa for conducting this hearing. secretary geithner, several economists and policymakers assert that aig's ability to provide cash collateral to their counterparties was not relevant in designing their assistance package. what is your opinion on this claim, that it was not relevant in designing the assistance?

>> i agree that the -- what was relevant and necessary was how to restructure this firm in ways to protect the taxpayer, to the extent we could, from the risk of greater losses. and our choice was at that point this very stark tragic choice, let aig default or not. and we thought that default itself would have been much more expensive. >> okay. let me -- help me and help, i guess, help the american people understand, why was aig's ability to make payments to its counterparties for their toxic assets even a factor in determining the amount of bailout money to award them? >> for an insurance company or any financial institution to operate, they need to operate with a high credit rating. without that, they could not borrow money to function. they could not write insurance contracts because people would

not believe they would have the financial wherewithal to back those commitments. so the rating is critical. if we were to have defaulted on any of those legal contracts, aig would have been downgraded. the counterparties would have the right to take more money, and to default on -- and to bring about the basic collapse of the firm. so it is that stark tragic choice. if aig had not paid, they would have lost the rating and the firms would have collapsed -- the firm would have collapsed. if we had continued to lend the money for them to make those payments, the rating would have also been in jeopardy because aig already had a lot of debt at that point. the choice was to restructure them so we limited the drain of cash and left the tax pay we pa >> you are saying the counterparties would have had a right through bankruptcy -- >> a legal right to sue to

recoup that claim. >> okay. did anyone involved in the concession negotiations ever suggest that aig's counterparties should not be relevant in their bailout packa package? did that issue ever arise among the negotiations or anyone that you encountered during the negotiations? >> that is a complicated question, good question, but as i tried to explain in testimony, the -- what we're guided by -- what was going to be the best way at least cost to prevent a default and protect the system and the entire system was at stake then. and no firm in the country would have been insulated fully from the collapse of the entire american financial system. and our judgment was that aig's

default would have materially raised the probability of that collapse. our choices were terrible choices, but they came down to what was the best way to prevent that outcome on the best terms for the taxpayer. >> so then that get to the point of being too big to fail. aig's tentacles were that widespread throughout the country and the world that -- >> exactly the right question. there are two things that matter in this case. one is you had a set of firms like aig, huge, risky, spread everywhere, involved in a whole range of things. and you had a world that was burning. so, again, the first time since the great depression you had financial systems around the world really at the brink of stopping in their tracks. and it is those two conditions that are most risky. if the world had been stable, everything would have been fine, we weren't on the edge of the

worst recession in generations, then we could have been afforded to be completely indifferent to the fate of aig or all of those institutions. but because aig was so large and so interconnected and because the system was so fragile, it would have been irresponsible to take the risk the failure would have dramatically amplified the pressures we're still living with today. >> did -- could you help describe what the reaction was in the negotiations to the counterparties, pros and cons, as far as, you know, paying counterparties. >> we wrestled with lot of choices as i tried to explain in my written testimony. we thought about whether it was better to default, to impose a haircut, to negotiate concessions under threat of default. we thought about keep paying and watch that money keep running out the door with the counterparties still holding the underlying assets.

we thought about negotiating over time, trying to stretch it out, see if we could find a better way to solve that problem. none of those options were realistic. none of them were feasible. they were not better than the choice we chose. and, again, if you -- i think you look back and take a fair reading of this, although the government is still exposed to substantial risk of loss, those losses are much lower today because of the actions we took in aig and this transaction, which, again, people are so understandably concerned about, has put the taxpayer in a better position than if simply we kept making those payments or if we defaulted on them. >> thank you. >> the gentleman's time has expired. i yield five minutes to the gentleman from california, congressman bilbray. >> thank you, mr. secretary. we're supposed to do oversight and reform. we're trying to get information so that we can do the reform to make sure the next time this process comes up we have procedures and laws that address this. and so it is real important that

we identify how this went so we can try to correct it and make sure it doesn't happen again. not only in march you knew that there was a so-called disclosure issue, but in february you had said in a speech that one of the major issues that you were concerned about is the lack of disclosure that was causing the american people not to trust the system. now, i think we'll all agree that in layman's terms what the average citizen when they heard disclosure issue, they hear cover-up. now, why, in a system that is supposed to be open, the american people have a right to know where their money goes. why was there even a disclosure issue. why were we even discussing the so-called cover-up of the $160 billion, where it was going, in this process? why was that even an issue that as soon as you knew there was a problem there that somebody

didn't clarify this? was that your staff had basically did not inform you that there had been this cover-up this disclosure issue, and did you make that decision or was that a decision made outside? because aig sent the information over. it was an internal process within the government itself that said we're not going to disclose to the public this information. >> my colleagues at new york fed, i think they put in the public domain a very thoughtful explanation of the judgments they wrestled with and ultimately reached. and i know and i'm confident that their colleagues in washington spent a huge amount of time throughout those months trying to wrestle with how to meet the underable public interest in greater disclosure of these things and they ultimately, i think appropriately, came to the understand that they could and should put that information in the public domain. now you're exactly right, i have been a great proponent of greater 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, to all investors, the scale of losses they might face in the event this recession was much more damaging than it proved to be. and that provided the basis for private investors judging who was strong, who was less strong, and deciding to put in capital in those institutions. >> were you told -- in other words, did your staff know the cover-up was there, disclosure issue was there before you knew it was there? was the decision to -- >> again, i think as the record the committee has already put in shows there were discussions that were happening about what to disclose when throughout that period of time. >> were you involved in those discussions? >> as i said in my thing, i'll say it again, i played no role in decisions about what to disclose about these transactions to these individual

counterparties. >> did your staff make the decision not to inform you or include you in that decision-making process? >> yes, they did, though i made -- >> would you -- would you want to know about that or would you prefer that you didn't know about it at the time? >> i think in retrospect i wish i had known, frankly. but after november 24th i appropriately removed myself from decisions about a whole range of policy issues the fed was dealing with, but the people that were making those decisions in close consultation with people in washington and with legal counsel, are people of great judgment and enormous integrity and i have enormous trust and confidence, not just in their judgment, but in the quality of the decisions they made throughout that period of time. >> do you feel today that at the time they made the decision to do the cover-up, the disclosure issue, that they felt you did not want to know about it at the time? do you think they made a decision that -- >> i do not -- in my entire time

there i was never aware of a situation in which my colleagues sought to shield me from something. i was president of the new york fed. i was going to be accountable for decisions made on my watch. but after the 24th, for reasons that i think are fair and right for the institution, i could no longer run those day to day judgments and i withdrew from those and i think those were necessary. >> and your staff decided to shield you from the cover-up side of it too? >> no, i decided that i would withdraw myself from -- i didn't decide this alone. i decided this in consultation with the chairman of the board of governors of the federal reserve system and with the incoming administration to protect the institution from the unique conditions i was in then. >> mr. secretary what date did you know that that there was a cover-up, a disclosure issue, when were you informed? >> i only knew about these discussions about disclosure

when they started to make -- to be in the public domain -- actually i don't know when they first rose to the attention of the congress. but when they rose to the attention of the congress, they were in the press, i was aware of them. >> the gentleman's time has expired. >> thank you very much. >> let me thank you, secretary geithner, for your testimony and, of course, we will now -- >> mr. chairman? >> mr. chairman, i would ask unanimous consent that all members be allowed to put their questions in writing to the secretary and would ask that the secretary, if he would respond to them in writing since so many members were not able to ask their questions. >> without objection, so ordered. thank you, mr. secretary. >> mr. chairman -- >> mr. chairman, i'm not sure what the right point of order here is, but i recognize how tremendously busy the secretary is, but i also recognize the need for this congress and people on both sides of the aisle to be able to ask some questions. we have been waiting patiently here all day. i would hope that the chairman would do what is necessary --

