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Cmte Financial Services (R)
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Bachus Exchange With Secretary Geithner on AIG
WASHINGTON, Mar 26 -
In response to a number of requests, this is the unofficial transcript of the exchange between Congressman Spencer Bachus and Treasury Secretary Tim Geithner regarding AIG making its counterparties whole during the Financial Services Committee hearing on March 24th. BACHUS: Thank you. Secretary Geithner, on September 14th, you and Secretary Paulson met with AIG to discuss Lehman's failure and their worsening condition. GEITHNER: We had a series of meetings in the days preceding the action by the Fed on the 16th... BACHUS: On the 16th, OK. GEITHNER: ... with AIG and a range of other financial institutions. As the chairman said, you know, the -- the world was going through a -- a... BACHUS: Oh, yeah, I -- I understand that, but you met with them and as a result of that -- those meetings, September 16th there was a government intervention supervised and -- and coordinated and led by the New York Fed, and you were president of the New York Fed. GEITHNER: I was president of the New York Fed. BACHUS: At September 16th, the government became the 79.9 percent owner of AIG, is that -- that's correct. GEITHNER: That is correct. BACHUS: All right. Then there was a $85 billion government guarantee that went to AIG -- or funds, is that correct? GEITHNER: That's correct. BACHUS: Then on October the 8th, a good amount of that money was paid to the counterparties. is that correct? GEITHNER: Well, again, the purpose of the intervention was to prevent default by AIG because the -- our judgment was the consequences of default would have been catastrophic to the American economy, and so... BACHUS: Sure. I -- I understand that. GEITHNER: So AIG was able to, as a result of the intervention -- to meet a full range of its obligations as a large complex financial institution. BACHUS: Sure, I understand that. But what I -- what I am saying is that -- took over on September 16th, then on October the 8th began to pay the counterparties off. GEITHNER: Well, again, throughout that period of time -- and this was critically important to the stability of the financial system -- we wanted to make sure AIG was able to meet its commitments. BACHUS: I understand that, to -- and you -- to pensioners, to -- to retirees, to... GEITHNER: Municipalities. BACHUS: ... Municipalities. GEITHNER: To banks. BACHUS: But what I'm saying is within about two weeks these payments are -- or three weeks, payments were made to the counterparties. I -- I'm not... GEITHNER: Well, I think probably within hours, technically. BACHUS: Within hours, OK. GEITHNER: Within minutes, probably. BACHUS: All right. Within hours. Now, you know, there's been now a total of somewhere over $50 billion worth of these payments to counterparties. I'm -- I'm very interested in that. I mean -- and we -- these payments to counterparties -- these were parties that took a risk in entering into agreements with AIG, were they not? GEITHNER: Absolutely. BACHUS: OK. And these were credit default swaps, securities lending, things of that nature, which you can lose money on. GEITHNER: Well, any insurance contract written by AIG posed risks to the person who bought that insurance contract. BACHUS: Sure. And a credit default swap is sort of a -- I guess you could call it a form of insurance. But what... GEITHNER: (inaudible) BACHUS: ... I'm saying is it was an agreement between two parties. GEITHNER: (inaudible) BACHUS: And AIG defaulted or as on the. GEITHNER: AIG was. BACHUS: ... verge of defaulting.