[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
 THE COLLAPSE AND FEDERAL RESCUE OF AIG AND WHAT IT MEANS FOR THE U.S. 
                                ECONOMY

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 2, 2009

                               __________

                           Serial No. 111-10

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              TODD RUSSELL PLATTS, Pennsylvania
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee                LYNN A. WESTMORELAND, Georgia
GERRY E. CONNOLLY, Virginia          PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of   BRIAN P. BILBRAY, California
    Columbia                         JIM JORDAN, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FLAKE, Arizona
DANNY K. DAVIS, Illinois             JEFF FORTENBERRY, Nebraska
CHRIS VAN HOLLEN, Maryland           JASON CHAFFETZ, Utah
HENRY CUELLAR, Texas                 AARON SCHOCK, Illinois
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
------ ------
------ ------
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 2, 2009....................................     1
Statement of:
    Greenberg, Maurice R., chairman and chief executive officer, 
      C.V. Starr & Co., former chief executive officer, American 
      International Group [AIG]..................................    12
Letters, statements, etc., submitted for the record by:
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............    47
    Greenberg, Maurice R., chairman and chief executive officer, 
      C.V. Starr & Co., former chief executive officer, American 
      International Group [AIG], prepared statement of...........    15
    Issa, Hon. Darrell E., a Representative in Congress from the 
      State of California:
        Litigation Release No. 19560.............................    38
        Prepared statement of....................................    10
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York:
        Binder with related hearing documents....................    69
        Prepared statement of....................................     4


 THE COLLAPSE AND FEDERAL RESCUE OF AIG AND WHAT IT MEANS FOR THE U.S. 
                                ECONOMY

                              ----------                              


                        THURSDAY, APRIL 2, 2009

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Edolphus Towns 
(chairman of the committee) presiding.
    Present: Representatives Kanjorski, Maloney, Cummings, 
Kucinich, Tierney, Clay, Watson, Lynch, Connolly, Norton, 
Kennedy, Davis, Cuellar, Welch, Foster, Speier, Driehaus, Issa, 
Platts, Bilbray, Jordan, Chaffetz, and Schock.
    Staff present: John Arlington, chief investigative counsel; 
Lisa Cody, Kwane Drabo, and Katherine Graham, investigators; 
Brian Eiler, investigative counsel; Jean Gosa, clerk; Adam 
Hodge, deputy press secretary; Carla Hultberg, chief clerk; 
Mike McCarthy, deputy staff director; Leah Perry and Steven 
Rangel, senior counsels; Jason Powell, counsel and special 
policy advisor; Joanne Royce, senior investigative counsel; Ron 
Stroman, staff director; Lawrence Brady, minority staff 
director; John Cuaderes, minority deputy staff director; 
Jennifer Safavian, minority chief counsel for oversight and 
investigations; Frederick Hill, minority director of 
communications; Dan Blankenburg, minority director of outreach 
and senior advisor; Adam Fromm, minority chief clerk and Member 
liaison; Kurt Bardella, minority press secretary; Seamus Kraft, 
minority deputy press secretary; Howard Denis and Christopher 
Hixon, minority senior counsels; Ashley Callen, minority 
counsel; and Brien Beattie, minority professional staff member.
    Chairman Towns. The committee will come to order. Thank you 
all for being here today. Let me just say to the committee 
members, the format will be that we will have an opening 
statement from the Chair and an opening statement from the 
ranking member, and then we will go and do the 5-minute 
questioning. And, of course, if there is need for more than one 
round, two rounds, three rounds, four rounds or whatever, then 
we'll be able to do that. I just wanted to make that known to 
all the committee members here.
    We all sense that the current recession is different from 
any we have known in our lifetime. Too many senior citizens who 
have worked hard their whole lives now must confront the sad 
reality that their entire life savings has been wiped out. I 
can see it in the eyes of my neighbors in Brooklyn, worried 
about whether they will have a job next month or not. And yet 
we have relatively little understanding about what really 
caused this crisis.
    What we do know is that our financial regulatory system has 
failed the American people. Dangerous and unacceptable levels 
of risk were allowed to buildup in our financial system, 
leading to the catastrophic failure of our Nation's economy. 
But exactly why this happened and who was responsible remains 
unclear.
    It is also unclear what is really happening to the billions 
of dollars of taxpayers money that is being used to prop up 
these businesses. We see midnight negotiations taking place 
behind closed doors with few details released about how 
decisions were made and why. When questions are asked, the 
answer coming back is mostly, just trust us, trust us, just 
wait, trust us.
    The American people deserve clear answers to how and why 
this failure occurred, who was responsible and who benefited, 
why the existing regulatory system failed, and what steps need 
to be taken going forward in this regard.
    I believe that a comprehensive review of the rise and fall 
of AIG and the involvement of counterparties like Goldman Sachs 
can provide a useful vehicle to understanding how inadequate 
regulations, cheap money, risky business deals and, in some 
instances, corruption led to the current economic crisis. 
Today's hearing is the first in a series of hearings this 
committee will conduct as part of our investigation of AIG. We 
plan to hold additional hearings on AIG in April and May. It is 
too soon to announce the witnesses, and we'll do that at a 
later date, but this will be a comprehensive review of the AIG 
problem.
    We have decided to focus on AIG because it is the largest 
single recipient of Federal bailout money, $180 billion so far. 
In addition, AIG was at the center of the whirlwind as the 
financial services sector began to crumble. AIG was the largest 
insurance company in the United States and one of the largest 
companies in the world. It had operations in virtually every 
corner of our financial world, and, therefore, we believe it 
will serve as an excellent illustration of what went wrong and 
what we need to change and to correct.
    Our particular interests are the complex operations of 
AIG's Financial Products, the overly imaginative and ambitious 
division of AIG that sold billions of dollars of credit default 
swaps on over-the-counter derivatives market, all of which are 
largely exempt from Federal regulation. Hopefully, Mr. 
Greenberg will be able to shed some light on whether this was a 
well-managed division of AIG, or whether it was a poorly 
managed renegade operation.
    Today we will hear testimony from the one man who knows 
more about AIG than anyone in the world, Maurice R. Greenberg, 
who served as chief executive officer of AIG for over 35 years. 
Later in April we will hold another hearing, and Edward M. 
Liddy, the current CEO of AIG, will have an opportunity to 
testify about current activities at AIG. I understand that Mr. 
Greenberg and Mr. Liddy may have differing views about AIG and 
the Federal bailout of the company. I think that's what we 
might hear today.
    We also know that there are lawsuits and other probes 
associated with the activities of AIG. While the committee 
intends to conduct oversight of these and other sensitive 
matters regarding AIG, it is not the purpose of this hearing to 
intervene in any ongoing litigation. The purpose of this 
hearing is to probe Mr. Greenberg about AIG and its operations 
and obtain a new perspective on what went wrong, how to fix it, 
and what should be done to prevent similar disasters in the 
future.
    A word of caution. There has been a lot of talk about how 
to reform regulation of the financial services industry. I 
would urge my colleagues on this committee and elsewhere not to 
move too quickly to reform the financial sector without first 
fully understanding what caused this financial meltdown.
    That being said, I look forward to a thorough examination 
of AIG, and I want to thank our witness today, Mr. Greenberg, 
for appearing here. Thank you very much.

    [The prepared statement of Hon. Edolphus Towns follows:]

    [GRAPHIC] [TIFF OMITTED] 51322.001
    
    [GRAPHIC] [TIFF OMITTED] 51322.002
    
    [GRAPHIC] [TIFF OMITTED] 51322.003
    
    [GRAPHIC] [TIFF OMITTED] 51322.004
    
    Chairman Towns. At this time I yield to the ranking member, 
Mr. Issa of California.
    Mr. Issa. Thank you, Mr. Chairman. And I appreciate the 
time that we're being given to look at the financial crisis 
from the very beginning.
    As I have said in a letter to you and will continue to say, 
I'm troubled that today we only have one witness, and this 
witness brings a cloud of some suspicion based on allegations 
that have been made against him. Notwithstanding that, the 
assurances that we will complete the entire picture of AIG from 
start today to finish I think is critical, and we are the only 
committee that has shown an interest in delving that deeply 
into this crisis from before it began until today and, as the 
chairman said in his opening remarks, intend to go beyond to 
make sure it doesn't happen again.
    The witness before us today is a recurring figure in both 
criminal and civil investigations by the Department of Justice 
and the Securities and Exchange Commission. The U.S. attorney 
has identified Mr. Greenberg as a coconspirator in a criminal 
securities fraud case that has already resulted in five 
convictions. News reports, whether fair or unfair, indicate the 
SEC action against Mr. Greenberg on these security fraud 
charges could come any day, and there are good reasons to 
believe that he could face even more significant legal 
challenges.
    Mr. Greenberg, I say that because I believe we have to set 
the record straight. I don't do so in order to assume that 
those charges are true. That's for others to decide.
    Moving forward, I'm confident that this committee will have 
Edward Liddy and a number of other key people involved both in 
the operation of AIG before--during the intervening period from 
the time you left until today.
    I also believe the committee, many times not in hearings 
but in other ways, is going to have to evaluate in depth a 
number of actions by this administration and its predecessor.
    As CEO of AIG, it is clear that for the first 35 years you 
built a company that the world admired; you built a market 
capital second to none, the largest in your industry and one of 
the largest in the world. It is also clear that the crumbling 
of AIG began on your watch, that there were systemic problems 
that had occurred. Today I'm sure that we will hear, and 
perhaps rightfully so, that those problems, if managed 
correctly, would not have led to the same outcome as we are 
facing here today and around the world.
    As many here know, Mr. Cummings and I both wrote the 
chairman first in December and then more recently asking for 
additional investigations. I have received assurances from the 
chairman that we will have those. And I look forward to working 
in a bipartisan fashion to ensure that this investigation is 
the most thorough in Congress.
    It is very clear that we will also hear today that TARP 
funds have been used in a less efficient fashion than they 
should have been under both the previous administration and the 
current administration, meaning that rather than using 
assurances or other instruments that cost little or nothing, 
we've delivered cold, hard cash in many cases outside the 
United States. It has been widely reported the millions of 
dollars paid in bonuses to AIG executives who were retained as 
part of a contract, and Congress has attempted to call back 
those dollars through a number of mechanisms.
    Mr. Chairman, I look forward to asking this witness what he 
would have done had he been faced with the meltdown, and 
recognizing that the 100,000-plus employees that built this 
company leave every day, and if they do not return, in fact, 
all the capital of the company has left and not returned.
    So, Mr. Chairman, I recognize that this is just the 
beginning of what is going to be a thorough investigation into 
how and why $180 billion of taxpayers' money so far has been 
committed to AIG and thus far has not created a stable company. 
Additionally, Mr. Chairman, I look forward to our staffs 
working on a bipartisan basis, most often behind the scenes, 
most often not through public hearings, in order to get to the 
entire truth. I think both you, Mr. Chairman, and myself agree 
the reason we have so many investigators is that a lot of what 
we do is not legislation, but, in fact, investigation. And I 
look forward to the testimony today and the work beyond and 
yield back the balance of my time.

    [The prepared statement of Hon. Darrell E. Issa follows:]

    [GRAPHIC] [TIFF OMITTED] 51322.005
    
    [GRAPHIC] [TIFF OMITTED] 51322.006
    
    Chairman Towns. I would like to thank the gentleman from 
California, and I look forward to working with you.
    It's a longstanding tradition, Mr. Greenberg, that we swear 
in all of our witnesses. Please stand and raise your right 
hand. If your counsel is going to answer any questions, he 
should also be sworn in.
    [Witnesses sworn.]
    Chairman Towns. Let the record reflect that both answered 
in the affirmative.
    Mr. Maurice R. Greenberg, former chief executive officer of 
AIG, has been an outspoken critic of AIG's bailout. Having 
presided over the company for nearly four decades, Mr. 
Greenberg is uniquely qualified to help explain what went wrong 
at AIG and how best to fix it. Given the complexity of the 
issue, we invited Mr. Greenberg to extend his oral remarks 
beyond the usual 5-minute summary. We will give you extra time. 
Following his testimony we will entertain questions from all of 
the Members.
    At this time, Mr. Greenberg, you may begin.

STATEMENT OF MAURICE R. GREENBERG, CHAIRMAN AND CHIEF EXECUTIVE 
  OFFICER, C.V. STARR & CO., FORMER CHIEF EXECUTIVE OFFICER, 
               AMERICAN INTERNATIONAL GROUP [AIG]

    Mr. Greenberg. Thank you.
    Chairman Towns, Ranking Member Issa, and members of the 
committee, good morning. I'm the chairman and chief executive 
officer of C.V. Starr & Co., and the former chairman and chief 
executive of AIG. Thank you for extending me an invitation to 
appear before you today. I regret that the last time you 
invited me to testify I was dealing with a bout of pneumonia, 
so I appreciate this opportunity to present my thoughts and 
answer any questions you may have.
    I want to address at the outset two questions. First, some 
say that I have been gone from the company for 4 years, so what 
can I know? Second, I hear that AIG has been telling everyone 
who will listen that we are engaged in a lot of litigation. The 
fact is I am still AIG's largest individual shareholder, I care 
about the company I built, and I care very much about AIG's 
employees and investors who have been badly hurt. As AIG's 
largest shareholder, I have kept up to date on what the company 
is doing.
    The litigation that has been pending for 4 years will be 
resolved in the courts. It involves matters that date back many 
years, and in some cases many decades, and which, in any event, 
have nothing to do with the enormous problems that AIG has 
encountered in recent years under my successors.
    The question that was raised by Mr. Issa about the so-
called indictment was a threat by Eliot Spitzer when he was 
attorney general, and he subsequently dropped that charge over 
a Thanksgiving weekend.
    AIG's history demonstrates that its business can be highly 
successful if properly managed and managed properly. AIG is the 
only way to ensure that the American taxpayer will be repaid. 
AIG is deeply diversified, has a deeply diversified earnings 
base. That was no accident. It was a conscious part of our 
approach to risk management when I and like-minded people 
managed AIG. We diversified in the insurance industry, both 
domestic and internationally, and within the insurance 
business, life and nonlife. We were very creative in innovating 
new products, and then began finance operations to further 
diversify AIG's earnings base. That led to the creation of 
AIGFP in 1987. We were then a triple-A-rated company.
    From 1987 to 2004, my last full year at AIG, AIG 
contributed over $5 billion in AIG's pretax income, was subject 
to numerous risk controls by AIG senior management----
    Chairman Towns. Could you pull the mic just a little bit 
closer? We're having trouble hearing you.
    Mr. Greenberg. Sure.
    Is that better.
    Chairman Towns. Thank you.
    Mr. Greenberg. Let me just repeat, from 1987 to 2004, my 
last full year at AIG, AIG Financial Products contributed over 
$5 billion in AIG's pretax income, was subject to numerous risk 
controls by AIG senior management, and conducted its business 
largely on a hedged basis.
    Massive losses at AIGFP in 2007 and 2008 resulted 
significantly from a shift in the way the unit did business 
after I left the company in the spring of 2004. Here is what 
happened. AIG continued to write credit default protection 
after the loss of its triple A rating. Not only did AIG 
continue doing so, but it massively increased the risk that it 
took on, reportedly writing more business in the 9 months after 
I left than the previous 7 years. AIG changed the nature of the 
business from one focused initially on providing regulatory 
capital for foreign banks to one focused increasingly on 
subprime loans. AIG decided not to hedge its risk even after 
indexes that would have permitted such hedging were available, 
and even after AIG concluded internally that the business was 
too risky to continue to write new contracts. And after I left, 
the management controls that I had in place to limit risk were 
reportedly weakened or eliminated.
    What are the problems with the AIG bailout? I share your 
concern and the concern of the American people about the terms 
of the AIG bailout and its tremendous burden on taxpayers. All 
plans so far advanced by the U.S. Government to date have 
failed, and the current plan, in my opinion, will not succeed. 
Major mistakes have been made. The Government imposed 
unrealistic financing terms on AIG in September 2008, including 
approximately 14 percent interest in year one, charging 
interest whether AIG actually drew down funds or not. That was 
not only different from those that were imposed on any other 
company, but which fundamentally undermined AIG's continued 
viability.
    The Government also obtained 79.9 percent of the equity in 
the company. They immediately announced that AIG would be 
liquidated, which inevitably caused the employees, brokers, 
customers and other business partners to flee, further 
undermining the company's continued viability. They began to 
liquidate the company at fire sale prices in a market which 
obviously credit was difficult to obtain and was difficult to 
sell anything. They used AIG to funnel money to other 
institutions, including foreign banks.
    AIG was required to put up collateral after losing the 
triple A rating. They advanced billions of dollars of taxpayer 
money to AIG instead of pursuing the opportunity to raise 
private capital in conjunction with providing government 
guarantees that would have eliminated the necessity of putting 
up additional cash collateral. There's a better approach.
    What should the Government's policy be with regard to AIG? 
The primary objective should be to create conditions that allow 
AIG to repay the taxpayer, of course, and rebuilding AIG is the 
best way of doing that.
    Specifically what should be done to achieve this goal of 
AIG to pay back the taxpayer? One, wall off AIG Financial 
Products from the rest of the company and replace as many loans 
as possible with guarantees. Extend what remains of existing 
loans for 20 years at possible interest rates of 5 percent. 
That seems to be the TARP interest rate. Reduce the 
Government's ownership to 15 percent common equity to allow 
private capital to be raised over time. At a later date, if 
necessary, and proper conditions exist, noncore assets could be 
sold. The current approach of announcing the sale of insurance 
subsidiaries simply results in people seeking employment 
elsewhere and taking business with them.
    A new senior management team of internationalists with 
skilled insurance capabilities should be recruited, insurance 
experience in the lines of business that AIG is engaged in. 
They must be quick learners to understand AIG's business and 
culture. You don't buy loyalty, but rather create it through 
strong but fair leadership. You must have the respect of your 
employees and the market. This should not be an on-the-job 
training experience.
    AIG's business model did not fail, its management did. 
AIG's business model has a long track record of success over 
many decades. AIG can recover from its immediate crisis, 
continue to be an employer of tens of thousands of hard-working 
Americans, and repay the assistance it has received from the 
American taxpayer, but only if both the Government and AIG's 
management change their approach in dealing with its future. It 
seems to me that the role of government should be to get a 
company that's in need of help back on its feet as soon as 
possible so it can become a taxpayer again and an employer.
    Thank you, and I look forward to your questions.
    Chairman Towns. Thank you very much, Mr. Greenberg, for 
your statement.