>> i'm one that, as you know, you've been here long enough to really know me because i believe in openness and i believe in going as long as it takes, but mr. paulson has a problem with his schedule in terms of the amount of time he would be allowed. so if we continue, then he will not be able to testify. so i think that's the issue that we have to deal with.hi)i i understand that there are several people that didn't have the opportunity to raise questions. what i would suggest is that you put the questions to the secretary in writing and he will answer, because if not, then the second witness, we will not be able to hear from at all. >> if i could be so bold, if you were to survey or talk to the people on this panel, particularly the people who haven't had a chance to ask questions, we would rather hear from the current treasury secretary than the past treasury

secretary. >> i understand that. but the point of the matter, we have a hearing that has been scheduled and structured and i wish we could stay here and allow everybody to do that, but the point is, i ti in this situation -- i would be glad to yield to the gentleman again. >> i appreciate it because you have been fair and generous and permly very good to me. is there a way we could vote on which direction to go on this? >> it's you will actually up to the chairman. i would give a minute to two on this side and a minute to two on this side and that's it. we have to move forward. we have a scheduled hearing that is here, looking for certain -- >> would the gentleman yield? >> looking for certain information. in order to get information we need to talk to the present secretary. we need to talk to the past and, of course, we have others that we still -- >> would the gentleman yield? >> mr. chairman, i join you in

that. >> reserving the right to object. i just want to say that any member of this committee has the ability to submit questions in writing. mr. geithner, in response to an earlier question, said that, you know in the interest of time, he would be willing to answer questions in writing. is that not true? >> absolutely, of course. >> so mr. chairman, anybody who wouldn't get a chance to ask a question here could put it in writing. i withdraw any objection. >> let me say that we will go two on this side, two on that side, but a minute, remember -- >> reserving the right to object. >> yes. i don't know what you're objecting to. >> if you'll recognize me. unanimous consent request for two minute each. i would be happy to forgo my time for secretary paulson to ask secretary geithner -- >> i wish we could operate that way, but, you know, when you have hearings that are structured, they're not structured in the fact that someone would give up their

time -- that's not the way we do it. so the point of the matter is that we accepted two minute on this side, or we move forward. okay. so that's what's on the table. so two minutes on this side, two minutes on that side. okay, you want to designate. >> i withdraw my objection. >> designate the two on this side, mr. connolly. you have a minute to raise one question with the secretary. mr. connolly from virginia. okay. >> thank you, mr. chairman. and thank you -- >> can i ask for one minute. >> thank you, mr. chairman. mr. geithner, we have one minute, and one has the sense that some people in this room perhaps want to rewrite history and i understand given the history of why they might want to do that. in your opening statement, you talked about the need for financial regulatory reform. could you expand on why we need that particularly when it comes to regulating that which was resisted from regulation in the past like drierivatives and cret

default swaps. >> i don't think it is a hard case to make. look at the wreckage caused by the crisis to say the system failed dramatically. and, again, the two most simple failures that happened is people were allowed to take risks without constraints. we let a system operate where systems that were huge and consequential operated with no adult supervision, with no constraints and brought the country to the edge of collapse. let me just say one thing in common with the following firms, fannie and freddie, the largest investment banks in the country, a aig, a set of specialized insurance companies, a whole range of consumer finance companies, a bunch of -- they all had one thing in common, which they were not subject to a set of sensible rules to constrain the risks they had to take. what we pros to in financial reform is to change that. it is a simple imperative. that's not enough, though. because people make mistakes in the future. so we need to make sure when

they make those mistakes that we can let them fail and failure can happen without catastrophic damage. we need to be able to contain the damage, isolate it, draw a line around it, put them out of their misery, put them out of existence without the taxpayer being exposed and we need to make sure that we don't have a system where the taxpayer is exposed to the risk of loss where investor and creditors live with the expectation that the government will be there again. and, again, that's something that is a -- i think we all have a huge obligation, responsibility. it was the laws of the land that allowed that to happen. the law of the land that made it impossible for the government to act and i think we need to work together to change that. >> i thank the gentleman. i thank the chairman for his consideration. >> thank you very much. and now i recognize mr. fortenberry. for one minute. >> thank you, mr. chairman. mr. secretary, welcome. for last year and have we have been privatizing profits and socializing risk. and if the optic on the aig aren't bad enough, the counterparties to the aig who

received 100% parody for their liabilities, seven of the top ten are form firms so cmt generalal had $6.5 billion of american taxpayer bailouts in effect followed by goldman sachs. you said this economy is crisis. this year goldman sachs will give $16 billion of bonus payments, about $500,000 per employee. this is really difficult to understand why there wasn't, at first, a desire to have transparency in regards to counterparty transactions. can you address that, please? >> i'm not sure if you were here for that part of the conversation -- >> i was here for the entire time. >> but, again, the actions we took were necessary in the public interest, better than the alternatives, to help prevent catastrophic damage and if you are outraged as i think you should be about how the economy and our system was in this mess, i hope you will join with us in

trying to work to make sure it doesn't happen in the future. this is not something that should be republican or democrat. there is a deep, i think, moral obligation we have to try to make sure we put in place reforms that will prevent this from happening again. . if the government had done that sooner, this would have been less damaging and a critical part of the failure was we ran a country, largest economy in the world, largest financial system in the world, without having the kind of bankruptcy type powers we had for banks for decades. >> let's try to do that on a bipartisan basis, sir, please. >> i'm sorry, the gentleman's time has expired. and now i recognize the gentleman from illinois, congressman davis, for one minute. >> thank you very much, mr. chairman. and thank you, 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 made in the fall of 2008 to rescue aig and

pay the counterparties part? >> congressman, as i think about this a lot, and one of the great things of our country is people look back and come to their own judgment, whether we made the best choices. but i am very confident that we made the best of a set of terrible choices, that there were no better alternatives. we did not have the option of bankruptcy. we did not have the option of default. we did not have the option of selective haircuts. it would have been catastrophic to let the institution fail. we didn't rescue aig. we intervened so that we could dismember it safely wrought it wre -- without it wrecking the country and the system. i think the big mistake we made as a country and there are mistakes that we have to reflect on deeply for a long time, were why the government didn't act sooner to limit risk taking, why the government didn't provide competent authorities with the ability to contain risk taking and why we didn't have in place

the kind of tools we had for a long time for banks to try to deal with these kind of failures. i think those were tragic mistakes. the lesson of financial crises is if you don't act sooner, things get to the point where they can cause catastrophic damage. and if you let it -- if you stand back and hope it will burn itself out, correct itself, it will be a good healthy adjustment for the economy, that can cause enormous damage. and it will cause enormous damage not just to the american lives and people who will be living with for a long time, but to the revenue base of the country, deeply impairs the capacity for government to do things that are necessary, like -- that we need resources for, protect national security, make sure teachers can be in the schools, these things are deeply connected. if you stand back, and try to hope the market will fix itself, you court catastrophe. i hope we learned that lesson. should never happen again. >> thank you very much. >> the gentleman's time has expi expired.

i recognize the gentleman from utah. >> thank you, mr. chairman. thank you plrk secretary. i was going to ask about the 18 phone calls you made to rahm emanuel, more than any member of congress. what i would ask you about is this idea that they're going to make prompts. i'm going to read two statement and request you a question from neil barofsky's testimony that is coming up. first one is, quote, on page 13, treasury's own t.a.r.p. financial statement estimates that treasury will not be made whole but is rather projected to lose more than $30 billion on its aig investments. second quote, narrowly asserting that taxpayers will be made whole on maiden lane three, one part of the aig counterpart transactions without mentioning the huge losses treasury expects to suffer on other inextricably linked parts of the very same transacts is simply unacceptable. the american people deserve better. so my question, and hoping you can respond to those two statements, is when you refer to profits from the aig

counterparty bailout are you counting the cost of the $35 billion in cash aig handed over to counterparties, or just the $27 billion they got directly from the new york fed? >> congressman, i think mr. barofsky and i agree on this and i said in my statement, i was very clear, the government is still exposed to substantial risk of loss on its investments in aig. the federal reserve, in this transaction, i think more generally is unlikely to face any loss. that is a good thing. we should welcome that. but the government is still exposed to risk of loss. we don't know how large the losses will be. what you refer to is not a projecti projection, just an estimate based on current market prices. but the important thing, i hope you join me in this, if we adopt this financial responsibility fee, the taxpayer will not bear a penny of the burden -- >> sounds like a tax to me. doesn't sound like a -- sounds like a tax to me. >> call it what you want. >> i call it a tax.

i wish you would too. call it what it is. >> again, in the law the congress passed, authorizing these actions, congress required the secretary of treasury to propose a way to make sure taxpayers are held harmless. we did that. i hope you will join us in supporting that because there is no reason why the american taxpayer should be exposed to a penny of loss in what we did in aig. we can make that >> taking a look at the $787 billion program signed into law, $380 billion has been committed and $287 billion has been paid out. we have been keeping track of the stimulus money go to www c-span.org/stimulus to watch hearings as well as congressional debates and

outside wash dog groups. that is at www.c-span .org/stimulus. >> tonight, president obama delivers his first state of the union address to congress laying out his vision and planning to deal with unemployment, health care and the wars in iraq and afghanistan. the state of the union address beginning at 8:00 p.m. on c-span and listen to the president's address live on your i phone. >> this weekend on book tv, the growth of the growing middle class in the middle east. political cartoons of dr. seuss published during the are war years. and then the neocons. find the entire weekend schedule at book tv dorgan get the latest

updates on twitter. >> more now from today's oversight committee looking at the federal bailout of a.i.g. this next panel features henry paulson and his role in what happened. this is about an hour and 10 minutes. >> the second witness for today's hearing is former treasury secretary under the bush administration secretary henry paulson. mr. paulson, please stand as i administer the oath. sworn sworn do you solemnly swear to tell the truth. answer in the affirmative. you may be seated. let the record reflect he answered in the affirmative. i'll ask the witness to summarize his testimony in five

minutes and we though the procedure, the yellow light means you have a minute left and the red light means stop and then we will have time to raise questions with you. you know the procedure. you have been through this quite a few times. good to have you back. >> thank you and i will go through these quickly. first of all, chairman towns, ranking member issa and distinguished members of the committee, i appreciate the invitation to testify before this committee. .

