[Congressional Record Volume 155, Number 48 (Thursday, March 19, 2009)]
[Senate]
[Pages S3579-S3582]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                  AIG

  Mr. SESSIONS. I thank Senator Chambliss from Georgia for his very 
fine summary. I think one of the more dramatic situations in which this 
Congress has found itself, in the face of a projected positive 
turnaround in the economy, a predicted unprecedented debt for years and 
years to come.
  This cannot go quietly. It is a big deal. We have never seen anything 
like this before. I hope our Senate colleagues will focus on it. I 
wanted to first return again to the AIG bonus issue and expand a little 
bit on the remarks I made earlier in the week.
  The simple fact is, we are investing a very large amount of not only 
money but time, energy, and bombast in how to deal with the one one-
thousandth of the AIG bailout money that has gone to bonuses. I think 
they are utterly unacceptable. They are going to the very division of 
AIG that got them into trouble. They were the last people who ought to 
get bonuses.
  Now, normally politicians who have a nation to run, Cabinet 
Secretaries who have an economy to manage, should not be spending a 
whole lot of time on a private company's bonus plan. But it has become 
necessary, unavoidable really, because our Government owns 80 percent 
of this company. We own 80 percent of the stock in AIG after investing 
$173 billion to buy that stock. So no wonder people are furious.
  If you are running a company, Secretary Geithner, how come we are 
having bonuses given to people who ought not to be receiving bonuses?
  Well, it is a difficult thing with the CEO. Why didn't he do 
something about it? The CEO, Chairman Liddy of AIG, was put in place by 
us--first, by Secretary Paulson back when he first started this 
misguided attempt last fall to take over this company, and he has been 
kept in place by Secretary Geithner, our new Secretary of the Treasury.
  I would also note that Secretary Geithner was walking hand in hand 
with Secretary Paulson last fall when they conjured up this scheme that 
sought to alter the financial problems on Wall Street. In reality, 
Secretary Geithner is the ultimate chairman of the board of AIG. He 
ultimately is responsible for bonuses, pay scales, office space, 
whether or not they have airplanes, and all of that stuff. So, oh, what 
a tangled web we create when we first start to regulate, to take over a 
private company.
  Mr. Geithner needs to get AIG and these banks--in addition to AIG--we 
have invested in, of which we now own large stock shares, off his 
portfolio, his list of things to be dealing with. He needs to be 
focused on the policies necessary to revive this economy.
  Did anybody see Coach K from Duke? He was asked about the President 
saying they were going to make it to the Final Four. And Coach K did 
not miss a beat. He just looked up and said: Well, that is nice. But I 
would really feel better if he were focusing on the economy.
  So would I. Distracted by these noteworthy and transient issues over 
bonuses, Mr. Geithner, who stands at the center of our people's concern 
over the economy, has not even begun assembling his staff. It is really 
troubling. I understand there are about 17 vacancies in his top staff. 
People are basically saying he is running the office himself with very 
little help.
  But he did find time to call Mr. Liddy, the hand-picked CEO at AIG, 
to demand that he not give bonus payments. He found time to go over to 
Europe to present--a mortifying spectacle to me, of the once-proud U.S. 
Secretary of Treasury now urging the big-spending, quasi-socialist 
Government of Europe to increase their spending, to increase their 
stimulus package, to increase their debt, and assuring them we are 
going to do more and we are leading, big government, big taxes, big 
spending, big debt.
  That does not make me proud. Some people may think that is 
leadership. I am not in that range. That is not my mindset today. 
Basically, it appeared the Europeans said no. They already thought they 
had spent enough. They are well below what we are spending as a 
percentage of their gross domestic product. They are not spending any 
more.
  I remember when I first came here as a young Senator. It came my time 
to question the Chairman of the Federal

[[Page S3580]]