    [The prepared statement of Mr. Greenberg follows:]

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    [GRAPHIC] [TIFF OMITTED] 51322.015
    
    Chairman Towns. Let me begin by asking who is responsible 
for the fall of AIG, and what did they specifically do or not 
do that caused the failure? Who is responsible?
    Mr. Greenberg. Well, clearly the successor management has 
to be charged with that.
    Let me go back and explain the creation of AIG Financial 
Products for a moment so I can put that in a better focus. As I 
indicated, Senator Ribicoff, when he was alive, obviously, 
called and said I ought to meet a young man, which we did. And 
the name was Sosen. And he began AIG Financial Products. He was 
very bright and brought a very good team of Ph.D. type of 
people with him, and did principally interest rate swaps. It 
was not a very complex business, but the triple A rating of AIG 
made it a very efficient business. As I said earlier, it 
produced, from 1987 until I left, about $5 billion in profits.
    We had a disagreement with Sosen about a year and a half 
into the relationship, and we terminated, and he left and went 
elsewhere. And a man by the name of Tom Savage, a very bright 
Ph.D., became its manager, and business went along quite well. 
It really was an informal kind of joint venture; 70 percent of 
the profits were for AIG, and 30 percent went to AIGFP. But of 
the 30 percent, half of it had to remain in the company, in FP, 
in their capital account, subject to the same risk that AIG 
took. In other words, they had their own money in the company 
as part of the risk capital that we had. So that was another 
form of risk management on top of the risk management controls 
that we had.
    We were the first company, as far as I know, in the 
insurance industry to have an enterprise risk management 
department that covered all areas of AIG globally to ensure 
that we didn't have concentration in any single area of 
business. It was very effective. AIG Financial Products could 
not do a new product without having it climbed over by a number 
of different areas to ensure that it met our standards. It 
functioned quite well.
    And as I said, when we left the company, there were three 
of us who left simultaneously that was fairly important people; 
myself, the chief financial officer and the head of 
investments. My successor obviously did not pay as much 
attention to what he should have paid attention to. I think the 
new chairman who succeeded me must have paid very little 
attention to it as well, and as a result they went off on a 
tangent and wrote in 9 months more than double the amount of 
business that we had put in financial products than we did in 
the past 7 years, and of a lower quality of business. All of 
that has been verified. And so clearly, if you don't have 
controls, and you don't have management oversight, things could 
go wrong, and they did.
    Chairman Towns. Well, our purpose, Mr. Greenberg, is to try 
to get to the bottom of this. The American people are angry 
over what happened.
    Mr. Greenberg. So am I.
    Chairman Towns. And, of course, we need to take a look to 
see what we need to do here in the Congress, in terms of do we 
look at the regulatory agency. We are trying to find out 
exactly what went wrong.
    Let me just ask this: It looks to me as though much of what 
went wrong at AIG was centered on the financial products unit, 
AIGFP. After you left, did AIGFP become a renegade operation?
    Mr. Greenberg. Well, I don't know if I would call it a 
renegade. I think they got greedy. I think they wrote 
considerably more business than they should have. I think they 
should have hedged. When they lost the triple A rating after I 
left the company, that should have been a signal to discontinue 
writing credit default swaps and hedge the book, because, by 
their own admission, in their 10-K filings they said that they 
would be required to put up more collateral. So they knew that, 
they disclosed that. And having done that, you would have 
thought that somebody, whether the president, CEO or the 
chairman, should have called a halt and said, until we regain a 
triple A rating, we're either going to slow down materially or 
discontinue, because if you have to put up more collateral, you 
got a problem. AIG did not have a solvency problem, it had a 
liquidity problem.
    Chairman Towns. On that note I yield to the ranking member, 
Mr. Issa of California.
    Mr. Issa. Thank you, Mr. Chairman.
    One quick question, because many of us are not all as 
sophisticated. Right now an A rating would be better than the 
State of California's bond rating, wouldn't it?
    Mr. Greenberg. I don't know what the rating in California 
is. You're probably more familiar with that than I am.
    Mr. Issa. So an A rating--less than a triple A is not 
necessarily bad. You're down to a B rating before you sort of 
get in the junk category. So just for all of us, that downgrade 
was significant, of course, compared to being sort of blue chip 
triple A. But the company was still at that point relatively 
considered to be a well-rated company, not different than GE 
has been from time to time.
    Mr. Greenberg. But the problem is in the credit default 
swap agreements, you would be required, once you lost your 
triple A rating, to be required to put up collateral. And so 
that became not a question of option, it became a question of--
--
    Mr. Issa. Right. The call comes in, and in 48 hours you are 
supposed to deliver?
    Mr. Greenberg. Either that or you have to renegotiate the 
agreements.
    Mr. Issa. Well, to that extent, one of my concerns was that 
AIGFP had a balance sheet that was roughly $80 billion in 
assets, $80 billion in liabilities. That 15 percent accumulated 
retained earnings didn't seem to be on the books. And my folks 
tell me that a normal capital ratio would have meant there 
would have been at least $6.4 billion on the books. Was that 
part of the problem is that the FP portion of those accumulated 
earnings was, A, not there, and, B, too small?
    You said that there was $5 billion of accumulated earnings. 
If I were to take half of 30 percent of that, it doesn't add up 
to a lot of money. So on $80 billion worth of outstanding 
obligations, FP never really got to any kind of--without AIG 
parent, it never got to any kind of real base of collateral.
    Mr. Greenberg. Mr. Issa, what I've said is that 50 percent 
of the current earnings of their share went into FP. It came 
out at the other end by 20 percent a year. In other words, 
after 5 years they began--new earnings came in. And I don't 
have the numbers in front of me as to how much was accumulated, 
but that's the way it worked.
    Mr. Issa. Sure.
    Mr. Greenberg. They may have changed that when I left, I 
don't know.
    Mr. Issa. But just using your opening statement, on $5 
billion worth of earnings during that period of time, you take 
30 percent of $5 billion, their share, take half of it and 
distribute it, basically you got $1 billion?
    Mr. Greenberg. No; $5 billion was what AIG's shares was.
    Mr. Issa. What AIG parent share was?
    Mr. Greenberg. Yes.
    Mr. Issa. So it would have been----
    Mr. Greenberg. It would have been about a billion and a 
half.
    Mr. Issa. A billion and a half. So it is still a relatively 
small amount of money, if the portfolio was $80 billion, that 
they had essentially as real skin in the game.
    Mr. Greenberg. Well, they didn't come with a lot of skin. 
They came with intellectual--the idea was they had intellectual 
capital. And if it was properly managed, and if you had the 
right risk controls in, which we did, it worked fine.
    Mr. Issa. So it's fair to say that from inception through 
when they had a billion and a half skin in the game, you always 
were relying on AIG's money, not FP's money, because the growth 
was far too quick to ever actually have the retained earnings 
for it to be primarily their capital first; is that right? I 
realize you shared it, but they started off at zero. So for an 
insurance company starting off at zero and a triple A rating, 
it is kind of a good deal, isn't it?
    Mr. Greenberg. But remember, we had about $71 billion of 
retained earnings in AIG that accumulated over the years. And 
it was a good way to use it. We thought that was excellent--a 
triple A rating was capital, and it had to be preserved.
    Mr. Issa. I agree. I want to just set the record straight 
on one thing, because in the opening statement--and I told you 
earlier it had to be tough, and I think it was--I was referring 
to the United States v. Ferguson. This is a Connecticut-based 
case, which I show is still ongoing, and that you've recently 
received a Wells notice--your counsel may be able to advise 
you--but that case hasn't been dismissed; is that correct?
    Mr. Greenberg. The which?
    Mr. Issa. This is United States v. Ferguson. It's a 
Connecticut case.
    Mr. Boies. The Wells notice did not come in that case. The 
Wells notice is a notice that is issued by the SEC. It has 
nothing to do with that case.
    Mr. Issa. I show him as a related transaction. But you do 
have a Wells notice, and the United States v. Ferguson, et al., 
is still a current case; is that right?
    Mr. Boies. It is a case that has been tried, and it is now 
on appeal. But that is not a case to which Mr. Greenberg is or 
ever has been a party, or where anybody has tried to add him as 
a party defendant.
    Mr. Issa. And I apologize, because our information from the 
district in Connecticut shows that Mr. Greenberg is seen as an 
unindicted coconspirator. And I want to say, look, we're not 
trying to make a case here, because I just want to make it 
clear that there's an awful lot of unwinding of these things 
still going on. And is it fair to say that?
    Mr. Boies. Well, it's fair to say it's unindicted. And 
unindicted means you're not named a party. By unindicted it 
means he's not a party to the litigation.
    Mr. Issa. And I didn't mean to end on that note. I just 
wanted to set the record straight.
    Chairman Towns. The gentleman's time has expired.
    The gentleman from Maryland, Congressman Cummings.
    Mr. Cummings. Mr. Chairman, I would like to thank you very 
much for bringing this hearing to us.
    Mr. Greenberg, you were very clear in your written 
testimony, as you have been in the past public statements, that 
the problems that led to the downfall of AIG were not of your 
making. Let me quote a line from your testimony, ``let me be 
clear, AIG's business model did not fail, its management did.'' 
And I think you have said something very similar to that at 
least twice already this morning. When you refer to management, 
are you including yourself in that category?
    Mr. Greenberg. No. How can I? I'm not in the company, and I 
haven't been in the company.
    Mr. Cummings. So you don't see your role in the company as 
being a part of its failure; is that what you're saying?
    Mr. Greenberg. Yes.
    Mr. Cummings. So you don't.
    Mr. Greenberg. Mr. Cummings, when I left the company, it 
was a healthy company, and its market cap was $170 billion. Its 
earnings were strong, its share price was $64 a share, we had 
no problems, we had good risk management that controlled the 
company.
    Mr. Cummings. OK. I got you. And I'm convinced that the 
systemic problems at AIG go far deeper than the mistakes made 
in the 4 years since you left the company.
    You note in your written testimony that AIG suffered 
greatly as a result of losing its triple A rating. I think you 
just were talking about that a moment ago--which occurred, by 
the way, immediately after you resigned. What you do not 
mention, however, is that the company lost that rating as a 
result of the failures that occurred on your watch. You stepped 
down on March 14, 2005, and Fitch Rating Service downgraded 
AIG's credit rating to double A the next day. Do you accept any 
responsibility at all for the events leading up to that 
critical moment?
    Mr. Greenberg. No, I don't, because what was done, there 
was a restatement that was made by AIG. Most of the items in 
the restatement have since been proven to be improper or 
unnecessary and had nothing to do with me whatever.
    Mr. Cummings. Well, I think you had a significant role to 
play, particularly with regards to the problems with the 
financial products division that has been largely blamed for 
the downfall of AIG. You note in your written testimony, ``AIG 
Financial Products reportedly wrote as many credit default 
swaps on collateralized debt obligations, or CDOs, in the 9 
months following my departure as it had written in the entire 
previous 7 years.'' And I think you said that again today.
    Mr. Greenberg. Yes, and that's correct.
    Mr. Cummings. Clearly that practice was problematic, and it 
ultimately led to the company's downfall. But what you fail to 
mention is that a good portion of those risky bets occurred 
while you were still at the helm of AIG. By the time the firm 
stopped writing swaps for CDOs that included subprime 
mortgages, it had nearly $80 billion of these products in its 
portfolio. How many of those swaps were issued under your 
leadership?
    Mr. Greenberg. First of all, Mr. Cummings, as far as I 
know, there are no losses whatever on the credit default swap. 
That was reported to the Senate Banking Committee last month by 
the head of the Thrift Administration. It wasn't losses that 
brought AIG down, AIG Financial Products, it was a lack of 
collateral that they had to put up. And the reason they needed 
more collateral was because they lost their triple A rating.
    Mr. Cummings. So how many of those swaps occurred under 
your leadership?
    Mr. Greenberg. I can't give you the answer sitting here 
right now, but whatever----
    Mr. Cummings. Would you say $7 billion?
    Mr. Greenberg. May I finish?
    Mr. Cummings. Yeah, I want you to finish, but I want you to 
give me a straight answer.
    Mr. Greenberg. Well, I'm trying to, if you'll let me 
answer.
    Mr. Cummings. All right. I'm listening.
    Mr. Greenberg. The amount that we wrote was for European 
banks, their regulatory capital needs. As far as I know, there 
was never a loss on any of that, No. 1.
    No. 2, because we were triple-A-rated, we did not have to 
put up collateral. So when AIG lost their triple A rating, and 
they wrote as much in 9 months as we wrote in 7 years, at a 
lower-quality business with multisector CDOs, that became a 
different book of business.
    Mr. Cummings. I see my time has run out. Thank you, Mr. 
Chairman.
    Chairman Towns. Mr. Chaffetz.
    Mr. Chaffetz. Thank you, Mr. Chairman. I appreciate it.
    And thank you, Mr. Greenberg, for being here.
    My understanding is when you were AIG's CEO, you also sat 
atop Starr International Co. [SICO]. You are still the CEO of 
SICO; is that correct?
    Mr. Greenberg. That's correct.
    Mr. Chaffetz. And before AIG's collapse, did SICO control 
about $20 billion of AIG stock?
    Mr. Greenberg. It was the largest--yeah, the largest 
shareholder.
    Mr. Chaffetz. What was the purpose of this organization?
    Mr. Greenberg. Well, that organization predated AIG. In 
fact, it gave birth to AIG. It owned a lot of the assets that 
ultimately became AIG. And when it did so, it got AIG stock in 
return for the assets that it contributed.
    Mr. Chaffetz. Now, part of the purpose here of that 
organization is to provide long-term deferred compensation for 
current and future generations of AIG employees, correct?
    Mr. Greenberg. No. I think that is a statement that's quite 
exaggerated. One of the purposes of SICO, Starr International--
--
    Mr. Chaffetz. SICO. I'll pronounce it that way.
    Mr. Greenberg. OK. It's better--was that the voting 
shareholders every 2 years--first of all, it was owned by a 
charitable trust. SICO is owned--the actual owner is a 
charitable trust.
    Mr. Chaffetz. And my understanding is you're the trustee of 
those assets, correct?
    Mr. Greenberg. No.
    Mr. Chaffetz. Were you not the trustee for these assets?
    Mr. Greenberg. No, it was a charitable trust.
    Mr. Chaffetz. I'm sorry, what?
    Mr. Greenberg. It was a charitable trust.
    But let me finish, because that's a misunderstanding that 
has been--and there's litigation on that in the courts.
    Mr. Chaffetz. Let me jump in there. You're currently being 
sued by AIG to recoup an estimated $4 billion in assets that 
AIG alleges you misappropriated from Starr International Co. 
[SICO]; is that right?
    Mr. Greenberg. I think there's litigation, but that's 
totally incorrect.
    Mr. Chaffetz. That would be what?
    Mr. Greenberg. It's totally incorrect.
    Mr. Boies [Counsel to Greenberg]. There is litigation right 
now that is pending in Federal court that's going to go to 
trial on June 15th of this year.
    Mr. Chaffetz. Now, it was a charitable trust, correct?
    Mr. Boies. There is a charitable trust that is the owner of 
all the common stock, nonvoting common stock, Starr 
International.
    Mr. Chaffetz. And my understanding is that organization 
over the last 30 years has only donated 0.005 percent of its 
worth to charity; is that right?
    Mr. Boies. No. I think that probably what you're doing is 
you're taking that information from what AIG has been 
disseminating. I think that----
    Mr. Chaffetz. I just wonder if it's true or not.
    Mr. Boies. I think the information that you have is not 
accurate. I don't think it takes into account--I mean, for 
example, it could not possibly take into account the 
contributions that have been made since the DCPP plans were 
terminated. I think your numbers probably are simply outdated.
    Mr. Chaffetz. Is going to be what?
    Mr. Boies. Are simply outdated.
    Mr. Chaffetz. Let me ask you, Mr. Greenberg, did you turn 
SICO into your own personal investment vehicle? I just don't 
understand where the shares are today.
    Mr. Greenberg. No, it's not my personal investment vehicle. 
I am chairman. I am 1 of 10 voting shareholders, and I'm a 
director.
    Mr. Chaffetz. Where are the shares now today?
    Mr. Greenberg. The shares are worth a lot less than they 
were through no fault----
    Mr. Chaffetz. Where are the shares, though?
    Mr. Greenberg. The shares are in a--I presume the shares 
are either in a custody account or in a vault.
    Mr. Chaffetz. And did you invest them? In a vault?
    Mr. Greenberg. They're not all invested, sir, they're not 
all invested. Some of them are just not invested. They've made 
some investments, but not all have been invested.
    Mr. Chaffetz. But do you know where----
    Mr. Greenberg. And it's been invested to--ultimately, I 
hope we invest it all. I would hope that some of AIG's value 
returns, which is what we--which is what it was originally. It 
started out at $20 billion. It's down probably to maybe a 
couple of billion dollars now, through no fault of SICO.
    Mr. Chaffetz. Would you be willing to give this money back, 
to go back to the taxpayers?
    Mr. Greenberg. What money? Why would it go back to the 
taxpayer?
    Mr. Chaffetz. Because of what's going on. The reason why 
we're having this whole hearing.
    Mr. Greenberg. Well, you go out in the street and start 
collecting from them. It's the same thing. This has no 
connection with that.
    Mr. Chaffetz. I'm not understanding that whatsoever. Here 
you have a charitable organization that has really not been a 
charitable organization, as best I can tell, and that the 
shares are somehow in some vault. But I appreciate your time 
and your testimony.
    Thank you, Mr. Chairman.
    Chairman Towns. The gentleman's time has expired.
    Let me announce to the committee that we have votes on the 
floor, and we are going to recess for 1 hour, and we will be 
back in 1 hour. We have, I think, five or six votes on the 
floor.
    [Recess.]
    Chairman Towns. The committee will reconvene.
    I would like to advise committee members to direct their 
questions to our witness, Mr. Greenberg, and not to the 
counsel. I also want to advise counsel that he should only 
advise his client and not directly respond to the questions on 
behalf of the witness.
    So, on that note, I yield time to the gentleman from Ohio, 
Mr. Kucinich.