those payments, nor was i involved in any of the decisions about aig's public disclosure of those payments. those matters were handled by the federal reserve bank of new york and the federal reserve board. they sought to make appropriate decisions on those matters and i am confident that this review will show that they did. i have limited knowledge on the topics of immediate interest to the committee, but will share the following observations. the rescue of aig was necessary and i believe that we and the government who acted to rescue it including secretary geithner, chairman bernanke and me, acted properly and in the best interest of our country. the reasons the rescue of aig was necessary are well worth

examining. i believe they are representative of a causes of other aspects of the crisis and indicate where regulatory reform is necessary. there are three reasons we needed to save aig that stand out in my mind. first, aig was incredibly large and interconnected. it had $1 trillion balance sheet, a massive derivatives business that connected it to hundreds of financial institutions, businesses and governments, tens of millions of life insurance customers, and tens of billions of dollars of contracts guaranteeing the retirement savings of individuals. if aig collapsed, it would have buckled our financial system and brought economic havoc on the lives of million of our citizens. second, aig was seriously underregulated. although many of aig's subsidiaries including its

insurance companies were subject to varying levels of regulation, the parent entity was for all practical purposes an unregulated holding company. consequently there was no single regulator with a complete picture of aig or a comprehensive understanding of how it was run. it was not until aig started to fail that regulators began to understand how badly managed it had been, and how much the toxic aspects of parts of its business 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 to no harm to the depositors or the gses, seamlessly placed in the conservatorship, there was and

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

why we needed to intervene. we need to modernize our regulatory structure by creating a systemic risk regulator and resolution authority so any large firm that fails can be liquidated without destabilizing the system. large financial institutions of this country will always play a role that is essential to our economic growth. but they must only be permitted to grow and interconnect throughout our economy under careful oversight and with a mechanism for allowing those connections to be broken safely. thank you, mr. chairman, and i would be happy to answer any questions. >> thank you very much for your testimony. let me say that you were deeply and aggressively involved in dealing with the financial crisis and we saw that with aig, of course, and bank of america and with the t.a.r.p.

my question is why did you sit on the sideline and not use your considerable influence to call the ceos of the counterparties to get them to take a haircut? why wouldn't you do that? you are a person that was very influential in all of this, and i can 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 is a lot going on, coming at us from all sides. and whichever agency had the authorities took responsibility for execution. and this was clearly a case -- it was a federal reserve loan. they had the authorities to make it and administer it, and they

had the technical expertise to do the restructuring. >> but, you know, i just see it a little strange that you would sit on the sideline and not help the american people in terms of -- you were so involved in the early stages and you -- i mean throughout the process, and then to sit on the sideline at a time like this, i just find that -- >> mr. chairman, anybody that knows me know i wasn't sitting on the sideline. i was -- i was not involved in this issue. but i was involved in many other issues every single day of the week including weekends. so i didn't -- >> why not? why wouldn't you be involved in this? >> because this was a federal reserve loan. they had the authority. they had the technical expertise. and, you know, i said in my testimony, i have 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 bailey wick. >> why wouldn't you let aig go into bankruptcy? why not? >> if aig had failed, this was a huge financial organization, interconnections throughout the economy. if it had failed with the system as fragile as it was, i believe it would have taken down -- >> talk directly into the microphone. they're having problems hearing you. >> i would have taken down the whole financial system and the economy. it would have been a disaster. today, after all the act the ac that have been taken by the government, we still have this

terrible 10% unemployment level. i believe that if the system had come down and failed, we could easily have had unemployment reaching or exceeding the 25% level we had in the great depression. we would have lost many additional billions of dollars and in american savings. home prices would be much lower than they are today, so as unattractive as the government rescue of aig was, and none of us that supported that found that to be an attractive or desirable option, it was just much, much better than the alternative, which would have been economic disaster in this country. >> i now yield five minutes to the gentleman from california, ranking member. >> mr. chairman, i would ask that we go to the members who did not have an opportunity in the first round and, mr. chairman, i would also ask one thing, will you agree, since the

secretary said he would answer our questions to join with me in ensuring that all questions are answered or that we bring the secretary back assuming he does not answer them for some reason? >> so ordered. >> thank you. mr. luetkemeyer would be next of those waiting. >> thank you, mr. chairman. mr. paulson, one of the things that we're looking into here with aig, can you explain to me, is aig and their financial products, was that a subsidiary of aig or was that part of the -- 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 and it was a -- it was part of -- it wasn't part of an insurance business model, but it was sure part of the company's business strategy. >> because it makes a big difference if it is not part of the insurance part of the

company, it is a subsidiary, you can let that thing go down and it doesn't affect the insurance part of it, which i believe it was, isn't that correct? >> well, i would say this to you, this company was so big and intertwined that it was -- if there was any way that the people who were working on this could have found a way to just hive off and let one small part of the company -- >> would the gentleman suspend? mr. paulson, excuse me, we want to make sure that members can hear your testimony. and, you know, it is amazing what so much money in this federal government we don't have a better sound system. i'm going to need you to speak as closely to that motorcycike can. >> so to just be -- to just be clear there was no way to hive off and hand this will situation differently. there was a very few days to act to prevent bankruptcy with no

winddown powers to let this company be liquidated and avoid bankruptcy. >> well, with you'll awl dall d if it is a separate entity, it could go on, sir. another question 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 to aig that they were involved with needed to be adhered to and worked with. was the government a part of those contracts? >> i -- as i said in my testimony, i had no involve 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? the government wasn't party of the contracts? >> this was not something that i was directly involved in. i said that i have very much trust the motives and the

abilities and the judgments of the people that made those decisions, but i wasn't party to them and i can't answer that question. >> that's one of the frustrations and i appreciate your candor. my frustration with the chair that we don't get full testimony and get all the questions answered, asked and answered so we can come to you with what we feel is good information to get good back and forth here. i apologize to you. let me move on to something else. i know right now we're looking at and the president proposed some too big to fail sort of strategies to try and address the issue of too big to fail. where are you in this debate? what do you think about the proposals on the table right now, sir? >> when i was secretary of the treasury i put out a regulatory blueprint and i still believe that that is a way to go. i am very -- i think it is 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. and so i think that is essential. and there are some parts of the -- of the proposals up here being debated by congress which are the same as in the regulatory blueprint we put forward, a big one being the systemic risk regulator and i'm strongly in favor a systemic risk regulator. >> do you believe we need to take the risk investments that are part of some of many of the big banks now and take them off the books and a separate subsidiary for this, go back to glass stege stegele firewall th? >> that is not my recommendation. i believe that when you look at the -- at the crisis, what i saw in the crisis was that it was

across a number of financial type of financial @@ on the hook for these risk takers who are out here, i think it's important that we take these things off the books and have it that if it goes down, it goes town and the bappings and the insurance funds and the taxpayers as a hole are not on the hook for us. i think it's very important we go down that road. because i think what you've done with a.i.g., suddenly using the federal government as the official underwriletter of all investments in the world. if we're underwriting foreign contracts, investments, what have we done? we've gone down that road. we done? we've gone down that road. i appreciate your comments.

>> gentleman's time expired. chair, in keeping with the necessity of making sure members who do not ask questions the last round are given a chance to go first, we recognize mr. teerney. >> mr. paulson, thank you for being here this morning. you were in full agreement with not allowing aig to go bankrupt? >> absolutely. >> i think back home people don't know where to give the credit for this. i think we need to give credit where credit is due if that's a good decision. people see mr. geithner as treasurer. in fact, these were decisions made in 2008. you were president bush's secretary of the treasury, correct? >> absolutely. >> and mr. bernanke was the head of the fed? then, of course, we had the new york federal reserve board participating in these conversations as well. so you're pretty much the group thad decided they should give $85 billion in september to aig.

those are mostly the participants, am i right? >> yeah. we were -- as i said in my testimony i very much supported that rescue. >> in november it was the same group. you as president bush's secretary of the treasury, mr. bernanke and the new york fed decided to give addition the funds to aig, some of which we used to pay counterparties to the presidents, right? >> yes. in november -- in the t.a.r.p. we made a $40 billion capital investment and then the fed put some additional money in -- which was used up for the contracts. >> just so we're clear, given credit here, the t.a.r.p., $7 billion of t.a.r.p., in fact, was during your term as secretary of treasury under president bush? >> i'm proud of that. >> okay, that was your idea? was it, the t.a.r.p.? >> that was a number of our ideas but, yes, that's something i'm proud of and something that was very necessary. >> the $85 billion that was

loaned to aig was not appropriated by congress. nobody asked congress to make a vote on that, am i right? >> that was a decision taken by the fed with the support -- >> what source of money did they use to get that $85 billion? >> they used their funds. >> their funds emanate from where? >> from the u.s. government. >> were they frees from other banks? did they come from your treasury? where do they come? >> they come from the -- the fed obviously can print money. >> okay. and did they take money that they had from fees charged to member banks or print money to accommodate this $85 billion? >> you'd have to ask the fed that. >> you're not aware? >> i'd like them to answer that question. >> you may not like to answer the question, sir, but if you know the information i'm asking you to share with us, what is your best understanding of where that money came from? >> my best understanding is all

dollars are green so those are ultimately taxpayer dollars and that was why -- >> we're painfully aware they're taxpayer dollars, sir. >> that was why the treasury was supportive and we -- we were very supportive of that transaction. >> we all understand the full faith in -- the promise -- taxpayer dollars we're painfully aware. i'm asking you whether since they didn't come to congress for the appropriation, whether the $85 billion came from fees charged to member banks, newly printed money or some combination of the both. >> i don't believe it came from fees charged to member banks. >> okay. thank you. we got to the point where a decision had to be made about whether or not to let aig go bankrupt. later came to a point whether or not to pay the counterparties 100% of those contracts or not. once the decision made not to let them go bankrupt you lost leverage to argue in terms of getting -- being able to pay less than 100%. is that a fair statement? >> as i said, i didn't participate in the -- in those decisions regarding payment and

i also said we didn't have the wind-down powers. >> okay. you were involved with -- i forget how many congressmen said there were phone calls between the new york fed and you. i'd yield -- 225 telephone conversations between the head of the new york fed and you during this period of time. so i think we might be fair in assuming kblou you were discussing some of these party matters? >> we had a range of matters to discuss. we clearly discussed the rescue as i said, i did not have involvement and -- >> my final question. i need your help with this. most people at home draw the conclusion that not to allow aig to go into bankruptcy would have been devastating because the consequences would have been severe. it would be enormously helpful if you can put yourself in the position of the local bookkeeper for a medical firm or housekeeper or lawyer or teachers aide.

