for aig or bear stearns. gao and in special inspector general have the right to audit our t.a.l.f. program which uses funds from the troubled asset relief program. the congress however purposefully and for good reason to exclude from the scope of giglio reviews erie is notably monetary policy durations and operations including open market and discount window operations. in doing so the congress carefully balanced the need for public accountability with strong public policy benefits that flow for maintaining appropriate degree of independence for the central bank in the making and execution of monetary policy financial markets and in particular likely proceed guarantee authority in these reviews to the gao as a serious weakening of monetary policy independence. because the gao reviews may be initiated members of conagra's review or the threat of reviews in these areas can be seen to try to influence monetary policy decisions. a perceived loss of monetary policy independence could raise your about future inflat

section 13.3 of the federal reserve act including the loan facilities provided to or created for aig or bear stearns. the gao and inspector general have the right to audit our talf program which uses funds from the troubled assets relief program. the congress however purposef purposefully and for good reason excluded from the scope of potential gao review highly sensitive areas including policy deliberations and open market operations. in doing so the congress carefully balanced the need for public accountability with a strong public policy benefits that flow from maintaining an appropriate degree of independence from the central bank in the making and execution of monetary policy. financial markets in particular likely would see a grant of review authority in these areas to the gao as a serious weakening of monetary policy independence. because gao reviews may be nishtsed at the request of members of congress, reviews or the threat of reviews their these areas could be seen as efforts to try and influence monetary policy decision it's. a perceived loss of monetary policy independence could raise fe

for aig or bear stearns. the gao and in special inspector general have the right to audit our t.a.l.f. program which uses funds from the troubled asset relief program. the congress however purposefully and for good reason to exclude from the scope of giglio reviews erie is notably monetary policy durations and operations including open market and discount window operations. in doing so the congress carefully balanced the need for public accountability with strong public policy benefits that flow for maintaining appropriate degree of independence for the central bank in the making and execution of monetary policy financial markets and in particular likely proceed guarantee authority in these reviews to the gao as a serious weakening of monetary policy independence. because the gao reviews may be initiated members of conagra's review or the threat of reviews in these areas can be seen to try to influence monetary policy decisions. a perceived loss of monetary policy independence could raise your about future in

size of some of the financial titans that toppled last year like lehman brothers or bear stearns or washington mute owl or aigy comparison the fallout from the failure of cit appears to be minor, but that may not be the case. here is why cit matters. i'm going to show you on this screen. here's what happens in at perfect world. retailers sell things and get them from suppliers. some of these suppliers are relatively small businesses. let's say this is a shirt manufacturer, shirt supplier. they send a shirt over to the retailer and the retailer immediately pays them, allowing them enough money to manufacture shirt number two, for which the retailer pays the supplier and that allows them the money to buy the materials and have the employees to manufacture shirt number three. in a perfect world, that would be how it works but the world doesn't work that way. let me show you where cit comes in. first thing i'll do is return all this money to where it belongs. here's what really happens. cit is in the middle. the supplier sends the shirt to the retailer. that shirt sits on the shelf until it gets sold and that ret

including loan facilities provided to or created for aig and bear stearns. they have the right to audit our health program, which uses funds from the troubled assets programs. in doing so the congress carefully balanced the need for public account nlt with a strong public policy benefit that flow from maintaining an appropriate degree of indpengs to the banks in maintaining monetary policy. financial markets in particular would see a review in these areas to the gao as a serious weakening of monetary policy independence. because gao reviews may be initiated at the request of congress, reviews or the threat of reviews in this area to be seen as efforts to try to implement monetary policy decisions. a perceived loss could raise fears of future inflation. leaving to hire long term interest rates and reduced economic and financial stability. we will continue to work with the congress to provide the information it needs to oversee our activities effectively. yet in a way that does not compromise monetary policy independence. thank you, mr. chairman. >> thank you,

>> how was the determination made with institutions like bear stearns, aig and merrill lynch should be saved either through direct assistance orquisition while lehman brothers would be allowed to fail. i'm not quite clear and i know you addressed it. >> i did i and will say to you we will not have the legal powers we believe to do something in the lehman brothers case. we did not have the t.a.r.p. to put capital in and we did not have a buyer as we did in the case of bear stearns. so we were faced with sort of an unfortunate set of circumstances. >> i will conclude, i see the red light. i want to say if we have missed the oversight responsibilities, i need to know what you consider in writing and we will put that in our letter to you. what you consider government could do more of. i do know that we did not -- this committee under the former administration did not do the kind of oversight. maybe we were asleep at the wheel or looked the other way, but i would like to hear from you what government could do so we don't get in this situation again. i think really it's worse than the depression of the 30s. thank you, mr. chairman.