    Mr. Kucinich. Mr. Chairman, thank you very much.
    Mr. Greenberg, welcome; and thank you for being present for 
this questioning.
    I want to take you back to the time that there was a 
discussion about the first bailout and back to Secretary 
Paulson. Now when Secretary Paulson was involved with the AIG 
bailout, it's my understanding that there was a meeting that 
took place at the New York Federal Reserve over the bailout 
loan and that there was only one firm that had a representative 
at that meeting, and it was Goldman Sachs. Do you know anything 
about that at all?
    Mr. Greenberg. No, I don't know who was there.
    Chairman Towns. Is your mic on?
    Mr. Greenberg. Is that better?
    Mr. Kucinich. Would you discuss the relationship between 
Mr. Paulson and AIG and the loan and Goldman Sachs?
    Mr. Greenberg. Well, I will tell you what I know about it. 
I learned of the meeting to be taken--to be held at the New 
York Fed. I did not know who would be attending, but I called 
Tim Geithner, who was then president of the New York Fed.
    Mr. Kucinich. You called Tim Geithner?
    Mr. Greenberg. Yes. He was then president of the New York 
Fed. I knew him. At one point, I chaired the New York Fed.
    Mr. Kucinich. So you were in regular discussions with Mr. 
Geithner about what was going on?
    Mr. Greenberg. No, not regular discussions.
    Mr. Kucinich. But you talked to him about it.
    Mr. Greenberg. Yeah. And I said that I thought that we 
deserved a seat at the table. There was going to be a meeting 
since we were the largest shareholder. And he said, I hear you, 
but we were never invited to the meeting. So I don't know who 
was present.
    Mr. Kucinich. Did you have anybody from your firm present 
at all?
    Mr. Greenberg. No.
    Mr. Kucinich. Even though they were discussing bailing out 
AIG.
    Mr. Greenberg. No, sir.
    Mr. Kucinich. Tell this committee about your discussions 
with the New York Fed when you understood that you were having 
difficulties.
    Mr. Greenberg. Well, remember I was out of the company when 
all of this had happened.
    Mr. Kucinich. About the discussions that you knew AIG may 
or may not have been. Did you know anything about those 
discussions?
    Mr. Greenberg. I knew that AIG was having troubles. You 
read about it in the press and their 10-K and their earnings 
reports.
    Mr. Kucinich. But you don't know about any discussions with 
the New York Fed at the time?
    Mr. Greenberg. No, I didn't know about any discussions 
until the day that, in fact, the meeting was being held; and 
that's when I called----
    Mr. Kucinich. OK. I want to move on to talking about the 
credit rating agencies. On August 2, 2008, Standard & Poor's 
rating service concluded that, despite apparent losses by AIG 
and its subsidiaries of $5.4 billion, the company rating should 
not be changed. And I find it troubling that S&P essentially 
decided not to change AIG's ratings despite clear signs the 
company had a liquidity problem. How much responsibility, Mr. 
Greenberg, do you think should be placed on ratings agencies 
for failing to provide consumers with a proper and well-
researched rating?
    Mr. Greenberg. Look, I think the rating agencies should be 
regulated. I think that the rating agencies--at one point, as 
you know, called some of the real estate assets AAA, these new 
securities. Then later on withdrew the ratings in a way it was, 
I thought, not as responsible as it should be. I do think they 
should be regulated.
    Mr. Kucinich. Well, did you--by the way, did you have a 
chance to read the Time magazine piece on AIG, how it became 
too big to fail?
    Mr. Greenberg. I have it in my reading. I haven't gotten to 
it yet.
    Mr. Kucinich. OK. I want to go to the question about the 
counterparties, particularly----
    Mr. Greenberg. Back to which?
    Mr. Kucinich. The counterparties, AIG-FP counterparties, 
the Societe Generale. Many of AIG's counterparties were very 
sophisticated financial service firms in their own right. At 
some point, long before the implosion in late 2008, many of 
them began to understand that AIG was in a vulnerable position. 
For example, Societe Generale issued a June 2008, sell 
recommendation of holders of AIG shares.
    Now logic dictates that if these firms understood the 
overall weakness of AIG then they should have known that the 
company may ultimately not be able to pay out under the terms 
of the credit default swaps. Yet Societe Generale did little to 
hedge their investments or further insure their capital in 
response to this information. To what degree was the 
counterparties' failure to act part of the problem? And how 
much blame rests on their shoulders?
    Mr. Greenberg. Well, I think they should have acted, but I 
think also it goes back to what I was talking about earlier 
today, about how to try and help the taxpayer with respect to 
the problems that existed at AIG. If there were guarantees 
issued rather than cash, it seems to me that would have made a 
huge difference not only to AIG but to the taxpayer. That was 
done, as you know, for Citigroup; and I see no reason that I 
can think of that guarantees were not used.
    If the Fed said we are going to stand behind AIG financial 
products, it would have essentially put an AAA stamp on FP 
during that period of time, and the counterparties would have 
had no--I don't think--any recourse but to take a guarantee. 
That would have made a major difference, not only to AIG but to 
the taxpayer. They would not have had to put out as much money 
as they have done so.
    Mr. Kucinich. I just--one final question from a policy 
standpoint. You've testified generally that you're in favor of 
transparency.
    Mr. Greenberg. Yes, sir.
    Mr. Kucinich. Have you spoken to the fact that the Fed 
right now is literally printing trillions of dollars out of 
thin air and giving it to God knows who in however amounts. Can 
you tell us, do you see anything problematic with that kind of 
an approach, to flood money into the market and not really have 
an understanding of where it might be going or how much?
    Mr. Greenberg. Well, sure I have a concern about that. 
Obviously, at some point, there is a payday by the U.S. 
economy. If you flood the economy with trillions of dollars of 
more cash, at some time you have to pay for that. So, 
obviously, I'd like to see a little more transparency on where 
it's going and for what purpose.
    Mr. Kucinich. Thank you, sir.
    Chairman Towns. The chairman recognizes Mr. Driehaus.
    Mr. Driehaus. Thank you, Mr. Chairman.
    Thank you, Mr. Greenberg, for your testimony.
    I would like to pursue a conversation about systemic risk 
regulation. We've been talking a lot in the Financial Services 
Committee about systemic risk, and you mentioned in your 
testimony--and I'm just paraphrasing you--that the role of 
government is to get businesses back on track that have fallen 
aside. I would argue that the role of government is to protect 
the public good, and I think what we're talking about when we 
talk about systemic risk is at what point does a product or 
does an entity because of its potential failure become such a 
risk that its failure would do considerable damage to the 
public good? I'd like your assessment of that as it applies to 
AIG-FP.
    And you mentioned that it wasn't a structural problem 
within AIG, but it was a management problem. Well, regardless 
if it's a management problem or a problem of the product 
itself, the result of its failure has had tremendous 
consequences to the public good. So, in your opinion, what is 
it we should be focussing on in terms of systemic risk? And 
where was that systemic risk as it applies to AIG?
    Mr. Greenberg. There are two things that I would say about 
that.
    One, I think credit default swaps probably should be 
regulated. There could be--there have been indexes. An exchange 
should be created so that it is transparent. I think that a 
credit default swap is, in a sense, an insurance policy that's 
guaranteeing an underlying in a counterparty's investment, 
either in a bond or other security.
    And I think reserves ought to be established, therefore, by 
those who issue credit default swaps. I believe that was 
considered by the Congress some time ago and rejected. I 
believe it should, in fact, be in place.
    On a separate issue, there has long been a debate whether 
insurance per se should be federally regulated or State 
regulated. I have long personally advocated that there be an 
option that there are companies who operate in all States and 
issue many different types of products that would be better 
served if they had a Federal charter rather than a State 
charter. Although a State charter is necessary for many 
companies, I think the option would serve us better.
    Mr. Driehaus. But is the issue the regulation of the 
company itself or the products that company is selling so that, 
you know, you could have a good regulator but if they are not 
regulating a line of business that is putting the public at 
risk and putting the company at risk, then that really doesn't 
matter. And so it's not so much the regulatory authority as it 
is the product itself.
    I'm curious. When you say credit default swap should be 
regulated, who do you think should be doing that regulation?
    Mr. Greenberg. Well, first of all, let me say that AIG 
itself had a Federal regulator; and the Office of Thrift 
Supervision was the Federal regulator of AIG, in addition to 
the State regulatory bodies for each of the insurance 
subsidiaries. So there was regulation.
    Now was the regulation adequate? Should it have been 
broadened? I think that must be reviewed to determine whether 
or not it's adequate. And, obviously, in many ways it's not; 
and so it should be.
    And so, you know, I have no problem suggesting that there 
be more regulation. We've got to be thoughtful in how we do it 
so we don't regulate ourselves into a position of being so 
overregulated that nothing happens. We want to have a proper 
balance.
    Mr. Driehaus. So, in your opinion, what is that balance? At 
what point is it necessary to regulate a product that an 
insurance company is selling?
    Mr. Greenberg. I think if the Office of Thrift 
Administration had said, hey, you're overreaching by writing as 
much credit default swaps as you are and have been doing, it 
should have been brought to the attention of management. And if 
management didn't do anything about it, then they should have 
had the authority to say ``stop.''
    Mr. Driehaus. So do you think then that we should allow the 
flexibility to the industry to create the products that they 
deem necessary for business, or should we disallow certain 
products? When you talk about regulation, is it a matter of 
transparency and identifying the appropriate risks associated 
with those products, or is it the products in and of 
themselves?
    Mr. Greenberg. I think you've got to be careful that you 
don't stymie innovation. I think product innovation is one of 
the great things that this country has been good at. But you 
have to have the other side, the balance of it, to make certain 
that from the regulatory point of view that they have looked at 
and agree with what the risk factors are and whether or not 
they're sufficient in reserves that are being established for a 
product that needs reserves. And that if it's going to outgrow 
the capital of the company, they ought to know that and be able 
to sense that and do something about it.
    Mr. Driehaus. Thank you, Mr. Chairman.
    Mr. Kanjorski [presiding]. Thank you very much.
    Mr. Greenberg, you know in the Financial Services Committee 
we're working on both insurance regulation and, of course, 
overall reform of regulatory activity in the United States. Now 
it seems to me what you have described to us when you ran the 
company, you allowed a subsidiary that was unregulated in 
London to collateralize the credit rating agency's positions of 
the main company here in the United States and didn't really 
put much equity or capital into the London FP, is that correct?
    Mr. Greenberg. Not quite--I didn't understand your 
question. We had a--they had a unit in London, but it was 
managed--we had oversight of it.
    Mr. Kanjorski. But it had no regulator either----
    Mr. Greenberg. It had no what?
    Mr. Kanjorski [continuing]. In the U.K. or the United 
States. It had no regulator. It was without regulation.
    Mr. Greenberg. No, that's not true. The Office of Thrift 
Administration----
    Mr. Kanjorski. That was a bank that was owned in your line. 
It wasn't that organization.
    Mr. Greenberg. But my understanding is that the Office of 
Thrift Regulation did go to London and oversee that unit.
    Mr. Kanjorski. You mean because they had a billion dollar 
thrift organization, they sent this regulator all around the 
world to regulate and look over and audit multi-hundreds of 
billions of dollars of assets?
    Mr. Greenberg. I believe that they did look at AIG-FP in 
its entirety.
    Mr. Kanjorski. I guess it would--if the regulator went over 
there, it would have made a great trip for a regulator to go 
over. But certainly there wasn't a full-time seat in AIG-FP in 
London. We didn't have a representative there watching 
something that was carrying on $2.7 trillion.
    Mr. Greenberg. That's notional value.
    Mr. Kanjorski. Yeah. That's what you can lose.
    Mr. Greenberg. Yeah. But that's notional value. It's 
nothing like the real value. It's notional.
    Mr. Kanjorski. Haven't we lost or had to pay out to 
counterparties somewhere close to $80 billion already out of 
the Treasury?
    Mr. Greenberg. Well, we've talked about that; and I think 
that--you know, that's not the fault of, I would say, AIG. I 
think that was part of the bailout, which I think should have 
been done differently. That's why I'm here.
    Mr. Kanjorski. Well, if we hadn't had failure of that 
organization, if we hadn't had a failure of AIG, we wouldn't 
have a bailout, and we wouldn't be here today. And probably 
there wouldn't be failure of those organizations if the market 
hadn't turned significantly. Those are all contingencies. But 
the fact is, nobody was over there doing it.
    I want to get more to the essence of what we should do in 
the future. Do you really think it's reasonable to allow an 
insurance company in the United States that has normal 
insurance that it's writing to set up this organization in 
London that escapes real regulation, real regulation and let 
them deal in the trillions of dollars of speculation and to 
some people's comment that they were out of their league, that 
they just weren't able to do the job, that it was really high 
risk?
    Mr. Greenberg. I think there are several questions that you 
have in there that I think need to be answered.
    First of all, the insurance subsidiaries of AIG were fully 
protected--may I finish?
    Mr. Kanjorski. Let's stop there. That's one nice thing to 
say, they're fully protected. But if they are fully protected 
and you weren't utilizing their collateral or assets, then that 
FP was completely without funds to pay off counterparties.
    Mr. Greenberg. No.
    Mr. Kanjorski. Where were they going to meet the call that 
would occur if there was a failure?
    Mr. Greenberg. AIG parent had capital of its own through 
retained earnings that had been----
    Mr. Kanjorski. I think you talked about $5 billion or 
something.
    Mr. Greenberg. No. No. No. No. AIG parent, in my 
recollection, had about $70 billion of retained earnings. So 
AIG parent----
    Mr. Kanjorski. Well, I don't want to go into all the 
structure and everything, because I'm really not interested. 
I'm interested in what's the principle we have to pass to find 
out how we should regulate or how we will regulate in the 
future.
    Do you believe we should allow other huge insurance 
companies such as your former company to engage in this 
activity without further collateral, without collateral equity, 
and without certainly more stringent regulation?
    Mr. Greenberg. No. No. I just finished saying that I think 
there has to be some change.
    AIG, for example, owned International Lease Finance, which 
turned out to be the largest airline leasing company in the 
world. I mean, would you say you shouldn't do that, also? I 
think that it's not a question of----
    Mr. Kanjorski. They shouldn't do that, Mr. Greenberg, if 
they're using the credit rating of their insurance company back 
in the United States as a collateralization for that business 
activity. I would say they shouldn't do it. That's not their 
business. If they want to go into the leasing business, form a 
corporation that leases planes, totally collateralize it with 
equity and go into the business.
    Mr. Greenberg. Well----
    Mr. Kanjorski. Why should you have a right to pyramid an 
insurance company that is operating that way in an unregulated 
entity?
    Mr. Greenberg. But they weren't doing that. In other words, 
AIG parent used its own capital, not that of the subsidiary 
insurance companies. You can't touch those. The insurance 
company subsidiaries were fully protected.
    I'm not suggesting to you that there shouldn't be more 
regulation or even more capital in relationship to certain 
types of businesses. I have already said that. I believe that.
    Mr. Kanjorski. But the point I'm trying to make with you is 
that, where do we end this potential of the use of insurance 
entities to collateralize other business operations but 
particularly more risky business operations that obviously 
weren't too successful in a downturn economy?
    I mean, literally, you can say that they had capital but 
that would have fast disappeared and, in fact, did. And if 
Treasury hadn't come in with the taxpayers' funds, we would 
have had a bankrupt situation.
    And you can say, well, that happened after your watch. But 
here's the question I have. Aren't you a substantial 
stockholder even today of AIG?
    Mr. Greenberg. Yes, I am.
    Mr. Kanjorski. Well, after you left control of the company 
in 2005 and you knew that they had this unregulated entity in 
Europe, did you pay attention to how they were dealing in the 
swaps in Europe?
    Mr. Greenberg. You know, I wasn't getting any information 
from----
    Mr. Kanjorski. Well, I assumed you weren't. As the largest 
stockholder, hadn't you ever looked at the potential of a 
shareholder's lawsuit to determine what was happening to 
protect your own interest?
    Mr. Greenberg. Yeah. Well, there is a lawsuit pending.
    Mr. Kanjorski. And you started it back then when you no 
longer had the information? Or have you started a lawsuit now 
after the fact to protect your interest so the assets aren't 
wiped out of AIG?
    Mr. Greenberg. Well, if you recall, AIG had an investors' 
meeting and at that investors' meeting tried to assure 
everybody.
    Mr. Kanjorski. Again, I'm not getting into this because of 
you or AIG. I say the principle is that we cannot rely that 
even large shareholders such as yourself will take on the 
normal action of watching how the corporation they're so 
heavily invested in, what they're doing.
    Mr. Greenberg. Well, you can't. You just don't get the same 
information.
    Mr. Kanjorski. So do you think in our re-regulation we 
should create additional powers for shareholders to inquire and 
force disclosure of companies like this so they can no longer 
in the future operate under cloak?
    Mr. Greenberg. I have no problem with more disclosure.
    Mr. Issa. Mr. Chairman, I would like to ask for unanimous 
consent at this time to have inserted in the record----
    Mr. Greenberg. In fact, I've asked for more disclosure.
    Mr. Issa. Mr. Chairman, I would like to ask unanimous 
consent to insert in the record at this point, because of your 
questioning, the U.S. Securities and Exchange Commission 
litigation release of February 9, 2006, which is right on point 
to your question, which talks about 2000 to 2001 AIG entering 
into a $1.6 billion settlement related to off-book or sham 
reinsurance transactions.
    Mr. Kanjorski. Without objection, so ordered.
    Mr. Issa. Thank you, Mr. Chairman.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] 51322.016
    