how specifically could that individual 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 -- >> how? how would that have happen? show me from the time you made the decision what would have spiraled down to 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 the aig rescue when markets were frozen we had a situation in this country where even blue chip industrial companies were having trouble financing. i knew we were on the brink that if aig had gone down i believe that we would have had a situation where main street companies, industrial companies

of all size, would not have been able to raise money for their basic funding. and they wouldn't have been able to pay their employees. they would have had to let them go. employees wouldn't have paid their bills. this would have rippled through the economy. the -- today, congressman, we have after everything that was done, all the resources we have 10% unemployment. i believe we easily would have had 25% unemployment. today we have home prices that have dropped precipitously in some parts of the country. home prices would have gone much lower. aig guaranteed tens of billions of dollars of savings for retirement savings for americans. there would have been great losses. this would have been economic nightmare. >> thank you, mr. paulson. chair recognizes mr. souter. >> thank you. i have a variation of the same question you were going through. one of the problems we have is that it appears aig was treated

differently than other companies throughout this whole thing in this sense that the holders of the debt were paid at par. which means that in effect the banks got 100% but, for example, gm creditors, small businesses all across america and other companies that were let go, they got ten cents on the dollar, 30 cents on the dollar and it's part of a fact but a perception that that was unfair, that wall street was covered but main street wasn't, in debt. aig was different in what sense? now, i know, was it 120 separate finance companies and 80 insurance or is that flipped? something like that. in other words, it was a collection. >> a big complex collection of companies, correct. >> and that if the insurance divisions were separated, and came under state, part of the argument is state regulation. that they were so intertwined

with the finance let me ask one other question before we get into details of that. you said bankruptcy wasn't an option but it also meant that did you try to put pressure on the people who held the debt to write down some of their debt? or once you made the statement we weren't going to let it fail, were they playing hard ball in saying we're not going to write down anything? why didn't they get the same pressure gm suppliers had and everyone else to write down their debt? >> as i said, and this isn't me trying to suggest anything was done wrong. i had nothing to do with that. i was not involved in the negotiation. i was not involved with anything surrounding those payments, but i will explain one thing to you, which is fundamental for you to understand, is the government we have an antiquated regulatory system and the lack of necessary authorities. so if there was a bank there was a -- there is a way to wind that

down, but this was -- this was a nonbank and there was -- >> i understand that. let me -- let me ask you, there's no way except the threat of real bankruptcy. and that if you're a bank and think you can negotiate at par and get a full percent and you don't have a threat of bankruptcy the question is, did anybody threaten them? did anybody say -- did we in effect yield the debate at the beginning, they played hard ball and we had no way to do it that if in effect you would have threatened to say, we can cover the insurance people but the finance side over there you better negotiate down and that side will go bankrupt. banwould have had to put cash ng system so cover the fact the bankruptcy gone out. in other words, had they gone bankrupt and there was a catastrophic effect, which i believe, because i voted for

t.a.r.p., a catastrophic threat, wouldn't you have had to put more money in the banking system but not necessarily at par? >> as i said, congressman, i didn't -- i wasn't involved in that so i can't -- >> you're saying the new york fed did that? >> i can't comment beyond what i said. >> at some -- when you got involved, once t.a.r.p. was there, the decision was already made it wasn't going to go bankrupt. is that correct? >> when i -- first of all, i was involved in supporting the initial rescue. and then -- >> so you were involved? just a second. you were involved? did you advise the fed to try to get what they could and not -- >> well, what the fed -- the initial rescue was not the -- was not when they dealt with the payment to counterparties. so i supported the fed on the initial loan and then later in november the situation had

deteriorated to the point and values and insurance businesses all around the world deteriorated to the point that this was a company that would go down without capital. and so now we had capital and -- and my team and i participated in making that decision. made the decision to put $40 billion of equity into aig. >> the problem that i have is it appears to me aig was treated differently so much so, even listening to that, it's like well, we put some money in initially and then we put more money in because they couldn't fail, where in the other -- everything from citibank to merrill lynch to everything else there were processes on money coming in, guidelines on it coming in and they used the leverage of the threat of bankruptcy to do that. then in this case it appears that it was different and partly is that the creditors of

different. furthermore, 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 even keep it quieter because that was critical, that information, to understand what was going on behind. 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 and that we -- i don't think there's been a compelling case made that aig is unique. >> the gentleman's time has expired. i would say if mr. paulson wants to respond to the gentleman you may do so. >> i have no response. >> okay. i thank the gentleman. chair recognizes mr. kanjorski. >> thank you very much, mr. chairman. welcome back, mr. paulson. you really miss washington, i assume? >> you can't guess how much. >> i -- 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 memory is lost in a year or 14 months from those faithful days in september and october. which all of us hope we never relive, but, in fact, we're very much significantly different than today and the coolness of being able to answer. one of the questions i was particularly interested in, because i was very involved with that time and what was happening with aig. my aspect of having some jurisdiction of insurance. as i understand it, because of financial products in london, was without assets and had a tremendous involvement in counterparty positions for about $2.8 trillion and whose counterparty positions were starting to fail and they had to honor them, their initial internal decision of aig was to use the assets of the world's

largest insurance company and they sought permission and it they sought permission and it was pending and finally approveá they wouldn't have been enough to cover the counterparty positions so it would have wiped out the insurance companies which in turn would have affected every insurance holder in the country that was involved with a.i.g. at the time and would have been a catastrophic collapse of the insurance industry, notwithstanding the counterparty derivative position. now luckily the regulator in the state of new york didn't grant us permission to use that $30 million until much later when it was few tile. and at that point the loss on the counterparty positions i

think rose to $55 billion and were climbing on a daily basis 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 cover those counterparty losses, they didn't cover all those losses and subsequently within probably 30 days another huge amount of money was infused into aig's various corporate structures to get some stability. and not that i could say nothing has changed from that, but that was the significant circumstances in this month or two months after september 18th that everybody was faced with, but as i understand it the federal reserve was the person with the checkbook under the instance, under 313 powers. they were just plugging that money in and it wasn't a decision made at the secretary's level of treasury or at the

presidential level. it was a federal reserve regulator level who was making that decision and i dare say regulator not for aig but regulator that had regulation over some of the largest banking institutions in the world, that if they had been not -- if their counterparty positions weren't honored they would have immediately collapsed and that's what we were calling the meltdown. everything was going to implode and you had to stop it at the head waters, not wait until it got out into the little dams out in the stream. is that relatively the correct position? >> i would say without signing off on everything fact you mentioned i would say you got it in the sense this was a very complex company and there was -- if it had gone into bankruptcy it would have been a huge mess and it would have -- one part of the company would have contaminated the other and it would have rippled through the u.s. economy and the result would have been absolute

disaster. >> mr. chairman, i know there are other questions. i had the opportunity to ask some today so i yield back the balance of my time. >> i thank the gentleman for his courtesy before i recognize mr. baucus. i want to take the liberty as chair to recognize students from pottawa high school in ohio who are visiting the capitol and seeing their government at work right here. so welcome. you and your teacher. we're pleased that you stopped by for a visit. thank you. the chair recognizes mr. baucus of alabama. >> welcome, former secretary. secretary paulson, march 2009 -- march 16th was when aig -- the payments were made to aig or guaranteed.

leading up to that you participated in several meetings about aig. is that correct? >> prior to march of -- >> 2009. >> prior to march -- yeah. i had a number of meetings about aig as we were putting in capital. >> i knee one of the meetings, march 24th, my questioning of mr. geithner he mentions, secretary geithner, that you -- he said that you and he met with aig to discuss lehman's failure? >> to discuss what? >> september 14th. now, that was two days before -- >> oh, yes. you're saying -- so you're talking about 2009, march -- i think you're talking about september 14th 2008. >> that's right. okay. all right. i stand corrected.

