The Geithner – AIG Hearings

I spent all morning watching Treasury Secretary Tim Geithner’s testimony before the House Committee on Oversight and Government Reform.  Fortunately, I can summarize it for you briefly:  a string of representatives repeatedly questioned Geithner on why AIG’s counterparties were paid off at par – 100c on the dollar – and Geithner repeatedly answered (not a direct quote now, ) “As I said previously, that was the best option available at the time for the American Taxpayers.”   Geithner insisted that there was no intermediate option, like 90c on the dollar, because such a restructuring of the contracts would have constituted a default, which would have resulted in all financial hell breaking loose in the United States (as a result of AIG ratings downgrades which would trigger all sorts of increased collateral requirements, and thus MORE taxpayer funds)..   Later, Hank Paulson repeated this claim.
In addition, Geithner testified that he had recused himself from decisions related to the disclosure of the payouts, and that it was not his decision to keep the payouts under wraps.  A string of Congressmen then told Geithner that they didn’t believe him.
A few Congressmen noted that perhaps there could have been other ways to isolate AIG Financial Products, since it was separate from AIG’s life and health insurance businesses, so that AIGFP could declare bankruptcy.  Both Geithner and later Hank Paulson testified that AIGFP was too big and entwined with the rest of AIG, and could not be isolated.  Geithner also offered the response “if there was a better option, we would have taken it,”  on this, and a few other issues as well.
When Geithner was asked late in the hearing if he had any regrets or would have done anything differently, he again repeated that he’d spent many many hours looking back on the decisions, and couldn’t think of how things could have been done better from the perspective of minimizing risk and damage to the Taxpayer.
Overall, the hearing produced little in terms of new insights or information regarding the AIG counterparty payouts.  It did, however, highlight the absurdity of the whole hearing process – it was disheartening to watch the Congressmen ask their questions, some of which were grandstanding, as to be expected, but then leave the room after they’d asked their questions!  If this is so important, shouldn’t they take the time to listen to the answers the “witness” gives to all the other questions?  In addition, several Congressmen were skipped over due to a lack of time.
I’m not a bankruptcy lawyer.  I don’t know what the effects would have been had the NY Fed asked the counterparties to take 85c, 90c or 95c on the dollar for their contracts with AIG – but the line from those questioned (Geithner, Paulson, and I believe Bernanke previously) has consistently been that this haircut simply wouldn’t have been possible and would have made things much worse.  It seemed clear that the Congressmen asking questions today were less than convinced that this was completely true.

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