    [GRAPHIC] [TIFF OMITTED] 51322.017
    
    [GRAPHIC] [TIFF OMITTED] 51322.018
    
    Mr. Kanjorski. The Chair recognizes Mr. Lynch.
    Mr. Lynch. Oh, thank you, Mr. Chairman. I thought I was 
going to have to wait in line.
    Mr. Greenberg, thank you for coming and testifying before 
the committee.
    Our job in some cases is--and in this case is really a 
forensic investigation of looking back. It's part forensic and 
part accident reconstruction and some would say part triage as 
we try to figure out who we can save and who has to be let go.
    In your testimony, you indicate that you felt that when you 
were there in the seat at AIG that you had good risk management 
practices in place, but, in looking back at this, you certainly 
were in charge when AIG went from a basic insurance company 
toward this movement into complex derivatives and credit 
default swaps. You were there at that time when you made that 
decision.
    And, again, in looking at this and trying to figure out 
what happened, it appears that, No. 1, a lot of this activity 
was not leveraged--I'm sorry was not hedged. It was not hedged 
properly. And, second, in some cases--and in a lot of cases 
there were not sufficient reserves to justify the true 
insurance value of some of these instruments.
    How do you reconcile those two statements? You say you had 
the proper risk management policies in place, but you're not 
hedging and you're not--you're not providing proper reserves. I 
don't get that.
    Mr. Greenberg. Well, let's take it one at a time. The 
credit default swaps that we wrote in the beginning were the 
regulatory swaps for banks in Europe, and I know for a fact 
that they ran off with no loss whatever. That is first of all.
    Mr. Lynch. Wait a minute. Are you talking about--what are 
you talking about here? You're saying you haven't--is this the 
statement you referred to earlier about the head of OTS said--
--
    Mr. Greenberg. No. No.
    Mr. Lynch. OK. All right.
    Mr. Greenberg. Let me explain what the regulatory capital 
for banks were.
    Basel 1 said to the European banks or the banks, but 
principally the European banks, you're going to be charged for 
capital needs even if the credit line is not taken down by your 
client. And so AIG Financial Products designed a product, the 
credit default swap, that was more efficient from a pricing 
point of view than what would have been the charge against the 
bank's capital had they followed Basel 1 that way. And that was 
the first credit default swaps that we wrote, and my 
understanding is that ran off with no losses at all. So that 
was--nothing improper about that.
    I've already----
    Mr. Lynch. But that apparently is--based on the situation 
today with all the transactions that have been done, that is an 
exceptional case, though, in terms of what has happened since 
then.
    Mr. Greenberg. I don't know if it's an exceptional case. I 
will say I haven't been in the company for 4 years----
    Mr. Lynch. Well, based on what we've had purchased by 
Maiden Lane, those credit default swaps are in the toilet, so 
to speak; and if we had to sell them today we would have 
massive realized losses, not just paper losses.
    Mr. Greenberg. You know, I'm glad you raised Maiden Lane 
III. Because I think Maiden Lane III was a terrible, terrible 
deal from the point of view of the taxpayer and AIG.
    Mr. Lynch. We agree.
    Mr. Greenberg. That was purchased at par, at par, even 
though the marks on those CDOs was way down.
    Mr. Lynch. I understand. I do want to--I anticipate your 
point. You are going to say, we should have used guarantees 
instead of purchasing them outright. Is that the point?
    Mr. Greenberg. That's one of the points. But why would you 
pay par?
    Mr. Lynch. You are not taking yes for an answer. I agree 
with you. I agree with you.
    I just want to move to one other piece on this, and that is 
the regulatory piece that you were just talking about with the 
gentleman earlier. It looks, from my standpoint, that AIG in a 
sense manipulated the regulatory system here. By chartering 
thrifts, multiple thrifts, you basically selected your 
regulator, the Office of Thrift Supervision. And so you 
basically selected your regulator by your own conduct, and as 
well, you took advantage, I think, not illegally, but you took 
advantage of the FDIC guarantee on deposits in light of the 
bank holding company that--the thrift's holding company that 
was created at AIG. Was that your strategy?
    Mr. Greenberg. No. No, Congressman. That wasn't the 
strategy. AIG was--first of all, you have to look at the total 
company. We had insurance being regulated by the States or by 
foreign governments, wherever we operated. We had a thrift in 
the United States that was--that we were growing. Of course, we 
were in the financial services business, not just a thrift.
    As I mentioned earlier, we owned ILFC, an airline leasing 
company. So we had to pick some regulator, and it appeared that 
the regulator who would regulate the thrift would be the proper 
regulator for the rest of the financial services, which would 
include AIG Financial Products at the time. AIG Financial 
Products was not a huge company in the beginning. It was a 
very, very modest company.
    Mr. Lynch. Right. I understand.
    Mr. Chairman, I appreciate your courtesy. My time has 
expired. I yield back. Thank you.
    Mr. Kanjorski. Thank you very much, Mr. Lynch.
    The gentleman from Illinois, Mr. Foster.
    Mr. Foster. Thank you for appearing today.
    My questions are going to focus mainly on trying to get at 
the least intrusive set of rules that would have allowed you to 
build your business as a healthy insurance company and would 
have prevented perhaps you and certainly your successors to 
getting into the risk that they got into, that left the 
taxpayer in some trouble here.
    First off, are you familiar with Alan Greenspan's recent 
suggestion that capital requirements be turned up as businesses 
approach the size that they pose a systemic risk? Are you 
familiar with that suggestion? Do you have a reaction to it?
    Mr. Greenberg. I think I've heard it. And I have no problem 
with the need to increase capital if there is the belief that a 
systemic risk would be occurring. It depends on the 
interpretation of that and to ensure that it's not going to go 
overboard in one direction.
    Mr. Foster. OK. I was also a little bit interested in your 
description of the enterprise-wide risk management that you 
felt you had in place because that's a very different story, 
frankly, than I got from Mr. Liddy when I talked to him about 
this. When I talked to the people at the large investment banks 
or the corpses of them, they say that--at least the ones that 
survived had very extensive risk management systems, you know, 
server farms, dozens of programers that netted out in realtime 
their exposure to every risk or pairs of risk that you can 
imagine. And did you have anything like this in place at AIG?
    Mr. Greenberg. Let me explain what we had. I mentioned a 
little while ago that I was chairman at the New York Fed for a 
number of years going back in time and was very impressed with 
an individual who was responsible for market and risk analysis 
of the banking structure. He retired, and I hired him and 
brought him into AIG. So we had a market risk sector, and we 
had a credit risk sector. Putting them together, it was called 
enterprise risk. It had a--they were staffed fairly 
extensively, and they had operations worldwide. It reported to 
the chief financial officer. And it was a very active and, I 
believe, very, very efficient organization. Anytime we had an 
accumulation of risk in different areas in the company that 
exceeded prudence, it would bubble up, and there would be 
discussions about it.
    That enterprise risk department met on a, I think, biweekly 
basis. And at the senior staff meetings that I held weekly, 
there would be reports on their activities that if anything 
came up that was the least bit suspicious, we would do 
something about it. You've got to remember----
    Mr. Foster. Did these ever flag the activities of AIG 
Financial Products as being----
    Mr. Greenberg. Oh, yes.
    Mr. Foster [continuing]. As being a systemic risk to the 
company?
    Mr. Greenberg. Oh, yes. There were products that we said no 
to.
    Mr. Foster. You had mentioned that, after the ratings 
downgrade, that your successors still expanded the CDS book 
significantly. And what they didn't do was to hedge against 
these risks and shut down the increase in the books. And so 
what I was wondering, if they had done that, which I agree 
would have been the responsible thing to do, what would that 
have done to the compensation of the executives at the top of 
AIG? If they had--the costs of those hedgings presumably would 
have reduced profits, the fact that you are no longer booking 
the new business, these things, would that have had a positive 
or negative impact?
    Mr. Greenberg. It would have reduced their earnings.
    Mr. Foster. In a significant----
    Mr. Greenberg. I don't know about significant, but it would 
have reduced their earnings.
    Mr. Foster. So this was a clear example where the 
incentives for management were not aligned with the incentives 
that were in the best interest of the company.
    Mr. Greenberg. That's possible. But you know, let me, Mr. 
Foster, let me go on with that. That happens very often in the 
insurance sector. You can have, in the insurance sector, you 
can be writing, for argument's sake, directors' and officers' 
liability insurance. And there comes a time when rates are 
inadequate or losses are greater, and you say, we're just 
slowing down growth in that area, period.
    Mr. Foster. Certainly, you can imagine general principles 
that says that your compensation, your bonuses should be paid 
out only after the risks that you have entered into on your 
watch have cleared, which is certainly something that didn't 
happen in this case.
    In any case, my time is up. I yield back. Thank you it.
    Chairman Towns [presiding]. Thank you very much. The 
gentleman's time has expired.
    I yield 5 minutes to Congresswoman Maloney from the great 
State of New York.
    Congresswoman Maloney.
    Mrs. Maloney. I thank the chairman for yielding and for his 
leadership.
    And welcome, Mr. Greenberg. AIG, formerly a great American 
company, has taught us some very expensive lessons. We now know 
how dangerous an unregulated market for financial derivatives, 
in the case of AIG credit default swaps, can be. We now know 
that lax oversight of large financial institutions like AIG can 
threaten the very financial fabric of America, and we now know 
that our regulators need stronger tools to put large financial 
institutions into receivership when their failure threatens the 
economy of our country.
    Just last week Secretary Geithner testified before Congress 
and put forward a plan that would allow the government to 
handle big firms that are failing. Chairman Bernanke testified 
that he believed a receivership would have been better for AIG 
than the present mess that we're in, and he testified in 
support of this legislation.
    And I'd like to ask you, do you believe if we had that 
process in place, a receivership would have been better for AIG 
and the American taxpayer and the economy?
    Mr. Greenberg. Thank you for that question.
    Given the terms, the original terms that the government 
gave AIG for $85 billion of a loan, which funneled money almost 
immediately out the back door to counterparties, charged 14 
percent interest and took 79.9 percent of the company, clearly, 
everybody would have been better off, in my judgment, if they 
had declared chapter 11.
    Mrs. Maloney. And can you explain to us, how would AIG be 
better now if they had been in a receivership or chapter 11?
    Mr. Greenberg. Well, there probably would have been dip 
financing. There would have been a restructuring of the 
company. I presume that AIGFP would have been walled off. You 
would have--all the counterparties would have been general 
creditors. They would not have gotten anything like the 
collateral that they did get.
    Remember that the CDOs that were underlying the credit 
default swaps were not in default. It was the collateral that 
was required and the fact that they may have had lower marks on 
the CDOs, but they would have been general creditors.
    Mrs. Maloney. Well, thank you for that testimony. It's very 
important coming from someone with the experience that you 
have.
    Could you also comment on a very important plan that is 
before Congress now, the Treasury's toxic structures and toxic 
securities plan, the so-called buying the toxic assets with 
government financing provided with very generous terms so the 
threat may be, some say, that we'll end up handing big gains to 
private investors at taxpayers' expense? What is your feeling 
of the toxic asset plan?
    Mr. Greenberg. Well, you know, what I do know about it so 
far, it hasn't seemed overwhelming to the market. It's only 
going to be successful, A, if there's an awful lot of buyers 
who are going to buy in, and yes, it will provide the banks 
with getting rid of toxic assets presumably at a better value. 
But so far, it hasn't really stirred up a great deal of buying 
interest. That may be early days. But there's no question that 
the banks will be the beneficiary.
    Mrs. Maloney. Some have said that the many challenges we're 
confronting in getting our economy moving forward are lack of 
liquidity, lack of credit, lack of movement. And some have said 
maybe it would be better if our dollars, our Federal dollars, 
taxpayers' dollars went into institutions that will lend, 
community banks, regional banks, small business banks, 
whatever, and get that money out into the community and help 
the economy moving.
    What would happen if the dollars went in that direction and 
the toxic assets were just allowed to remain on the books? Why 
can't we just leave the toxic assets on the books? What would 
be the better approach, to put our dollars into buying up toxic 
assets or put our dollars into pushing credit out into the 
communities across America?
    Mr. Greenberg. Well, I think we have to--I think we have to 
solve both problems. I do think that credit, the availability 
of credit is, or the lack thereof, is a major problem. And I 
think getting funds to the small regional banks and community 
banks that would lend would be very, very desirable.
    But I do think we need the large banks as well. I don't 
think it's an either/or. I think it's important to do both.
    Mrs. Maloney. And we cannot leave the toxic assets in the 
banks' books. Why can we not just leave them there until 
they've matured to the value that they say they're really 
worth?
    Mr. Greenberg. I think it depends on what you do with mark 
to market. If the bill that is now--not a bill, but if the 
FASB, who is considering mark to market as we sit here today, 
modifies mark-to-market accounting, it will have an impact on 
the value of the so-called toxic assets and not have to carry 
them at these low marks.
    The same is true, incidentally, for the life insurance 
industry. Mark to market has had, is what you would call fair 
value accounting, has had a very, very dramatic effect on our 
financial system.
    Chairman Towns. The gentlewoman's time has expired.
    Mrs. Maloney. Thank you.
    Chairman Towns. I now yield 5 minutes to the gentleman from 
Virginia, Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman. And Mr. Chairman, I 
would ask, without objection, that my prepared statement be 
entered into the record.
    Chairman Towns. So ordered.
    [The prepared statement of Hon. Gerald E. Connolly 
follows:]
[GRAPHIC] [TIFF OMITTED] 51322.019