i am. that discussion -- you participated in some of the discussions about aig and their financial condition leading up to -- >> yes. that weekend of september 13th and 14th was the weekend when we were -- had financial institutions together working to come up with a solution to prevent the failure of le and it was that weekend that we learned also about aig and i had two meetings over the course of that weekend at the new york fed with tim geithner, with officials from aig. >> right. in those meetings was there any discussion of asking the counterparties to take less than 100%? >> was there any discussion of what? >> any discussion of the counterparties taking less than 100%? >> i sure don't recall any. we were talking about the

financial problems that -- that aig had and it was clearly -- clearly had issues with counterparties. >> right -- >> they clearly had issues with counterparties because that was the crux of the issue, was a ratings and potential ratings downgrade which would cause the company to have to post collateral and so that would lead to -- >> so their obligation to the counterparties was discussed? >> well, obviously that was the -- the issue. any institution that is facing failure -- >> sure. >> -- is going to have an issue with paying creditors. >> you know, once that intervention occurred then really the taxpayers, the u.s.

government owned 79.8% of aig, more or less. is that correct, isn't it in. >> yep. >> that being the case, i see in this same 03/15/2009, this is skipping forward to march of 2009, secretary geithner e-mailed william dudley and edward and said where are you on aig counterparty disclosure issue? you know, are you for disclosing or not now? >> would the gentleman yield? could you put up slide one, please? so they could see it? thank you. >> what would your advice have been on whether or not that should have been a public disclosure of the counterparties and their obligation? and would the fact that really the taxpayers owned over 79%,

almost 80% of the company had made any difference? >> 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 strong integrity and good will trying to do the right thing. >> take a situation where you do have a company that's 80% owned by the u.s. government. would that -- would that tend to make you think that there ought to be disclosures of their obligation? >> the gentleman's time -- mr. paulson, the gentleman's time has expired but crow can answer his question. >> i'll be brief. public companies have disclosure obligations. so that's governed.

those need to be adhered to. >> i thank the gentleman. the chair recognizes mr. cummings of maryland. >> mr. paulson, good seeing you again. mr. paulson, do you realize that a lot of the american people believe that there's a sort of wall street club and that -- let me finish -- that you all play golf together and you have a lot of fun and then, you know, when the billions come around you're able to kind of distribute them. i mean, i'm just saying do you know that's how people feel? >> i sure do, and even though -- >> can you keep your voice up? >> i said even though i'm not a golfer, i sure know that's how people feel. >> yeah. when they see these deals going on then the next thing they do is they begin to look at where people worked. and then they see the relationships and then they say,

well, you know, we don't have a chance because seems like they're 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 -- i think one of the things that bothers people is when they don't see transparency then 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 that if we didn't do what we did and unemployment may have gone up to 25%, but it's hard for people @a see the connection and they don't recognize that what was done wasn't done for the banks,

it was to can -- they were going to be the victims if we didn't step in. >> and so among the conditions in the tarp-a.i.g.-sffi-investment senior preferred stock and warent summary of senior preferred terms as posted on the treasury department's website, it's noted, the annual bonus pools payble to senior partners 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. pools paid to seniors 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 just found it necessary to extend $40 billion to the firm through the t.a.r.p.? >> i'm not going to get into

second guessing decisions that were made at treasury about bonuses. i realize this was a very difficult decision because the taxpayer had a lot of money in this company. >> right. >> and this company needed to perform well and needed to hold the team together in order to repay tax -- >> right. and the taxpayers were saying to themselves, look, these are our tax dollars. we worked hard for these tax dollars and now these guys who screwed up everything are getting bonuses. >> 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 to have resolution powers. never again will we have a company that's so big, too big to fail so the taxpayer has to put money in. that the company can be liquidated and wound down in a way that the taxpayer is not on the hook again. i understand there's that anger out there and that 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 to do something about it is reform the system so that we don't ever again have to bail out a big institution, rescue a big institution. it could be liquidated if it fails. >> now, the -- with regard to the original treasury t.a.r.p. investment in aig, was this structured as a loan or as an equity investment? >> congressman, it was an equity investment. >> and was this in the aig parent holding company or in the individual subsidiaries? >> this was in the parent.

this was a $40 billion equity investment because the company needed equity. >> and was it made subordinate to any other creditors of aig? >> well, a preferred is by definition senior to the common and subordinated to the other creditors. >> and how does this compare to the various preserve investments in aig? >> well, this would be -- this is subordinate to the other federal reserve investments in aig because a determination was made -- the rating agencies basically said that you need to put capital in this institution or there will be a downgrade and then it would have -- they would have precipitated the failure. >> and why was it structured in this way? >> it was structured in that way because that's the way a preferred needs to be structured. that's where it -- it wouldn't

have been capital if it hadn't been subordinated to the other -- to the other liabilities. >> i see my time is up. >> i thank the gentleman. chair recognizes mr. sterns from florida. you may proceed for five minutes. >> thank you, mr. chairman. mr. paulson, mr. geithner testified he refused himself during his counterparty negotiation. did you know that while you were secretary of treasury? >> i knew that -- >> just yes or no? >> yes. >> you did know. did you know he did not sign -- >> geithner did not -- i didn't view him as a decision maker. >> did he call you up, advise you, that he rekuszed himself? how did he notify you? >> he told me on the phone that he did not think it would be appropriate for him to be viewed as a decision maker. >> did you know he never got a letter? all he did -- he testified that he recused himself. he decided. he put up a flag and said, i recuse myself. i'm not going to be involved

with the counterparty negotiation. you went with the white house counsel and secretary of treasury and 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 have list? >> i did not know the details. >> did you think a person who would recuse himself in this crisis we had that he could go ahead and operate in his present job and not have a conflict of interest? gee, the chairman of the federal reserve is in this crisis, we're having the counterparty negotiations and by golly he's going to step aside and say he knows nothing about it. doesn't that seem sort of faky to you? >> no, it didn't, because i thought it was an extraordinary position we had to have a presently -- >> i understand that. the next question, he said in open testimony his chief of staff, while he was chairman of the federal reserve was a former employee of goldman sachs.

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

case. any event, when he was -- when tim was -- >> let me go on. here's the problem i think a lot of us are having. mr. geithner said he was not involved with the counterparty negotiations. you're saying you were not involved. oh, yes, you heard a little bit about it, but on november 6th when they gave $62 billion to all these parties who came in and looted aig, all you guys say you know nothing about it. yet it appears this happened. recently michael mcrathe, told the senate banking committee, he said, you know, if aig had gone in bankruptcy we would have taken care of it. we would have been an orderly disposition. this is what he said. aig's insurance operations and their other companies would have simply -- we would have simply bought up aig's insurance assets allowing a seamless delivery of aig's insurance obligation. so the question is, considering that the state insurance commissions would have likely

seized aig's insurance subsidiaries, protected policyholders in an aig bankruptcy, why was it necessary to bail out aig with taxpayers' money based upon the testimony of the director of national association insurance commissioners? >> i respectfully disagree with him and i believe -- >> you disagree with athis guy? >> i will say many people with years of experience had some regulatory responsibilities with regard to aig but this company was -- had a huge problem and it is case number one on what is wrong with our regulatory system. there was no single regulator that had a line of sight on the total company. so there were regulators that looked at different pieces of it and if the company had gone down it would have been a huge mess. >> is your testimony -- mr. geithner sort of implied -- he scares members of congress. he scares the public. we were all scared. he said if aig was not bailed

out this country would have collapsed. he intimated our constitution would not have beenb&e@@@@@ >> certainly have never said that. >> he applied that -- implied that. >> what i have said is i believe we would have had an absolute economic disaster. >> and our system -- >> the gentleman's time has expired. the gentleman's time has expired. we now recognize the gentleman from ohio, mr. kucinich. >> thank you, mr. chairman. secretary paulson, thank you for being here today. in your testimony you state that in your capacity as united states treasury secretary you were not involved in any decisions with respect to payments to a.i.g.'s counterparties and that you were not involved in any of the decisions concerning a.i.g.'s disclosure of those payments. those payments.

i'd like to accept that at face value, mr. paulson, except the critical decisions concerning payments to counterparties were made after the passage of the emergency economic recovery act by congress at your request, and the emergency economic recovery act made the treasury secretary responsible for the use of funds authorized by congress. negotiations on the counterparty payments by the federal reserve bank of new york did not begin until november 6th, 2008. the funding of the payment of the counterclaims is backed by funds made available under the emergency economic recovery act. so mr. paulson, doesn't it make it your responsible 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 billion t.a.r.p. investment was equity and those funds did not go into this vehicle where the fed -- >> so you didn't have any knowledge of the counterparty payment transactions? >> i did not. >> are you telling us that? >> i did not. >> are you telling us that you were not aware of any of the discussions leading to the counterparty payments with any of the principals? >> that's what i'm telling you. >> as treasury secretary you had no role whatsoever on the decision on counterparty payments that you didn't ask anyone any questions, that you never expressed opinion on the matter, you were completely unaware of the nature of proposed transactions until it was consummated and no one asked you questions about how these emergency economic stabilization act, or the recoverying a funds, would be used to stabilize gig

aig? the one financial institution worth any other -- 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 it was our authority. >> did you ask about the nature of the counterparty payment? >> 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. we were consumed with other matters and had great confidence in them to carry out their responsibilities very professionally and well. >> you know, mr. paulson, known disputes that you worked very hard throughout the crisis. well known that 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. how is it that you played no role in the handling of this aig relief? that you didn't have an interest in it? how is it that despite goldman sachs' extensive role as a counterparty to an agent for aig in the transaction, your extensive personal network of associations within goldman which extended to several goldman alumni that you can say you didn't have any knowledge. by implication, no influence over the travns action? i don't understand that. >> well, i can -- can't be any clearer. i had -- i assumed that goldman sachs knew that goldman sachs, and i assumed most other were counterparties. i had no knowledge what the individual claims were and that was my concern here was not about counterparty claims when we rescued aig.