bear stearns collapse or be absorbed. that can't be bad for goldman's business. then we gave aig $13 billion so they could pay back 100 cents on the dollar, the $13 billion they owed goldman sachs. then we let goldman sachs become a holding bank and gave them loan guarantees to keep their cost of capital down. it's what's known in business as the invisible government-funded scaffolding of the free market. and it worked! just enough for goldman sachs to pay its employees a total of $11.36 billion this year. so, fret not, america, your work has not gone in vain. we can all rest assured -- wait, what's happening? is there -- no, the supports are giving out! quick! everybody, throw your bodies under goldman sachs to cushion its fall! children first, they're the softest! hmm. hmm trickle-never theory of the economy. >> all right. so, it's friday night, we're going a little lighter and, of course, that would explain everything to you. >>> now, to main street. while the banks are raking in the cash, millions of people around the country tonight out of a job. 16 states now have unemploym

> how was the determination made that institutions such as bear stearns and aig, and merrill lynch, should be saved through direct assistance orcquisitions, and lehman brothers would be allowed to fail. i am not clear on this. >> we did not have the leader -- the legal power to do something for lehman brothers. we could not put capital in, and there was no one to bind us, we were faced with the unfortunate circumstances. >> i will conclude, i just want to say -- if we have missed the responsibilities of oversight -- i need to know when you consider in writing and we will put this in a letter to you. when you consider that the government could do more of. this committee -- under the former administration did not do the oversight or maybe we were looking the other way. i would like to hear what government could do so we are not in this situation again. i think this is worse than the depression of the 1930's. >> i yield to the gentleman from new jersey. >> thank you. let me make a comment on your comment about aig, with the gap in regard to coverage and authority and regulation -- we have had a number of panels looking at this, a

federal reserve's role in bailing out certain entities like aig and bear stearns and questions about how decisions get made about who is saved or who is allowed to fail. so maybe you could help me with what kind of transparency and accountability, the maximum that we can give our taxpayers that would still leave the federal reserve with the appropriate amount of insulation from political pressure, and the appropriate independence that you need to carry out your essential mission. >> on the issue you mentioned, congress has already acknowledged. congress passed and the president signed a law which allows the gao to audit all loans made to specific companies in rescue operations, including aig and bear stearns. that has been done, and we are quite open to discussing any kind of extraordinary lending that we do in terms of making sure the congress is comfortable that we are taking all of the steps necessary to protect the taxpayer and to do the appropriate thing with -- you know, with those loans. so that one area -- and to go back to our previous conversation, the one area where i particularly sensitive is about the congress seco

or loan money to an individual institution? >> that wasn't in the process of failing. that would be the resolution of that institution like bear stearns, aigould be the province of the treasury department. >> okay. but the fed over the past year has guaranteed some of the obligations and made loans, has it not? >> we have guaranteed -- we have been in a second and third guaranteed position for some obligations of citigroup. is that what -- >> and aig also. >> and aig. >> and what is the total obligation to aig? >> well, i think we have about $45 billion of loans outstanding to aig plus some -- some special purpose vehicles that have assets that they've taken over from aig probably total 40 or $45 billion. >> do you anticipate or would you be opposed to a provision in any law that we pass or to prohibit the fed or the treasury from loaning billions of dollars of taxpayer money to these institutions or to guaranteeing their obligations? >> i think somebody in the government, not the federal reserve, needs to have the authority to resolve systemically important institutions in an orderly way so they don't threaten the jobs of americans. >> yo

aig and bear stearns, it also has authority over our talf program. we would be happy to work with congress to any remaining aspects of our operations that involve the use of taxpayer funds or financial management. we are more than happy to work with the gao to allow their audit and oversight. the concern that i have with the bill that has been proposed is that it's not@@@@@@',aÁ')@ @ 'a) given by mr. henserling early and also by others. i share those concerns. i'm very concerned that the president's proposal is silenced on any true meaningful gfc reform. because nowhere in the president's paper could i surmise that he proposed any ideas to fix the fatal flaws that i think many of us would agree are inherent. the too big to fail philosophy, these are flaws that significantly contributed in many of our estimations to the financial crisis that our country experienced. my question would be how can they be and how can the only plan be to engage in a wide ranging initiative to develop recommendations on the future of fannie mae and freddie mac and the federal home loan bank system which will be punt ed until the president's release of his 2011 budget? it seems to me that real re