    Mr. Connolly. Thank you, Mr. Chairman.
    And Mr. Greenberg, thank you for joining us here today. If 
I understand your testimony correctly, one of the financial 
instruments you consider to be a main culprit in this great 
drama are credit default swaps. Is that correct?
    Mr. Greenberg. Well, yes, but I think that, as I just 
mentioned a moment ago, I think the change in accounting rules 
played a role.
    Mr. Connolly. Right. Right.
    Mr. Greenberg. And the rating agencies as well. And there 
were a number of things that came together. Credit default 
swaps, per se, were not evil. But if you write them or you have 
certain ratings and you lose those ratings, you have to have a 
different business strategy.
    Mr. Connolly. Sure. But credit default swaps originally 
started out sort of as almost an insurance mechanism and kind 
of then got traded and speculated upon and grew astronomically, 
did they not?
    Mr. Greenberg. They did. Throughout the whole industry.
    Mr. Connolly. Yeah. In 2000, the decision was made 
explicitly to preclude credit default swaps from Federal 
regulation. Did you personally or did AIG have a position on 
that decision at that time as to the regulation of these 
instruments?
    Mr. Greenberg. No. No, sir.
    Mr. Connolly. In retrospect, I gather also from your 
testimony you would consider that to have been a mistake.
    Mr. Greenberg. I'm not even sure we knew about it at the 
time. I think that if we had known about it, I can't tell you 
what we would have done, because in 2000, I think the amount of 
credit default swaps that we were involved with was fairly 
modest in relationship to AIG. But it is an insurance product. 
And if it had been debated, I think we probably would have come 
down I think on treating it like insurance.
    Mr. Connolly. But if I gather from your answers to Mrs. 
Maloney and others, you now think there should be some kind of 
regulatory regime to reign in these instruments.
    Mr. Greenberg. Absolutely.
    Mr. Connolly. What's your guess to how the potential value 
one might put on the aggregate of these instruments? I've heard 
as high as $45 trillion.
    Mr. Greenberg. Yeah. But that's notional value.
    Mr. Connolly. It's still a lot of notional value.
    Mr. Greenberg. It's a lot of notional value, yeah. I can't 
answer that. I don't know.
    Mr. Connolly. One of the concerns one might have, let's 
pick a number. Let's say it's half that, just for the sake of 
argument. It would still--it could still sink a big battleship.
    Mr. Greenberg. Yeah. But it seems to me, you can't do one 
thing without the other. You're going to have reserves. You've 
got to have an index. You've got to have an exchange. They're 
going to be traded. So it will seek its own level. You'll find 
out after working with it for a year or two how much reserves 
are really adequate and necessary, and how much are not.
    Mr. Connolly. Well, let me pick up on that point. What kind 
of reserves are we talking about? If you're company x and, for 
good or ill, however you got here, you've got--you're carrying 
several trillion dollars worth of CDS, what kind of reserve 
would we require of such a company? And what are the 
consequences of doing that in a sense in the middle of the 
game?
    Mr. Greenberg. Well, it would be very difficult. You'll 
have to have an actuarial study as to what the default rate 
really is. What's going to happen to mark to market as it 
applies to that, because remember, the amount of actual losses 
in the credit default area as of now, has not been huge. It's 
the marks that have been a problem. If that's modified, it will 
change the outlook very considerably. So you must consider all 
aspects. You can't just look at, in my judgment, yes, we need 
reserves. But reserves in relationship to what?
    Mr. Connolly. I thank the gentleman.
    My time is up. Thank you, Mr. Chairman.
    Chairman Towns. Thank you very much.
    I now yield time to Congressman Welch.
    Mr. Welch. Thank you very much, Mr. Chairman.
    I'm going to follow up on some of the questions of my 
colleagues. It's an astonishing thing. We've heard this, this 
incredible company, Lehman Brothers was here earlier--it goes 
back to the Civil War--Bear Stearns, AIG. I guess you started 
in the 1890's, hundreds of thousands of people who work there, 
millions of shareholders; it's all blown up. An absolute 
catastrophe for the taxpayer.
    We're not here to talk about that and ask you specific 
questions about it. You are going to be able to answer those in 
lawsuits and with regulators. But you are experienced, and you 
were successful. And a couple of things we were asking is about 
going forward. No. 1, it is your opinion, as I understand it, 
that credit default swaps, credit default obligations, should 
in fact be regulated by the Federal Government.
    Mr. Greenberg. Yes.
    Mr. Welch. No. 2, should the sellers of credit default 
swaps be required to have a reserve against the loss? I believe 
you've indicated yes. And what would that be?
    Mr. Greenberg. I can't answer the second part yet without 
knowing the----
    Mr. Welch. Well, we're $180 billion into the bailout. So 
when do you think you might have an answer for that?
    Mr. Greenberg. Well, I think it depends on the bailout. And 
I'd like to come back to the bailout in a minute.
    Mr. Welch. Well, the bailout is the bailout, $180 billion 
and rising.
    Mr. Greenberg. Let me go back to that in a minute. The 
question is, should that have been the way to bail out?
    Mr. Welch. I'm not asking you that. There is a question 
that the regulators are going to have to ask and answer. And if 
they agree with you or we agree with you that there should be 
regulation to credit default swaps, one of the questions is, 
what's a reserve that should be required?
    Mr. Greenberg. I can't answer how much reserves yet because 
there's a lot of other factors that have to go in. But if you 
reserve yourself out of business, you're not going to have any 
credit default swap business, obviously.
    Mr. Welch. Well, you have dealt with reserves and 
insurance, obviously, and done it quite successfully, so you 
have some profile of reserves.
    Mr. Greenberg. But we didn't do that by sitting and talking 
this way. We had actuarial studies. We had a long history, and 
you have to make that kind of study.
    Mr. Welch. So absent actuarial studies and given recent 
experience, on the basis of what you know, what you have seen 
happen, what reserve would you recommend be required in order 
if your objective is to protect taxpayers and innocent 
shareholders----
    Mr. Greenberg. I think you have to have different reserves 
for different companies that have different ratings, No. 1. I 
think that would play a role in it. I think you would have to 
tell me if mark to market----
    Mr. Welch. I don't have a lot of time. I understand you 
can't answer that question.
    Let me ask you this. There was an immense explosion in 
leveraged borrowing in order to buy assets.
    Mr. Greenberg. Well, there was----
    Mr. Welch. Do you believe that the Federal Government, as a 
result of this catastrophe, has to start regulating the amount 
of leverage that financial companies can use and put at risk 
not only shareholder value but taxpayer dollars?
    Mr. Greenberg. Yes, I think the leverage did get out of 
hand. I think, for example, that investment banks were 
leveraging their capital 30 and 40 times what their capital 
was. I think that got out of hand. But that was approved by the 
SEC, is my understanding.
    Mr. Welch. Well, there's a lot of blame to go around. And 
the question I asked, I think you have answered; we have to put 
a limit on leverage.
    Mr. Greenberg. Yes.
    Mr. Welch. All right. The next question. If a company is 
too big to fail, and that's the argument that has been 
presented by the Fed, Treasury, Treasury Secretary, and the 
chairman of the Federal Reserve, to justify this extraordinary 
action of taxpayer intervention, if the company is too big to 
fail, is it too big to exist?
    Mr. Greenberg. Well, I don't quite follow that. Why is it 
too big to exist?
    Mr. Welch. Well, the question is really pretty simple. AIG, 
the fear of AIG failing was that a lot of innocent people would 
be collateral damage to the collapse. And the Federal 
Government did not want innocent people who knew nothing about 
CDOs or CDSs to go down with the ship.
    Mr. Greenberg. Yeah, it depends on how you bail out. We 
went through this. And I think if AIG had used guarantees and 
didn't use cash, it would have been different. You could have 
renegotiated with the counterparties. There are many things 
that should have and could have been done and wasn't. So to 
make a statement that what was done was the only way, I just 
happen to disagree with that.
    Mr. Welch. You know what? I don't get that part. It should 
not be the risk of the taxpayers to know all the details of how 
a company is being run. A company should be run according to 
rules that limit the risk to the taxpayers. And obviously, that 
wasn't the case here.
    Mr. Greenberg. Well, I understand that. But when the 
company went to the government for assistance, I think the way 
the assistance was offered, simply in my judgment, complicated 
the problem.
    Mr. Welch. Do you think it is a proclamation of collapse 
and defeat if a private company with a proud tradition, that 
has made billions of dollars, issued billions of dollars in 
dividends to its taxpayers--to its shareholders, has to come 
hat in hand to the U.S. taxpayer and ask for a bailout?
    Mr. Greenberg. I think it was terrible.
    Mr. Welch. Well, I would agree with that.
    Chairman Towns. The gentleman's time is expired.
    Mr. Welch. Thank you, Mr. Chairman.
    Chairman Towns. Thank you very much.
    I now yield to the gentlewoman from Washington, DC, Ms. 
Eleanor Holmes-Norton.
    Ms. Norton. Thank you, Mr. Chairman, for yielding.
    And I certainly thank you for holding this very important 
hearing as we try to get our arms around, our brains around 
what happened at AIG.
    Now, most people perhaps haven't heard of C.V. Starr & Co., 
but that's what attracted my attention. It's the company you 
continue to run that has come under fire as a tax haven for top 
AIG executives. I want to ask you about a court suit that you 
have since settled, Teachers Retirement System of Louisiana v. 
Greenberg, against AIG and C.V. Starr & Co., a suit that stems 
from the relationship that C.V. Starr had with AIG and various 
executives of whom I think you would have to include yourself.
    It alleged that half of the $2 billion that AIG paid C.V. 
Starr between the years 2000 and 2005 represented sham 
commissions for work that, in some cases, it was said or 
alleged was done by AIG employees. So the suit essentially 
questioned why executives were allowed to serve simultaneously 
as officers of C.V. Starr, which, of course, is a closely held 
insurance company. C.V. Starr also gave the defendants who were 
named bonuses on fees from AIG. The suit was settled on 
September 8th, just short of trial, as I understand it, when 
four of the defendants, including you, settled for about $115 
million.
    I would like you to comment on the role C.V. Starr had in 
providing AIG executives these commissions.
    Mr. Greenberg. I will be glad to do that. You have to go 
back to the beginning of the history of AIG. As I said earlier, 
C.V. Starr & Co. predated AIG by probably two decades. And when 
we were assembling AIG, there were several insurance general 
agencies, a marine agency, an energy agency, and aviation 
agency, that were too small to, at that time, put into a 
company that was going public. So we retained them in C.V. 
Starr & Co. but continued to underwrite on behalf of AIG 
business that they otherwise would not have gotten. The board 
of directors of AIG knew all about this, and there was an 
investigation or an examination to determine each year whether 
the commissions were fair that were being paid by AIG.
    Ms. Norton. Who did that examination?
    Mr. Greenberg. The outside auditors.
    Ms. Norton. Who is that?
    Mr. Greenberg. Price Waterhouse. As far as I'm concerned, 
there was nothing improper about it. It went on for I don't 
know how many years, for as long as AIG from the very beginning 
was in business.
    Ms. Norton. If you didn't defend the lawsuit, do you 
believe the settlement was the correct thing to do?
    Mr. Greenberg. May I finish first?
    Ms. Norton. Certainly.
    Mr. Greenberg. If AIG didn't get that business from these 
agencies, they would have had to go out and get it someplace 
else. And our judgment was that they would have done worse, not 
better.
    It was settled because the ongoing litigation would be more 
costly than it was to settle. That's unfortunate, but that is 
the way it is right now in our country. You can have litigation 
that will cost millions and millions of dollars.
    Ms. Norton. If something is going to be paid by C.V. Starr, 
why is it that you should not be personally liable in putting 
up some of the money for the settlement given the role you 
played here and the fact that a settlement was done in the 
first place?
    Mr. Greenberg. Well, I don't think we did anything 
improper.
    Ms. Norton. Well, somebody had to pay it. And that's going 
to come out of the company you own, who are going to contribute 
between $20 million and $30 million, as we understand, for the 
settlement. But you're not personally contributing anything to 
the settlement.
    Mr. Greenberg. Most of it came from directors' and 
officers' liability insurance.
    Ms. Norton. Well, the insurers are, which is to say people 
who paid into the insurance company.
    Chairman Towns. The gentlewoman's time is expired.
    Mr. Greenberg. Outside insurance paid for it mostly because 
it would have been in their interest to settle because, to go 
on and on and on, the cost would be greater and greater.
    Chairman Towns. What I would like to suggest is that we do 
another round.
    But before we do that, I would like to recognize that 
Montclair Kimberley Academy, who are in the room, indicated to 
me at lunch that they're going to make certain that whatever is 
wrong, they're going to fix it.
    Thank you so much. I'm delighted to have them here.
    Mr. Issa. Mr. Chairman, I might suggest that we yield to 
them. They probably could fix it quicker than we have, too. 
They've got more at stake.
    Chairman Towns. Carolyn, a second round.
    I'm sorry, I have to yield to the ranking member.
    Mr. Issa. No, no, go ahead.
    Chairman Towns. Why don't you take the Chair?
    Mr. Issa. You know, the questions get harder when they come 
up here.
    Chairman Towns. Let me correct something.
    I understand that Mr. Clay is here, and of course, he has 
not done his first round, so before we go to the second round, 
I think it's only fair that we have Mr. Clay do the first 
round.
    Thank you.
    Mr. Clay. Thank you so much, Mr. Chairman.
    Welcome, Mr. Greenberg, and to your counsel, also.
    I want to talk a little about your tenure as chairman and 
CEO at AIG. Times were mostly good. And you indicate in your 
written testimony that AIG was a great place to work and that 
employees adhered to a performance-based compensation system. I 
see no problem with that. Employees should be treated well and 
rewarded for their success.
    I am a bit concerned however that the culture of 
compensation at AIG was allowed to run amuck. During your 
tenure, the company threw lavish conferences, retreats and 
parties at a level that my constituents have never seen. That's 
fine when the company was doing well.
    But as you know, the American taxpayer now owns an 
estimated 80 percent of the company, and the landscape should 
be far different. That is why I was appalled to learn that, 
after the Federal bailout, AIG and its subsidiaries were still 
holding these events. Folks were getting their pedicures and 
manicures and their facials all on the taxpayers' dime. Were 
you equally disturbed to learn this?
    Mr. Greenberg. I was.