my concern was about what was going to happen to the american economy and the american people. and, again, you need to understand when we worked together fed and treasury, we had different authorities, different responsibilities and there was so much going on that we -- we had a lot to do and they had the authority and responsibility for dealing with the loan and -- >> the thing i have trouble with, though, is that the government gave goldman sachs, your former firm, a better deal than it had a right to respect. you heard the previous testimony here. i just -- it's mystifying how you, as treasury secretary, this could happen and you not really know anything about it and did you -- unless you recused yourself from any discussions about aig. or about goldman sachs. >> i didn't have to recuse myself because the fact was no one discussed it with me,

consulted it with me. i was involved in other matters. this was a federal reserve authority and they had the technical expertise and that was their job. >> thank you, mr. paulson. thank you. >> at this time, anyone who has not had the opportunity -- >> mr. chairman? >> i'm saying we have votes on the floor and, of course, we have four votes and that we, due to previous agreement with mr. paulson, that we're now going to allow him to go. >> mr. chairman? could we ask if mr. paulson could stay five more minutes to complete on our side? two people will split time?

>> two? well, let me put it this way. who all has not had an opportunity to? one, two, three. mr. paulson -- could you give us another seven minutes and let me split 3 1/2 and 3 1/2? >> does that work? >> yeah. okay. we can work it. >> mr. chairman, i would be willing to put mine in writing to secretary paulson if he'd be willing to respond within a certain given time rather than -- >> yes. mr. secretary, there's a request in terms of if we give the questions to you in writing you will respond? >> we will get back to you. >> thank you very much. okay. yes. >> mr. paulson -- >> let's see how we're going to break this down first. gentleman, yield. will the gentleman yield. you're going to give us additional seven, eight minutes? >> okay.

>> okay. good. all right. so we'll break it down. >> it will be eight minutes, right? >> eight minutes. >> out were one of the top officers for goldman sachs, right? >> yes. >> some of the people that work for goldman sachs went to work for mr. geithner? >> i believe i know one. >> when you left goldman sachs and went to the treasury you were there three years and you got $200 million in tax benefits because you didn't have to pay capital gains on $500 million worth of stock, right? >> i would strongly disagree with that. because -- >> well, that's what's been reported. >> let me explain. >> it's okay. you can respond -- i'll send a question to you in writing. >> okay. >> the concern i have is the same concern that mr. sterns has. you came before our conference very nervous saying, oh my gosh, the sky's falling. we have to come up with this money quickly. you were visibly nervous when you came before our caucus. then we have this bailout of aig

and you don't know anything about it. mr. geithner had nothing to do with it. it just really boggles the mind that some of the biggest people involved in this whole thing from beginning to end had nothing to do with it. they didn't know. makes you want to think that some clerk some place was making these decisions. i don't think anybody's going to buy that. you and mr. geithner and others were directly involved in making this decision. were you no? >> of course we were directly involved and i said it in my testimony. i heard mr. geithner's testim y testimony. i heard him say the same thing. we were -- i was very supportive of that decision to prevent the failure of aig. >> who's next on my side? mr. lynch. >> thank you, mr. chairman. >> two minutes. >> right. mr. secretary, you make this happen in two minutes. you were centrally involved with the negotiations regarding bear

stearns when you insisted on a very, very low price on the part of the bear stearns shareholders in order to protect the taxpayer. . was a major counterparty on a lot of these credit default swaps with aig when you were the ceo at goldman. and that relationship continued after you left. you would have known that these

people were -- that goldman was exposed here with these credit default swaps when the money went from the taxpayer to aig and through to your former company. and i guess the question that everybody has here is, why when you insisted on bear stearns taking a big haircut, why did you allow goldman to be reimbur reimbursed, your former company, at 100 cents on a dollar in that situation? why did you not weigh in on behalf of the taxpayer? >> as i've said on a number of occasions i did not know -- i had no knowledge of the size of the claim of any bank and i had no involvement in a 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 to goldman sachs. >> the gentleman's time has expired. >> it would have been disastrous to the american people. >> the gentleman's time has expired. yield two minutes to the gentleman from ohio. >> i want to clarify the chain of events surrounding the original request of t.a.r.p. dollars. you came to the congress, everyone on this committee and everyone in congress admit you came to us in september 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 weren't going to purchased troubled assets, you were going to inject capital into the banks? when did that happen? >> i came to congress on september 18th. >> congressman first voted it down october 3rd. when did you change your mind? >> it was our strategy when i came to congress to buy illiquid assets. >> when. two minutes. when did you change your mind? >> it was -- by the time -- >> before the vote on october

3rd or after the vote? when did you change your mind? >> i had begun considering putting -- putting a capital into the banks as one option as we got near the final vote, but i had not changed my mind yet on the strategy and i will say one other thing to you. right up even after we put capital in the banks, which we were forced to do -- >> what is it? did you change your mind before the vote or after the vote? because we have the -- >> i changed my mind after the vote because i did not change my -- can i just say this? i did not change my mind on purchasing ill liquid assets unt until mid to late october. >> you are saying you didn't change your mind until after the vote? i want to point to a book that came out "in the fed we crust." page 226, 227. house of representatives

rejected the bank rescue plan. mr. paulson ran into michelle davis in the treasury building. quote, i think we're going to have to put equity in the banks, he said. despite what paulson told congress, buying toxic assets was going to take too long. davis gave him a quick stare. quote, we haven't gotten this through congress. he took the advice. you said two different things. you said i started thinking about it but you said i didn't make the decision until after. you sold the congress on the simple fact you were going to buy the assets. your spokeswoman directly contradicts that. >> congressman, let me answer the question. give me a minute to answer the question. the -- 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

no -- long after -- even after he put capital in the banks -- >> did you express that time to the congress. >> gentleman's time has expired. >> even after we put capital in the banks it was still my intent to proceed with any illiquid asset purchase program until we got into late october. >> let me ask you one october -- >> gentleman's time has expired. i yield two minutes to the gentleman from maryland. mr. holland. >> thank you mr. chairman, thank you mr. paulson. i accept your testimony that failure to enact a 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 at the time a mechanism to make sure that the taxpayer would recoup any dollars that had been extended to the financial sector. the congress at that time

inserted a provision requiring the president, whoever that president may be, to submit a plan to recover those funds on behalf of the taxpayer. president obama has now done that in proposing a fee. my question to you is, do you agree that 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 reck nichl to recover the moneys that went to rauwall street and othe financial banks as part of the rescue? >> i do agree with that. the provision that was put in to the t.a.r.p. legislation envisioned, contemplated looking at a five-year window. at the end of that five-year time period, if the taxpayer hadn't recovered the money then there was going to be a tax. now, today as i 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 whether -- 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. my only question about the fee -- the tax that's being suggested is, is it too soon to make that judgment, number one? most importantly i don't want that to take our focus off of dealing with what is a real problem. >> would you agree there should be a mechanism in place to ensure that at the end of the day the taxpayer is -- recoups 100% of the t.a.r.p.? >> that was the intent of congress and the right thing to do. i agree. >> thank you. thank you, mr. paulson. >> thank you, mr. paulson. >> congresswoman, 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 chairman towns, may i thank [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> the stimulus program signed into law, nearly 330 billion has been committed and $172 billion has been paid out. we have been keeping track of the stimulus money for you go to www.c-span.org/stimulus with links. again, that is all at www.c-span.org/stimulus.

>> a look at the u.s. capitol here where in about two hours from now president obama will give his first official state of the state address. the "washington post" is reporting that the president will talk about the don't ask, don't tell policy regarding gays and lesbians in the military. the president's speech will focus on quote, bite-sized initiatives. and georgia republican congressman paul broun has announced he will tweet live which is technically against house rules. our coverage against upped way in 45 minutes, live at 8:00 eastern here on c-span. a look now at some of the latest video coming out of haiti and focus on water distribution and tent camps. >> this was created right after

the earthquake. this point is serving as a water distribution point and led by unicef and its partners. >> we are trying to support the government to organize the work here. they clorn ate the water and bring it here. there is a tank and what is a system of distribution where people can get the water.

>> we are providing clean water and it is important to insist on the sanitation issue because people are living in a very small place and sanitation is one of the biggest problems for them.

[speaking foreign language]

[speaking foreign language] >> this is the emergency phase. we have the reconstruction phase afterwards. and so this doneorso meeting and the meeting on monday, the donors' meeting which isn't scheduled yet, these are important windows where we must get the funding to make sure those tent cities don't become a

reality or part of the landscape in haiti. >> now an event with raymond joseph, haitian ambassador to the u.s. he talks about crafting a long-term strategy for development efforts in haiti, one of the poorest countries in the world even before the recent earthquake. this is about 45 minutes. >> the haitian catastrophe has produced an outpouring of sympathy and charity. we are joining knee expressing our condolences to raymond joseph and all of our haitian friends to the great tragedy they have endured. we recognize the contribution that many international organizations and i would have to say in particular, the u.s. military is making at this very

crucial hour. some of them are here in the audience and we thank them for the work they are doing. the television images show haitians at their most desperate. anyone who knows haiti would never consider their situation hopeless because hopelessness is not part of their reality precisely because that is not the way they see the world around them. in spite of the poverty in which most of them live, they are resilient and industrious people when given the opportunity to succeed. haitians from south brooklyn to south florida are hard working neighbors. the problem is in their homeland, their brothers and sisters aren't given half a chance to prosper. as i have said many times before, one cannot pay anyone less than you can pay a haitian

for an honest day's work but we have not seen foreign capital rushing into haiti because corruption and the predatory state have made it difficult to do business there in past decades. what a difference the rule of law makes. haitians domestic g.p.a. -- g.d.p. per capita is 1/6 of their dominican neighbors. the haitian state share the blame for keeping their countrymen trapped in a poor model in a self-destructive political system. the sad fact is that life in haiti was virtually unsustainable even before port-au-prince tumbled to the ground. the haitian catastrophe is more than a natural disaster.

it is a political one. and if they fail to respond to l effectively now it will compound haiti's misery and present problems for the united states will continue for decades to come. this afternoon, a panel of experts will discuss dealing with the immediate recovery and reflect on opportunities for haiti to rebuild and empower their lives and have a stake in their country's future. we are honored to have one of haiti's best to deliver our keynote remarks on behalf of his people, ambassador raymond joseph who was first and foremost a journalist has been fighting for his people since he was a teenager. he founded "rays of light" which is still published today. he became a well known voice against the dictatorship which

was broadcast to haiti from new york. the show was dubbed the 6:00 mass because it hit the air waves at 6:00 a.m. and was not to be missed. on a less worldly plain, ambassador joseph is a member of the american bible society. he was at the "wall street journal" in new york as a financial writer and also co-founded along with his brother the crusading publication, the first commercial haitian weekly which still remains the premiere organ of the haitian community abroad. at various times, the governments have called ambassador joseph into diplomatic service. in 1990, he was appointed the charges daffaire and he returned

to haiti where he remained until he was called back to washington where he currently remains as ambassador. raymond joseph is a graduate pastor. and he has a b.a. in anthropology and graduate from university of chicago. i consider a personal honor to welcome ambassador joseph here this afternoon. thank you. [applause] . >> i have to let you know when i came back to washington in 2004,

he is the person i was dealing with. so i feel at home again, especially since i see a few of my friends. thank you. guess what? i'm going to start with something that will make you think of what is happening in haiti. think of washington, d.c. you wake up and it's flattened. the white house is no more. the senate, the house of representatives, that's the office buildings, congress buildings, supreme court, the banks are flattened, police

headquarters, no more, fibe is not there, no restaurants, do you think that all of a sudden you will have seen president obama on the street the next day? well, that's what happened in port-au-prince. i'm saying this because soon after the 7 poib.0 magnitude earthquake -- 7.0 magnitude earthquake hit, there is no functioning government. if that happened here where you have better structure, where you have everything almost, very modern, do you think if all

these buildings went down, flattened like that, you would spring up? perhaps you would have somebody talk about it from new york. but it will not only be washington, d.c. it would be virginia. i don't know what happened to cia -- all these things. i'm asking you to be a little patient with haiti. but having said so, i think the ambassador said something in his introduction that is fitting. haitians are very resilient. and i seen see a silver lining in what happened on january 12.

in 2004, i wrote a column for the now defunct "new york sun" and i had one phrase, port-au-prince is a catastrophe waiting to happen. i made that comment because coming from the air, american airlines, i was looking at the city that i had left 13 years earlier and i saw all these match boxes over the hills and the mountain that is backdropped to port-au-prince was disfigured. and i wrote, unless something is done immediately, big chunks of

this city will be gone. at the time, i did not see an earthquake, haiti being in hurricane alley. i saw a major hurricane that would have wiped all of these down the sea and would have caused a major catastrophe. didn't happen that way. at that time, i said, we should decentralize port-au-prince. this republic of port-au-prince should be no more. but, you know, politicians couldn't do it.

one politician tried to demolish some of these shanties. and he fell. he was there for a few months. i said i see a silver lining. the silver lining is that what the city planners, what the politicians could not do, nature or if you will, god as somebody else said, did it in less than a minute. and the whole structure came down like a house of cards. and you know what the people are doing? they're moving out of port-au-prince into the hinterland and going all the way north.

here's port-au-prince right here and this is the place that was hit. they are going all the way up here, across from cuba, moving as far away from port-au-prince. i'm warning them, don't take the boats because that's what happened. however, now, with what nature has done in haiti, i say we should learn and we should start keeping the population out in the countryside where they belong and streamline port-au-prince if they start to build again and build because this earthquake is the second in 100 years and the third major earthquake in haiti in over 250 years because there was one in

1848 that wiped out the northern part of haiti. so we are in the fault line. and we have to build differently from the way we have been building in the past. so much for wammed that you ought to know what is happening now. since the earthquake hit and there were no officials around, i quickly went to my friends at the state department something i would have done if you were there the next day. i had to assume some responsibility for my people and ask american officials for certain things. the first, i asked for control of our airport. there was really chaos at the

port-au-prince airport. and right away the u.s. responded with their southern command that took over and put some order. we asked for help with communication because we could not communicate with anybody. anyone, the u.s. military came along and helped. we asked for first responders and for the u.s. comfort. it was not close to haiti. the u.s. sent four cutters to take its place and it will arrive by the 22 of january. it had arrived by the 25. and today, u.s. comfort is doing a great job as the floating hospital. the french have also sent a hospital. we have received support from

all over crossing lines of ideology like venezuela with whom some of us have some difficulty. they are sending 225,000 barrels of fuel of all kinds right away. and cuba that has doctors reinforced their doctor unit in haiti. israel, all the way, israel send first responders. iceland, argentina sends hospitals, field hospitals. i better not continue because i will -- i could not name them all. i think that's part of the silver lining i'm talking about.

people haven't been talking about haiti. when they talk about haiti, it's only in negative terms. the most -- the poorest country in the western hemisphere or the most violent. well, the past four years, we have dealt with the violence and off the front pages with the violence. so there is no violence to report about haiti. we don't talk about the good things that are happening. and now, the worst happened and everybody is speaking about haiti. everybody's focused on haiti. everybody should have been focused on haiti a long time ago because haiti is the second independent country? the western hemisphere, second

only to the united states. in 1784 there were two independent countries, united states first and haiti. haiti helped united states to be what it is. but were it not for haiti, you probably would be speaking french on the west side of the mississippi now. the 13 states that form the louisiana territory, we in haiti helped it happen by defeating the in a poleion troops there in haiti. but qua did the united states gain from us? venezuela, colombia, venezuela and ecuador.

left from haiti with men, weapons, boats, to liberate those places. and to show his gratitude toward haiti, the ven wail and flag is the haitian flag, the yellow flag on top. black slaves rising up against the white masters and beating them even though benefiting the united states from it, even though we benefit from south america. no, you shouldn't do that. 60 years haiti was under embargo. if you want to know how haiti got support, look at its beginnings. i'm go not going to and solve the leadership of haiti also. it has been predatory. i have been fighting against them since i can remember. but a new day is coming to haiti

and it began back in 2006 with the election of a president who won with about 51% of the votes and turned around to the 49% that were not with him, that were his opponents and from the 49%, he got some good minimums sters for his cabinet and formed a unity government. were not for that, the food riots of 2008 would have seen the government topple. were it not for that, the problems with the four hurricanes in three months would have also toppled the government. haiti has reached political stability.

were it not for the president's friends, he called a mutual friend in new york and said i want you to call your ambassador friends and tell them to stay. and i saw this period of unity that gave us independence because that's how we won independence when warring bands were fighting the french right and left and finally got together in 180 , six months later, got rid of the french. today, we with this spirit of unity coming back in our time of diss stress with the support of the international community, i have no doubt that haiti will make it. but which see to it they make it in the right way. we see to it that haiti is going to be rebuilt nor can we afford

this disorder of anybody taking two pieces of bricks here and piece of wood here and setting up a shack and saying that is a city. no more. so, i'm asking you, our friends, all of you who have come to our support now to please stay with us because we are going to be off the front pages very soon. however, haiti's rebirth will take some time and i'm counting on you and you to keep us going. we'll do our part. thank you. [applause]

first question. ambassador what's your advice for inbuilding haiti up in terms of the political institutions and democracy? there is a presidential election that is supposed to be held very soon. what is your advice specifically about the re-election of the national assembly and president and broader about the political system? >> the house of deputies, congress, in february. i don't know what decision has been made yet whether the elections will be going on for

all the congress and also for about 2/3 of the senate. i think that there is inclusion. and we have heard a lot of things that some parties were excluded, but really no party was excluded. and i wish and i think that's going to happen that this election coming up will start building on what we have before so we can strengthen our institutions. one institution that has been strengthened and people don't pay any attention to it and we did it consciously is the security. when i came to washington in