    Mr. Clay. And that culture began on your watch. There is a 
difference between rewarding people for excellence, 
performance, and fostering a culture of extravagance that 
people come to expect even after their company has failed 
miserably. Why do you think it never changed? Was it just out 
of habit?
    Mr. Greenberg. No, I don't know if it was habit. I think 
that you have to break that down. In the life insurance 
industry, you have agency meetings. These are meetings where 
you have agents who have been successful in developing a 
certain amount of life insurance for the company. They have 
prizes. They have awards. And generally, they gather at some 
resort as both a reward but also as kind of rah-rah to produce 
more going forward.
    That's historic in the life insurance business and has 
been. But, obviously, when a company is essentially owned by 
the government and using taxpayer money, there has to be more 
restraints put on. People understand that. That's not a 
difficult thing to communicate. And if that needed to be done, 
it should have been done.
    Mr. Clay. You indicate in your written testimony that AIG 
is not too big to be managed. It is too big to be managed 
poorly. You go on to recommend that a new board and management 
team be installed. Further, during a March 3rd interview with 
CNBC, you expressed that Mr. Liddy is simply not qualified to 
run a global company like AIG. And in a March 20th AP 
interview, you said, I think he should be replaced, you can 
call it what you want, just so that we are absolutely clear. 
Are you calling on him to resign?
    Mr. Greenberg. Look, what I've said, and I think the record 
speaks for itself, AIG is a global company, operates in 130 
countries. There is no company like it in the world. You have 
to understand the culture of different countries. You have to 
understand how business is done in these countries. It is not 
an on-the-job training program. You have to communicate to 
people who understand how things are being done in different 
countries.
    And if the leader doesn't understand, it causes not only 
confusion but sometimes chaos. Liddy is a nice person. I have 
nothing against Liddy as an individual. He ran a domestic 
insurance company, and he's a good man. I have no problem with 
that. But he doesn't have the background for the job that needs 
to be done. But he also came in with a mission of liquidating 
AIG.
    Now, how do you think that gets interpreted around the 
world where AIG does business when the new leader comes to the 
company with the instructions to liquidate the company? He's 
not the most popular guy in town. And in any event, it's very 
difficult to manage something to go forward, growing it, if 
you're there to liquidate it.
    Mrs. Maloney [presiding]. The gentleman's time is expired.
    Mr. Chaffetz is recognized for 5 minutes.
    Mr. Chaffetz. Thank you. I appreciate it.
    And thank you, Mr. Greenberg, again. Do you know Robert 
Mundell, the Nobel Prize winning economist, do you happen to 
know him?
    Mr. Greenberg. No, I don't think so.
    Mr. Chaffetz. He had written, ``What Caused the Crisis and 
the Way Out,'' and he listed five causes of the crisis. And 
named you saying, Maurice Greenberg, AIG founder, for 
conducting vast business and credit default swaps in mass 
multiples of derivatives. What would you say to Mr. Mundell?
    Mr. Greenberg. I think he's wrong.
    Mr. Chaffetz. Let me go somewhere else here. Have you hired 
any former AIG employees? Have you coaxed any away?
    Mr. Greenberg. I haven't coaxed them away. I can't beat 
them off fast enough. They're calling, and they come. We've 
hired some, yes.
    Mr. Chaffetz. Do you have any sense of how many you've 
hired?
    Mr. Greenberg. Not many.
    Mr. Chaffetz. Have you enticed others to leave AIG to come 
work for you?
    Mr. Greenberg. No, of course not.
    Mr. Chaffetz. Paid anybody any sort of bonuses or 
recruitment bonus, that sort of thing?
    Mr. Greenberg. No. If they come to work for us, they come 
probably at, possibly even less money than they're making now.
    Mr. Chaffetz. But are they--your primary goal is the 
success of AIG, correct? Why would you entice them away?
    Mr. Greenberg. I'm not enticing them away. Those are your 
words, not mine.
    Mr. Chaffetz. So if you want the success of AIG, why would 
you want them to leave that company and come work for you?
    Mr. Greenberg. If they don't come to us, they're going 
someplace else.
    Mr. Chaffetz. So you think they would----
    Mr. Greenberg. There's an exodus of people from AIG.
    It doesn't take a rocket scientist to figure out, 
Congressman, that if you're going to liquidate a company, and 
they're being offered jobs with other insurance companies, and 
many are, as we speak--I just came back from Asia. AIG had a 
great position in China, as an example, which it took me years 
and years to open that market. And we were the only company, 
AIG, to have 100 percent ownership, and we were very proud of 
that fact and had a great growing business.
    Look at it now. People are leaving and going to every other 
company. Why? AIG has said, they're going to be selling the 
AIA, American International Assurance Co., a life company. But 
why would the people stay there?
    Mr. Chaffetz. Let me move to another area. My time is 
short.
    As we understand it, in 2003, the SEC and the Department of 
Justice were investigating AIG for basically helping two 
companies, PNC Financial and Brightpoint. And the reason they 
were investigating is there were some questions about their 
bookkeeping and whatnot. Are these two investigations that led 
AIG's board to call for your resignation or were these just the 
tip of the iceberg?
    Mr. Greenberg. Well, I wouldn't say either one of them is 
correct. That's like saying when did you stop beating your 
mother. That's not correct. Brightpoint was a tiny little 
transaction that was done in the bowels of the domestic 
insurance companies. The individual underwriter was a junior 
underwriter. He thought what he was doing was issuing a kind of 
a pension type of product. It turned out to be improper. I 
think AIG paid a $10 million fine for that. We had engaged 
Sullivan & Cromwell to do all the investigative work on it. And 
in fact, they had failed, my recollection is with Sullivan & 
Cromwell, to turn up all of the advertising material that had 
been developed. But it was not a--it was a minor transaction.
    Mr. Chaffetz. My understanding is it cost AIG in excess of 
$120 million.
    Mr. Greenberg. No, that was in PNC. That was not 
Brightpoint.
    Mr. Chaffetz. Not Brightpoint.
    Mr. Greenberg. That's incorrect.
    PNC, there was a separate board for AIG Financial Products. 
People such as Martin Feldstein was and is on that board. There 
was a transaction with PNC that my recollection, that AIG 
Financial Products got clearance from an outside accounting 
firm and law firm and said that the transaction was proper from 
AIG Financial Products' point of view. And they told the 
counterparty, PNC, you got to get your own opinions as to 
whether or not this is proper or not.
    Mr. Chaffetz. Now, my understanding is, part of this, what 
happened, is they hired a Mr. Cole, an independent monitor, as 
required in the settlement. What actions did you take to reform 
the corporate culture?
    Mrs. Maloney. The gentleman's time is expired.
    You may respond to his question.
    Mr. Chaffetz. What actions did you take to reform the 
corporate culture at AIG, in addition to the hiring of Mr. Cole 
that happened?
    Mr. Greenberg. When Mr. Cole arrived, I was leaving the 
company.
    Mrs. Maloney. Thank you.
    And Mr. Kennedy from Massachusetts is recognized for 5 
minutes.
    Mr. Kennedy. Thank you, Madam Chair.
    I have been struck today mostly by the interest in this 
committee to get a picture of what it is that we need to do to 
make sure this doesn't happen again and, obviously, to get a 
feeling from you as to what happened that led us into this 
debacle. I mean, I think that there are people who are anxious 
to learn from our mistakes. And I think that there's certainly 
plenty of blame to go around. One thing that I think is maybe 
one of the many causes of this is, and that I will hold myself 
accountable for, is the voting for the Glass-Steagall reform. 
And I, for one, am going to introduce legislation to repeal 
that repeal, because I don't believe we ought to be having, as 
has played itself out, AIG, insurance companies doing banking 
business and banking businesses doing insuring business; and 
having apples over here and oranges over here, and everybody is 
getting these financial products all mixed and matched.
    You've got derivatives and debt swaps, and what are these 
things happening, you've got people taking loans out and then 
taking insurance out on the loans because of another part of 
the company. I mean, it just seems we're rife with conflicts of 
interest. So what I would like to hear from you is, what was 
your perspective when that bill was going on through the 
Congress years ago? And did you support it? And why did you 
support it? And would you still support it today? And would you 
support its repeal?
    Mr. Greenberg. First, I was fairly neutral. We had no 
intention----
    Mr. Kennedy. Can I just stop there? We can't get to this 
feeling of everybody is neutral here. We've got to get answers.
    Mr. Greenberg. I'm about to answer if you permit me. We 
were neutral because we never had any intention of buying a 
major bank. It was never our intention as part of our strategy 
to buy a major bank.
    Mr. Kennedy. Well, what's your perspective? Should we 
repeal it?
    Mr. Greenberg. Well, given the experience that has 
occurred--but if you look at what has happened, take Citigroup, 
for example, that I think was the moving party on that; they 
wanted to buy Travelers. Travelers has not been a problem 
company, and certainly Citigroup didn't get in trouble because 
of Travelers.
    Mr. Kennedy. But do you not see the inherent issues 
regulatorily that the Federal Government, when it's trying to 
micromanage--we're trying to put together bills now in Congress 
to come in and do regulatory reform. Rather than try to 
micromanage a business that's very complex, why not go back to 
making sure that banks that just do savings and loans, do 
savings and loans; investment banks that do investment banking 
do investment banking; and insurance companies that do 
insurance do insurance. What's such a big problem with that?
    Mr. Greenberg. I'm not saying there's a problem, but you 
know, things don't stand still. Things evolve. They grow. They 
change. And it seems to me, if you have a structure that 
doesn't permit change at any time, that's just as bad as having 
too much change at one time. You know, you can't change--I 
don't think you can fix a structure by regulation. It's 
management that goes bad many times, not regulation. And so I 
think if you're going to make changes in the regulatory 
environment, I wouldn't rush, because generally when we rush, 
we do it the wrong way, and then we regret it.
    We are competing in a global world, and we've got to be 
sure that we're not going to tie our hands before we've thought 
through what exactly we want to do. And I think, for example, 
you've taken Glass-Steagall, and the moving party in that 
didn't cause the problem because of Travelers, the acquisition 
of Travelers. There were other things that may have gone sour. 
And I think that I come back to that mark-to-market accounting 
was one of the issues. And I think that you can go back, and 
you can say that leverage was another issue. Low interest rates 
may have been another issue. The abandonment of good risk 
management was another issue. There are many issues to be 
considered. It wasn't just Glass-Steagall.
    Mrs. Maloney. The gentleman's time has expired, and we are 
going to a second round. Everyone is very eager to learn more 
from you, Mr. Greenberg. And the Chair recognizes herself for 5 
minutes. Your testimony that AIG would have been better off if 
going into Chapter 11. At this point, taxpayers have put $180 
billion into AIG. And you're telling me AIG would have been 
better off. My question is, would the taxpayers have been 
better off if AIG had gone to Chapter 11. The taxpayers would 
have their $180 billion. It would be part of our Treasury, but 
what would have happened to our economy, in your judgment, if 
AIG had gone to Chapter 11?
    Mr. Greenberg. If AIG went to Chapter 11 at the very 
beginning and didn't have access to the $85 billion at those 
generous terms of 14 percent interest and 79.9 percent of the 
company, what would have happened? There would have been a 
bankruptcy. A bankruptcy court would have taken hold of it. The 
counterparties would have been general creditors. It would not 
have affected the insurance subsidiaries. They're insulated 
from that bankruptcy. State laws protect them. And they were 
adequately capitalized. So it wouldn't have affected the 
insurance subsidiaries. It would have affected AIG Financial 
Products, but that's about the major issue that would have 
occurred.
    Mrs. Maloney. But the impact on the overall economy, we're 
told if the AIG had failed, the whole economy would have come 
down. There was a report that AIG prepared for Treasury that 
made it sound like the world was going to come to an end if AIG 
had gone into Chapter 11. I have asked several times for the 
Treasury's analysis of why it was critical for the financial 
stability of our country to save AIG. I am waiting for that to 
come forward.
    But my main point is, what would have happened to the 
overall economy? And you are basically saying, nothing would 
have happened to the American economy. The critical insurance 
arm, which is so critical for finance in our country, would 
have been independent and saved, and the risky products over in 
London, who got the majority of the bonuses, by the way, and 
caused all the problems, they would have lost their jobs. It 
would not have tumbled the markets. It would not have brought 
down the housing market. It would not have brought down 
insurance. It would basically, are you saying, it would not 
have impacted in any major way the American economy? Am I 
correct in what you're saying?
    Mr. Greenberg. Well, I think there would have been a 
ripple, but it wouldn't have been catastrophic. The insurance 
companies would have continued doing business. They were 
protected. They were adequately capitalized. And that capital 
couldn't be moved around.
    Would it be that some business leaves AIG and goes to 
another company? Possibly. Competitors would have fed on the 
fact that AIG parent became bankrupt, and so competitors would 
have tried to move some business. But I don't think it would 
have been disastrous, any more than it is right now.
    The government has nationalized, essentially, AIG. It's 
owned 80 percent, roughly, by the government. That hasn't 
caused a revolution or earthquake, except that business is 
leaving the company as we sit here and speak.
    Mrs. Maloney. And we have $180 billion of taxpayer money at 
risk or lost or whatever, and now they're asking, I'm told, for 
an additional $30 billion money. Should we just stop right now 
and put them into receivership? What should we do now?
    I wish you had been in that room. Maybe we would have 
averted a financial problem and $180 billion and growing tax 
liability or debt on the American taxpayers. What should we do 
going forward? Should we give them another $30 billion or put 
them in Chapter 11 now? What should we do?
    Mr. Greenberg. Well, I thought that's the reason I came 
down here, was to make some suggestions. And I did submit a 
paper. It does tell you, at least what my opinion is how to 
save AIG and pay back the taxpayer. It does require using more 
guarantees than cash. It does require that you have to go to 
some of the counterparties and get some back. It does require 
changing from 79.9 percent to something less and raising 
private equity, by doing that, private capital. There are many 