2004, there were only 2,500 policemen for whole country of 8.5 million people. you must admit that haitians are the most docile people in the world because new york city has the same population, 8.5 million. you know how many mr. chairman and police women? 45,000 plus the state police they can call on. haiti, 25 policemen. it used to be an army of 7,000 that was broken down. since then. the army is -- the police are at 10,000. we lost 300 during the earthquake. but we have done a pretty good job in creating a secure environment.

ther part that needs work and -- the other part that needs work is justice. justice is done in haiti, is too slow and it's not impartial enough. that we have to work on. financial institution, we talk about corruption in haiti and i won't look at the list where wer international list of the most corrupt country, but nobody has said anything about the work being done in weeding out the corrupt and having a unit out of the commerce department doing just that. nobody talks too much about what we have done in the past four years in streamlining the process of establishing business in haiti.

used to be over 280 days to establish a business. now we are down to two months because we have a one-stop shop. and that makes for less corruption. little by little, i think, we'll put it together. what gives me a little confidence is that you have leadership that is listening. >> thank you very much, ambassador. please identify yourself and organization. >> thank you, mr. ambassador. i work at the swedish embassy here in washington. i was going to ask about the time frame. i heard today state secretary clinton saying we are there for a long time and you talked about the silver lining. what would you say about 9 time frame for the international

community to stick with haiti? >> i could not give you a specific time frame. you know in the past, the united nations came to haiti and had 13 missions in haiti since 1991. this time, they came in 2004 and the united nations said we aren't going to repeat the same mistake we did before. we're going to stay. in the first two years, we had a lot of problems with respect countries say we have to leave. last time in the renewal of the u.n. mandate command, there was no dissent. and i think people in the international community have come toll realize that putting a time frame of five, 10 years is

a long way. it's almost like the people who are talking about iraq and afghanistan how many months before you leave. it didn't take five or 10 eyes to put haiti where it is. it began with mr. duval inch er he was elected in 1957 and became a dictator three years later and the country went down. i think it's going to take a little time for it to get where it is. i don't mean the international media has to be there all the time but at least to accompany us to put it together. so i cannot give awe time line.

>> good afternoon. i'm president of hope for tomorrow. sorry for what has happened in haiti. i just wanted to put a comment on the settlement of the haitians. we have come up with a strategy, temporary shelter agreement and children in haiti. what we are trying to do is see that women in haiti and the children are somewhere, not to be taken away. what are you doing when the children are being taken away and women and we want children and women to remain in haiti and we are looking at this to take

care of them instead of just being taken away. but tomorrow, they will be on the street, fighting people. what will we be helping? >> thank you very much. i know i have gotten some credit in some places especially from the governor of people -- pennsylvania to get children from haiti and some people think i'm helping in sending all haitian kids out. nope. didn't happen that way. what i did was to find out the children that were in the process of adoption already

whose papers had been readied, but they were waiting for passport and visas. and i told the government of pennsylvania i find out as often as you talk about. the orphanage had 54 kids. all 54 came to the american embassy. and those who had been already approved said they were not going to leave until all of them left. well, it didn't happen like that. only those who were processed, who had been processed already left because i said, haitian children are not cattle. we're not going to allow them to just leave like that. so, it's a myth out there they are coming in and grabbing haitian children and leaving  with them.

no, we're not doing that. and the organization that's working with children and families and women, i'm all for it. my wife has an organization that's doing exactly that and she organized it and has chosen a city, which has been flatened, too, and guess what? the hospice that she had chosen was one of the few buildings left standing. and if you need to find out more about what we're doing with children and women, i ask you to see me afterwards. i'll give you a card and put you in contact with the people who are working on that. we don't want the children to be just gone like that. >> my name is carl carter i'm with the university of human rights network.

one of the things that concerns us is the pictures of mass graves. and what assistance can be provided to haiti for coffins for those who died that can maybe we can load on container ships or other wise or even c-130's so they can start an internment process for those people who have died instead of just the pictures of the bodies themselves but of people where they could at least have a coffin for their loved ones. thank you. >> it pains me also to see pictures like that. and one of the requests i made to state department and to the white house also because they called to find out what we need was for body bags. and i can report that i don't

know how many, thousands and thousands of body bags have been delivered to haiti so that that picture of people thrown in the graves wouldn't be -- from there, caskets, little more expensive, but at least i made my plea for the people to be intered singly. i wish they hear me. >> attorney from california. ambassador, although we have not been in touch for over half a century, i have a vivid memory of your arrival from haiti as a college student, a strong, energetic athlete, a strong,

delind -- disciplined student, a commitment to the people of haiti. the united states and haiti and the business community are fortunate to have you in this position at this time. my two questions, one, i see that you have studied as a social anthropologist and worked many years for the "wall street journal." my questionsr one, how do we know that by contributing aid to haiti in a massive way we aren't contributing to a welfare culture, a culture of dependency. perpetrating what i understand from the media is a basket case, a fourth-class nation. i say this supportively. and second, what can our

government do beyond aid to facilitate american business investment in haiti snr >> thank you, sir. if you know the haitians, you know they are one people that doesn't believe in welfare. and look at the statistics, haitians who imgreat to the united states are hard workers and won't find too many on the welfare rolls. i won't say you won't find some, but not too many. haitians like to work. they want to work. and they are hard-working. what happened in haiti is that there is a job to be done. that's the reason why i came to

washington in 2004, i came with an idea, and make it a slogan. haiti is open for business. and with that slogan, i worked with the congress to get the whole act passed. the republican congress with chairman thomas in ways and means from california, gave us -- gave me hope, one, for three years, quite a few restrictions and he told me, you know, what, the dim cats might win this fall. the democrats win, i think they are going to withhold hope and come up with something else because they want to assure they are the ones who did something. i said really?

thank god for this cellular phone. i called my friend charlie rangel that i knew would be chairman of the ways and means. i said charlie, chairman thomas just gave me hope for three years. he said, but, he told me that if you win in november and he thinks you might win, you are going to withhold it. he said, no, we won't do that. we'll give you much more. take it. and when we come in, if we come in as he says, i'll give you something better. sure enough, the democratic congress gave me hope for 10 years with fewer restrictions. and what hope we do was begun to do that, opened factories in haiti. already 25,000 new jobs have

been created before the earthquake hit. we were looking at tweven 75,000 and 100,000 jobs created from hope. no, haitians don't want a handout. they want a hand up. that's all we want. and did you know that just the thursday before the earthquake hit, the "miami herald" had a story about the hotel boom in haiti. the day before the earthquake hit, the 11 of january, pbs, had a major piece 50 minutes long on haiti and the development that it presented. it's not for my beautiful eyes that royal caribbean, that crews

line built a $50 billion pier in the modern haiti and its largest cruiser, oasis of the seas went there for its maiden voyage the first week of december. yes, the investors with the help of president clinton, have been looking at haiti. and i think after the few more weeks, we'll have more investors that will come with jobs in haiti because that's what we need. we don't want to -- we aren't beggars in haiti, we're workers. >> i think there is time for one last question. >> i'm with the school for

ethics and global leadership in washington, d.c. my sincere condolences to you and your people. it seems to me given your answer to the previous question, we have a real opportunity to re-envision the way we redevelop in developing countries and can you give a few specifics about the best way to do that in haiti. thanks. >> the best way to do it is the way they're starting with haiti. all the stake holders sit together and work on a master plan. instead of everyone coming in and planting his little flag here, i'm doing this here, i'm doing this here, without any coordination, i think haiti is probably giving the world, giving the united states ar

chance. that's a silver lining. a chance of looking at development in a regulatory manner and also seeing that everybody comes in at the right place, not everybody goes to the same place doing the same thing. if we do it like that, in coordination, in the spirit of the slogan that gives haiti independence in unity, there is strength, we'll get somewhere, instead of the competition to better that one, i think that might be the best way. i still don't want to fight the spirit of entrepreneurship. when it comes to entrepreneurs, let them fight. but when it coments to development, let's not do a haphazard thing.

i think we need to have a coordinated plan. >> will, thank you very much, ambassador, for your time. on behalf of everyone heir, we extend our condolences and we commit to doing everything we can to help you and your country rebuild. thank you very much. [applause] [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> some programming information for you about haiti. tomorrow at 10:00 a.m. eastern, we will look at a hearing held by the senate foreign relations committee. and president bill clinton will be talking about his efforts to help the caribbean nation. we'll cover that and show it to you on the c-span networks.

[speaking foreign language]

[speaking foreign language] >> congressional budget office director has been making the rounds on capitol hill talking about the federal budget and giving an economic forecast. today, he testified before the house budget committee and tomorrow, he talks with the senate budget committee. we'll have this hearing for you live starting at 10:00 a.m. eastern on our companion network c-span 3. >> you're watching c-span, created by the nation's cable >> you're watching c-span, created by the nation's cable