things in the plan.
    And that's the reason I came down to discuss, was there's 
an alternative to doing what's currently being done. I don't 
agree with the plan that the government has proposed. I think 
the plan is causing the taxpayer enormous pain. What we're 
trying to do is, at least trying hard, to find a way to find a 
better way and a better solution.
    Mrs. Maloney. Former Fed Chair Voelker has testified that 
he believes, going forward, we should have functional 
regulation. Insurance should just be insurance. Commercial 
banking should be just commercial banking. We should not be 
mixing risky financial products with basic services, that 
firewalls do not work. What is your opinion of that statement?
    Mr. Greenberg. Well, you know, I have great respect for 
Paul Voelker. He's a terrific person. And a lot of what he says 
makes a lot of sense.
    But I have learned from experience, when something goes 
wrong and we jump to a conclusion as to what we ought to do to 
fix it, we generally overdo it the wrong way. So we ought to be 
giving it some thought and examine all of the aspects of what 
kind of regulation we want. We need more--we need a different 
regulatory system; we agree on that. But let's also agree, 
let's think it through.
    Mrs. Maloney. But to be clear, he also calls for a long 
deliberative process, but for certain key things being key.
    My time has been expired. It's been fascinating to learn 
from you.
    And the Chair recognizes the ranking member, Mr. Issa, from 
the great State of California.
    Mr. Issa. Thank you, Madam Chair.
    Mr. Greenberg, this has been helpful today, and I 
appreciate your time. Let me just sort of wind up a lot of 
questions we've been asking here.
    First of all, you've never been privy to any conversations 
at Treasury or at the Federal Reserve, is that true, as to AIG 
bailout?
    Mr. Greenberg. No, that's correct.
    Mr. Issa. They haven't called you for advice or even 
acknowledged that they're listening to you, is that correct?
    Mr. Greenberg. I've had several talks with Tom Baxter at 
the New York Fed and had two talks with Tom Geithner; one when 
he was Secretary of the Treasury, and one when he was with the 
New York Fed.
    Mr. Issa. Tim Geithner.
    Mr. Greenberg. Tim Geithner.
    Mr. Issa. I'm glad to hear that they have included you 
some. The decision of whether or not to take Federal money or 
to file bankruptcy, that's a decision that the chief executive 
officer and the board made, is that correct? Nobody can stop 
you from filing bankruptcy.
    Mr. Greenberg. No, I would assume that was their decision.
    Mr. Issa. So would you say that there was a lack of a 
fiduciary responsibility on the part of the board in that, 
rather than protecting many of the operations, they entered 
into these huge taking of money at a 14 percent rate, mostly 
preferred stock and other instruments?
    Mr. Greenberg. I don't know what they knew at the time, 
Congressman, I just don't know what they knew at the time. But, 
from a distance, it seemed to me that--I don't know whether 
they would have done it today given what they know now and the 
amount of funds that they've had to take.
    Mr. Issa. Mr. Greenberg, I voted against the TARP, and I 
felt that, as you did or as you say here today, that guarantees 
where appropriate should be used; bankruptcy where appropriate 
should be used. And I'm finding myself agreeing with you that 
AIG should have been put into bankruptcy. Guarantees where 
appropriate should have been put in, but that's too late now.
    I've got a couple more questions, though, that I think 
because of your 35 years of building a company and your 
knowledge of what is existing in the way of regulation, what 
might be necessary, let me just ask you a question. I've got a 
bill, H.R. 74, it calls for a commission similar to the 9/11 
Commission after, obviously, 9/11, that calls for a 
bipartisanly appointed Blue Ribbon Panel to look into the 
causes of, and any additional regulations for. Do you think 
that's a better solution than Congress having bill after bill 
sometimes just taking back people's bonuses?
    Mr. Greenberg. Absolutely.
    Mr. Issa. Thank you. I guess the last question--oh, and Mr. 
Chairman, I would ask unanimous consent my closing statement be 
put into the record at this time.
    Chairman Towns [presiding]. Without objection.
    Mr. Issa. Thank you.
    The last question is, we've gone this far; we've gone $700 
billion into this process. Would we be better off evaluating 
the worth of various banks and using assurances, not with AIG 
but with the entire financial community, using government 
assurances to, if you will, guarantee as what we see the value 
of the going concern, rather than giving out money and thus 
displacing other private sector money?
    Mr. Greenberg. Well, you've done that with Citigroup. 
You've guaranteed $300 billion of assets, and that's a pretty 
good----
    Mr. Issa. We've done it with some of it. Of course, they 
ran out of the $700 billion. When they ran out of money, they 
began doing the right thing some may say.
    Mr. Greenberg. Maybe it would have been better to run out 
quickly so you can get some guarantees out. I think guarantees 
are a good way to go.
    Mr. Issa. Last, I just want to follow up on what Mrs. 
Maloney said because I think it is critical. Had AIG filed 
bankruptcy, a substantial, and correct me if I'm wrong, a 
substantial portion of the money that was delivered to AIG, 
which then went to foreign banks, would have not gone if they 
had simply said file bankruptcy and there's a default, and to 
the extent that somebody wants to make you whole, great, but 
otherwise you lose; we would have preserved $40 billion or so 
dollars of U.S. Treasury money.
    Mr. Greenberg. They would have become a general creditor. 
At the end of the day, if AIG was wound up, would have made 
whatever, $0.20 on the dollar, an agreement of $0.30 on the 
dollar, there would be some negotiation and some settlement.
    Mr. Issa. Mr. Chairman, if I can sort of close this 
question because I think it's critical to what you've given us 
here today. Had the Federal Government allowed AIG to go 
bankrupt, tens or hundreds of billions of dollars would have 
been preserved of Federal Treasury money by simply allowing 
foreign banks to accept the risk which they made when they 
allowed a private entity to insure on their behalf with a 
public statement that they were able to evaluate.
    Mr. Greenberg. That's correct.
    Mr. Issa. Thank you, Mr. Chairman.
    And again, thank you for giving me the extra time.
    Chairman Towns. Thank you very much.
    I yield to Mr. Cummings of Maryland.
    Mr. Cummings. Again, Mr. Chairman, I want to thank you for 
this hearing. It's been quite informative.
    Mr. Greenberg, thank you for your testimony. And I just--
you know, I'm sitting here and I'm trying to--I'm listening to 
you, and I'm thinking about my constituents. I got constituents 
as old as you are. And I'm not saying you're old, but you're 
80, you know.
    Mr. Greenberg. Thank you very much.
    Mr. Cummings. And do you know what? They retired, but they 
got to go back to work, working at McDonald's, flipping 
hamburgers. Do you know why? Because when they look at their 
investment portfolios, they've disappeared. And can I tell you 
something? That ain't coming back. That money is not coming 
back. And then I read here in Pro Publica a piece by Sharona 
Coutts. It's April 1st; you're not familiar with this, I'm 
sure.
    But do you know what it says here? It says, AIG launched a 
preemptive--and I want to be fair to you--strike Wednesday, 
putting out a 4-page dossier attacking Greenberg's credibility, 
``given that Hank Greenberg led AIG into the credit default 
swap business, has repeatedly refused to testify under oath 
about a transaction he initiated when he was still AIG's CEO, 
and is being investigated by the SEC and the Justice 
Department, we don't understand how he can be viewed as having 
any credibility on any issue.''
    Now, the reason why I raise that is not to attack you, but 
to understand there are some forces going on here that, 
apparently, AIG, I get the impression that the folks at AIG now 
and you, you don't have, there ain't too much love going on 
there.
    Mr. Greenberg. That's I would say a good statement.
    Mr. Cummings. That's an accurate statement?
    But the problem still remains, no matter what is happening 
between you and them, my constituents are still suffering. And 
so I want to just ask you this. I want to pick up where I left 
off and ask again about the $80 billion in toxic credit default 
swaps that ultimately, whether directly or through a collateral 
clause, led to AIG's demise, the public wants to know--those 
people I talked about that are going back to work--in an 
article that appeared in the Washington Post on December 30th, 
you are credited with saying that $7 billion of those swaps 
were issued during your tenure. But AIG spokesman Mark Herr 
refused that claim, saying it was $40 billion.
    When I asked you this question earlier, you said you didn't 
know. Is that your testimony today, that you don't know how 
many of those swaps were issued during your tenure? And can you 
please tell us what the deal is?
    Mr. Greenberg. Very simple. AIG has not made available the 
information.
    I don't carry that knowledge around in my head, 
Congressman.
    They have not made the information available. They haven't 
reported it. It's not in any of the 10-K filings.
    Mr. Cummings. Well, if you get it, will you submit it to 
us?
    Mr. Greenberg. We've asked for the information.
    Mr. Cummings. Well, if you get it, will you submit it to 
us?
    Mr. Greenberg. I would be glad to.
    Mr. Cummings. I also want to get some clarification on the 
part of your written testimony where you talk about whether 
swaps issued while you were CEO were hedged. Specifically, you 
state that the financial products were subject to numerous risk 
controls by AIG senior management and conducted its business 
largely on a hedge basis. Yet AIG spokesman Mark Herr said 
these swaps were written without hedges. What's the deal?
    Mr. Greenberg. As I said earlier, you may not have been in 
the room, the original swaps were for the European banks. They 
were not hedged. And there were no losses that ever were 
reported on that amount of business. AIG was a triple-A rated 
company, and as such, hedging, at that point for what we were 
writing, was not necessary.
    We hedged other parts of the business where we thought it 
was necessary. The risk management department, which was very 
extensive in AIG, would make recommendations. But it was a 
well-run organization that changed. When I left, it changed.
    Mr. Cummings. One of your recommendations is that we get 
money back from the counterparties, is that right?
    Mr. Greenberg. Say that again.
    Mr. Cummings. You said we should be getting money back from 
the counterparties; is that what you said?
    Mr. Greenberg. What I'm saying to you is, you have to look 
at the whole program of what changed.
    Mr. Cummings. Do you think there should have been some 
discount with regard to those counterparty debts?
    Mr. Greenberg. Absolutely. Not only discount, I think, in 
some cases, I'd have used guarantees.
    Mr. Cummings. Very well.
    Thank you, Mr. Chairman.
    Chairman Towns. Thank you very much.
    And let me do my second round. I have not had mine.
    Mr. Greenberg, as you're aware, Joseph Cassano took over as 
chief of AIGFP in 2001. And of course, you were there. 
Essentially, he was known amongst some of your friends as your 
favorite because of his drive. According to a recent report, 
Mr. Cassano basically told senior management, you know 
insurance, I know investment, so you do what you do and I'll do 
what I do, leave me alone. Of course, I understand he used 
stronger language than that. Is that true?
    Mr. Greenberg. No.
    Chairman Towns. Was Mr. Cassano essentially given a free 
hand within the company to set up AIGFP across the pond in 
London?
    Mr. Greenberg. Not a free hand. Doing business in London 
was very convenient because you're halfway on the phone 
conversation between the United States and Asia, and that's why 
a lot of firms set up offices in London. It was a--it's the 
best place to do a financial services business if you're doing 
business in Asia and the United States.
    Chairman Towns. Was it true that no one could control Mr. 
Cassano?
    Mr. Greenberg. No, that's not true at all. I don't know 
what happened.
    Chairman Towns. Well, when did he go astray?
    Mr. Greenberg. Look, I can't answer what happened after I 
left. I had no problem controlling Cassano.
    Chairman Towns. When did this happen? I mean, I understand 
you've been out now, what, 4 years?
    Mr. Greenberg. Four years.
    Chairman Towns. But it's hard for me to believe that some 
of this didn't happen before you left.
    Mr. Greenberg. Well, I'm sorry if you can't believe it, but 
I'm telling you, we had no problem controlling Cassano.
    Chairman Towns. And I know you indicated early on that you 
talked about, in terms of possible bankruptcy, which I must 
admit, I was shocked. Let me ask you, what should the Treasury 
do now? What should we do? And you indicated you came to help 
us.
    Mr. Greenberg. I submitted a plan. It's in my paper. I'll 
be glad to repeat it if you would like. I think that you have 
to use more guarantees. You've got to reduce the 79.9 percent, 
so you can raise private capital.
    Chairman Towns. You know, I would hope that your plan would 
have timeframes in it. For instance, what should the Treasury 
do in the next 30 days, 60 days, 90 days, 6 months? You know 
that's the kind of help we need.
    Mr. Greenberg. Well, somebody has to take hold of it and do 
it. That's not my job. That's somebody else's job. I've given 
you an outline of what I think will work. I can't, I'm not here 
to execute it for you.
    Chairman Towns. No. And the point is that we need to have--
if you want to help us--timeframes.
    Mr. Greenberg. Well, Mr. Chairman, I would love to see it 
done. I would be glad to work with anybody that's authorized to 
do this. I've offered to help several times. I've offered when 
I spoke to Tom Bass at the New York Fed to help. I've offered 
two CEOs of AIG to help, Willumstad and Liddy. I've offered 
twice now to help. I'm not going to force myself on them.
    Chairman Towns. Let me ask this question, was there any 
other unit besides AIG's FP that led to the downfall?
    Mr. Greenberg. Say that again.
    Chairman Towns. I think the question is, did any other unit 
contribute to the AIG failure besides AIGFP?
    Mr. Greenberg. I think the security lending program caused 
a problem. It was manageable if that was all there was, but 
they got too exuberant in what they were doing.
    Chairman Towns. Mr. Greenberg, you understand what we're 
trying to do here. We're trying to get as much information as 
possible to be able to look and to see and to make certain that 
this kind of situation doesn't exist, doesn't come about again. 
That's the reason why we want to talk to you. That's the reason 
why we want you to be forthcoming to us, to try and assist us. 
We're not sure what happened here. Was it the regulators that 
went to sleep? Were they Rip Van Winkle? I don't know. I mean, 
what happened here? Something happened. You have to acknowledge 
that.
    Mr. Greenberg. Mr. Chairman, I don't think it was the 
regulators who fell asleep. Whether they did or not, I don't 
know. But I do know that management fell asleep after I left 
the company. There's no question about it that management took 
their eye off the ball, and risk management was not getting the 
right instructions, and that's what led to the downfall.
    Chairman Towns. Thank you. I see my time is expired.
    Congressman Foster is recognized for 5 minutes.
    Mr. Foster. Thank you.
    I have a couple of questions on your securities lending 
business, which I take it was responsible for a significant 
fraction of the difficulties. And first off, who owned the 
securities that were being loaned, which business entity?
    Mr. Greenberg. Probably the life companies.
    Mr. Foster. The life companies, OK. And so now, and now, 
who was actually performing the loaning and making the 
decisions?
    Mr. Greenberg. I think that was done by Win Neuger, the 
head of investments.
    Mr. Foster. So this was done individually for each one of 
the life business units.
    Mr. Greenberg. I think he was the overall head of 
investments. And who was carrying out that day to day on his 
instructions, I can't tell you. I'm not there.
    Mr. Foster. I'm trying to understand if these were sort of 
tunnelling through the ring fence that was supposedly around--
--
    Mr. Greenberg. Normally what happens in security lending, 
an insurance company, a life company, has a huge amount of 
assets that's been invested, securities. A lot of banks and 
investment banks want to borrow them, say, for 30 days. And 
they give you cash. And you normally invest the cash in short-
term receivables that will earn you 3 to 5 or 6 basis points. 
Somebody got exuberant and were investing in for 30 base 
points, as I understand it, and a lot of it had toxic subprime 
assets involved. And so when the banks wanted back their cash, 
AIG couldn't sell the securities at that amount to cover that. 
And the Fed set up----
    Mr. Foster. Could you explain why this wasn't picked up by 
the individual insurance regulators?
    Mr. Greenberg. I don't know. I wasn't there.
    Mr. Foster. So this you would view as a failure of the 
individual insurance regulator, the fact that this was allowed 
to occur?
    Mr. Greenberg. I would say that's probably right, unless 
the amount involved was not considered by the regulator to be 
of such amount as to impair the solvency of the company.
    Mr. Foster. Are there regulations that you think or new 
forms of or better enforcement of existing regulations that 
could prevent this sort of thing in the future?
    Mr. Greenberg. I think, before you get to that, though, in 
all fairness, a life company invests to cover its liability, 
and it gets an asset to match that. So if you've got a 
guarantee of, say, 3 percent, and you're invested at 4.5 
percent, you really don't care during the 10 or 15 years 
whether that security sells at a discount, as long as it's 
paying its interest or dividend, a cash-flow approach to it. 
Changing mark to market destroyed all of that. And the life 
insurance industry today in our country is suffering as a 
result of that. That affected somewhat the security lending 
program.
    Mr. Foster. Now, the other--I would like to touch on the 
issue of the complexity as well as the size of organizations. 
From the point of view of the regulator, would you consider 
that a regulator for the AIG holding company would have to be 
an expert on each of the business units? They would have to be 
an expert on airplane leasing, credit default swaps, securities 
lending, property and casualty, life insurance and so on and so 
forth? I mean, is there a regulator you know that is actually 
expert in those areas?
    Mr. Greenberg. Probably working for me.
    Mr. Foster. Right. But it's a serious thing, because we're 
faced all the time with the problems that regulators are 
outgunned, salary-wise, manpower-wise, and intellectually, 
frankly.
    Mr. Greenberg. That's true.
    Mr. Foster. Well, this is a fundamental problem, because 
the obvious answer to that is simply to say, what would have 
been the evolution of AIG if you had been allowed to play in 
only one sandbox; that you essentially have said, OK, you can 
be an insurance company, you can be a big successful insurance 
company, but when you get successful, return your dividends to 
your shareholders, and they will invest in some diversified 
enterprise? That would have limited, but the market would have 
eventually distributed assets to all of the relevant industries 
without putting one regulator in a position where they have to 
be experts on all this stuff.
    Mr. Greenberg. Well, that's one way. I'm not sure that's 
the best way.
    Mr. Foster. What would you suggest to not have to depend on 
a regulator?
    Mr. Greenberg. You have very good State regulation on the 
insurance side, which was the biggest part of AIG's business. 
The airline leasing company is not regulated per se, besides 
which, AIG did not guarantee the debt of its airline leasing 
company. So that did not cause a problem from that point of 
view. The question of AIGFP was regulated by the----
    Mr. Foster. So you believe that the holding company needs 
no regulator because all the individual pieces----
    Mr. Greenberg. No, I think you can have a regulator. It 
could be the FDIC, or it could be--I don't care which one it 
is.
    Mr. Foster. And would that regulator need to be an expert 
on each of these?
    Mr. Greenberg. No, he would call on the regulators that had 
the other areas, which is done in, I think, many other 
countries.
    Chairman Towns. The gentleman's time has expired.
    I now yield 5 minutes to the gentlewoman from California, 
Diane Watson.
    Ms. Watson. Thank you so much, Mr. Chairman.
    And I want to thank Mr. Greenberg and the counsel for being 
so patient with our questioning.
    So, directed to Mr. Greenberg, at least five of the credit 
risk committee members who were in part responsible for failing 
to properly assess the dangers of heavily investing in credit 
default swaps remain in place at AIG. This means that at least 
50 percent of the individuals at the top, the same people that 
performed shoddy risk assessments, are still at the helm, and 
those same five were there when you were CEO.
    So during your tenure, did any members of the credit risk 
committee ever perform a risk exempt of AIGFP, and 
specifically, were there limits on the amount and type of risk 
that the AIGFP were allowed to undertake? And how did it change 
after you left AIG? Can you comment, please?
    Mr. Greenberg. There were limits. First of all, the credit 
committee or the enterprise committee, because it had both 
market risk and credit risk, met on a regular basis with very 
senior people responsible for the various areas that the credit 
committee and the market risk and credit risk committee 
covered. They would meet regularly to make sure that each one 
of them knew what the total exposure was, for example, say to 
real estate. And that number, they would stress test; they 
would determine whether or not we were getting overloaded in a 
particular area. If any of the operating divisions were 
resisting changing, it would go to the chief financial officer, 
who would bring the head of the risk management committee and 
the department that they were concerned with into my office and 
we would resolve it right then.
    There was control, and there was a recognition and a 
culture in the company that risk management was important. It 
has to start from the top. If the organization does not believe 
that the CEO is concerned with risk management, nobody else 
will.
    Ms. Watson. And that was you.
    Mr. Greenberg. That was me.
    Ms. Watson. Well, is the continued employment of the same 
five credit risk committee members who failed to see the 
writing on the wall concerning credit default swaps a good 
management decision?
    Mr. Greenberg. Well, the same people are there. It stuns me 
that they are. It stuns me that they're still there.
    Ms. Watson. Now, Robert Lewis, who was the chief risk 
officer, has been with AIG since 2004, 1 year before you left 
as CEO.
    AIG's auditor, PricewaterhouseCoopers, expressed concern 
about Mr. Lewis' unit in January 2008; and the Office of Thrift 
Supervision also informed AIG of the mismanagement risk by Mr. 
Lewis' unit. And do you believe that Mr. Lewis has the 
necessary skill sets and expertise to continue to handle this 
AIG----
    Mr. Greenberg. You know, he had those skill sets when I was 
there. It's hard for me to understand what happened. It's hard 
to understand. So I would like to--you know, I think, before he 
is condemned, somebody ought to find out whether or not he was 
told not to enforce the rules that he believed needed to be 
enforced.
    Ms. Watson. You know we are holding this hearing to try to 
get to the bottom of this. The failure of AIG has had a ripple 
effect, as you know, almost universally around the globe. And 
we are trying to gather information. We appreciate you coming 
and the time you are taking to try to explain. But if you were 
there now as the current CEO what steps you would take to 
improve the credit risk committee and its performance? Give us 
some help so we can advise.
    Mr. Greenberg. Well, there are several things.
    If I found out that Lewis either did not enforce the rules 
or was told not to enforce the rules, I'd find out why; and 
whoever was responsible for that would have an exit interview 
very quickly. There's no question that if he took that on 
himself, he'd be gone very quickly.
    But in order to save AIG, you've got to do more than deal 
with the risk management area. I repeat what I said earlier. I 
proposed a plan that I think ought to be considered to help 
save the taxpayer a great deal of money. It will--AIG will not 
be--in my judgment, the current plan will not pay the taxpayer 
back. You have to rebuild AIG, rebuild it, try and get as much 
as we can back from the counterparties, use guarantees as much 
as possible in order to conserve cash, and then raise capital 
from the private sector after you reduce the 79.9 percent. Make 
AIG a taxpayer again and an employer, not destroying it. How is 
that going to pay anybody back and create jobs?
    Ms. Watson. Right. My time has expired.
    Chairman Towns. The gentlewoman's time has expired.
    I recognize the gentleman from Illinois, Mr. Davis.
    Mr. Davis. Thank you very much, Mr. Chairman.
    Thank you, Mr. Greenberg.
    It is my understanding that AIG-FP, the entity that is 
apparently at the core of AIG's collapse, had its own board of 
directors that was separate from the parent company's board. My 
question is, does the fact that AIG-FP has a separate board 
prevent or hamper the parent company from exercising proper 
oversight?
    Mr. Greenberg. No. Because most of them--in fact, all of 
the members of the AIG-FP separate board came from the main 
board of AIG.
    Mr. Davis. They came from the main board?
    Mr. Greenberg. Yeah. In fact, the day we used to hold the 
AIG board meetings late that afternoon there'd be an AIG 
Financial Products board meeting, and several of the same 
members on the main board would attend.
    Mr. Davis. Let me ask you this, since April 2004, AIG-FP 
has had its own transaction review committee which was 
comprised of Joseph Cassano, the CEO of AIG-FP, and senior 
executives from the unit's business, legal, finance, and risk 
management groups. Amongst other responsibilities, this 
committee assesses AIG-FP's compliance with regulatory and 
accounting standards in structured finance transactions. And 
Mr. Frank Zarb was the chairman of the executive committee of 
the AIG's board of directors but was also on the board of 
directors of AIG-FP as of November 2004, while you were the 
CEO.
    Did Mr. Zarb ever raise any reservations concerning AIG-
FP's investments or derivative risk, or did Mr. Zarb or anyone 
else to your knowledge raise the issue of the potential 
conflict of interest in having the same person serve on both 
the board of AIG-FP and the parent company?
    Mr. Greenberg. No, that was never raised.
    Mr. Davis. And it was never raised. It was never perceived 
then to be----
    Mr. Greenberg. No, it was never raised. You know, we had 
Sullivan & Cromwell at that point as outside counsel to the 
board. In fact, one of Sullivan & Cromwell's people who had 
been connected with AIG for many, many years and had been a 
partner of Sullivan & Cromwell was on the board of Financial 
Products.
    Mr. Davis. Well, let me ask you one other question. Of 
course, we just passed the Pay for Performance Act in the House 
yesterday; and, essentially, this act will restrict 
compensation and bonuses for institutions that have received 
and not paid back funding from the TARP or the Housing and 
Economic Recovery Act. Could you comment on this bill and 
whether you consider it to be a step in the right direction in 
terms of properly regulated executive compensation?
    Mr. Greenberg. Well, I haven't read the bill. But, you 
know, my own sense is that over any period of time it would be 
best to not have the government setting compensation rules for 
business.
    Now I recognize when you take a great deal of money from 
the government, the government has to have a say in the 
compensation of a company. But if you--if the compensation is 
not competitive with the marketplace generally, it doesn't help 
to have people who will not perform at the level that you want 
that company to perform, because they are not being compensated 
adequately.
    Now, having said that, I would agree with anyone that 
compensation in the financial sector got out of hand in our 
country.
    Mr. Davis. Well, let me just say and ask this, under the 
concept of pay for performance, if assets are not being 
protected, if the public's resources are not being adequately 
protected, would you see new opportunity to enhance one's pay 
based upon their performance relative to the protection of 
those assets?
    Mr. Greenberg. No, if they haven't protected the assets, 
obviously, they should not be compensated. They probably ought 
to be fired.
    Mr. Davis. Which means then that the bonuses that 
individuals have been awarded in some instances, where it's 
clear that the assets were not protected, then those bonuses 
would not be warranted?
    Mr. Greenberg. They should not be. They should not get 
bonuses.
    Mr. Davis. Thank you very much, Mr. Chairman; and, Mr. 
Greenberg, thank you.
    Chairman Towns. Thank you very much.
    Mr. Greenberg, you know, I really want to thank you for 
coming today and sharing with us. However, you know when we 
asked you a little bit about the plan, I felt that you didn't 
realize how important it is for us. The point is, I want you to 
know that your plan is important to us, and we will look at it, 
and we will take it and share it with the other members of this 
committee and make certain that they look at it.
    So let me just close by saying, I appreciate your being 
here; and I appreciate the interest of all the Members who 
attended this hearing today.
    And before we adjourn, let me state that this committee 
intends to continue its examination of the financial crisis 
until we get a much better understanding of what caused it. As 
the old saying goes, the past is prologue. Until we can explain 
what went wrong, how can we chart the best course for reform? 
Today's hearing was just the first in a series of hearings 
where we will explore the roots of the financial crisis that 
grips our country.
    While it appears to be a conglomeration of problems that 
brought us to this point of economic crisis, one thing is 
clear: The so-called magic of the marketplace created more 
misery than good. Market self-regulation, discipline, and 
efficiency can no longer be relied upon to serve the good of 
the American people. Appropriately, regulation is no longer a 
dirty word.
    I look forward to working with this administration and my 
colleagues, the ranking member, Mr. Issa, and Members on both 
sides of the aisle to fashion meaningful financial regulations 
to stem the tide of financial ruin now and in future 
generations.
    Finally, please let the record demonstrate my submission of 
a binder with documents relating to this hearing. Without 
objection, I enter the binder in the committee record.
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    Chairman Towns. This concludes our hearing. The committee 
is now in recess for 2 minutes to prepare for the business 
meeting.
    [Whereupon, at 2:18 p.m., the committee proceeded to other 
business.]

                                 
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