Reserve, Mr. Alan Greenspan. I was nervous about it. I am not an 
economist. So I read to him from an article. I asked him if he agreed 
with it. It basically said the reason our economy was growing more than 
Europe, the reason we had quite substantially less unemployment was 
because we had less taxes, less spending, and less regulation.
  So I asked him: Is it less taxes, less spending, and a greater 
commitment to the free market the reason we are doing better than 
Europe?
  He looked up at me and he said: I absolutely agree with that.
  So I have taken that as sort of my marching orders. I still think 
that is a sound philosophy: to keep our regulations low, keep our taxes 
low, keep our spending as low as possible. Do not waste money, and we 
will get through a lot of these difficult issues.
  I would also note that I assume that Secretary Geithner at least had 
some role in this phenomenal, gargantuan proposal the President has 
just sent over here to us that proposes--get this--budget deficits 
higher than anything we have ever seen before.
  Last year, President Bush, his budget deficit was a record $455 
billion, and he was criticized for that. He was criticized for a $412 
billion budget deficit back on 9/11, the time when that recession hit 
us. He reduced it to $161 billion in 2007, and it jumped to $455 
billion last year.
  This year, with the stimulus package and other things we are doing, 
the projected deficit--as of September 30--will be $1.8 trillion. Next 
year, it will be $1.1 trillion. It is projected to reach its lowest 
point in 4 years, according to the President's own plan. The lowest 
point is at $533 billion, well above the highest amount in the history 
of the Republic.
  In year 10, it would be over $700 billion. As Senator Chambliss just 
noted to us, those figures are not accurate. Our own Congressional 
Budget Office is going to calculate the assumptions given to us by the 
White House, and everybody is pretty firmly convinced the numbers are 
going to come in higher and worse than that.
  It cannot be so that we will pass a budget that assumes a $700 
billion deficit 10 years from now, when they are also assuming a nice 
growth, not a recession or anything, but a nice growth at that time. 
Well, that is a general situation. It is not good. I just cannot 
believe this Congress would pass such a budget. I believe we will have 
to push back.
  I know a lot of my colleagues on the other side of the aisle are 
uneasy about it. The more they learn about it, I am confident the more 
uneasy they are going to be. It is just fact. I mean, you can talk and 
testify and you can spend, but when you send out a budget in a slick 
binder, with a blue cover on it, and it is the official projection for 
the next 10 years from the President of the United States, when they 
project these kind of numbers, I think the Congress and the American 
people will rally and do something about it and not accept it.
  I just wanted to say that. Now, with regard to AIG, this is a matter 
of great importance. In addition to teaching us a lesson about the 
danger of taking over private companies in general, there are some 
specific special problems with this bailout that I believe are worthy 
of discussion, and in some points, real investigation.
  It was highlighted by the Wall Street Journal in their lead editorial 
2 days ago. They pointed out that the bonus flap we have been talking 
about is a deflection from--a neat deflection--they say, from the 
``larger outrage, which is the 5-month Beltway cover-up of who 
benefitted the most from the AIG bailout.''
  First, they note that the Federal takeover of this once proud 
insurance company, AIG, was never approved by the AIG shareholders.
  Normally a company that merges or sells or changes its corporate 
makeup goes through some sort of vote by stockholders. They have proxy 
votes, solicitations. They attempt to get approval of the stockholders. 
We just took it over.
  The Wall Street Journal notes that, in effect, AIG was used as a 
conduit, a funnel to bail out others not mentioned. Since September 16, 
2008, AIG has sent $120 billion of their $173 billion of taxpayer money 
to banks, municipal governments, and ``other derivative 
counterparties'' around the world, not only in the United States.
  The Journal goes on to say that this includes at least $20 billion to 
European banks and, they wryly note, ``charity cases like Goldman Sachs 
which received at least $13 billion.''
  They further note:

       This comes after months of claims by Goldman that all of 
     its AIG bets were adequately hedged and that it needed no 
     ``bailout.'' Why take the 13 billion then?

  Then the Wall Street Journal, not one to needlessly dump unfairly on 
the Wall Street business crowd they often speak up for when they 
believe they are abused, declares importantly:

       This needless cover-up is one reason Americans are getting 
     angrier as they wonder if Washington is lying to them about 
     these bailouts.

  Then they ask the most critical question. Remember, Congress was told 
last fall that we had to bail out the banks because they were too large 
to fail and that their failure would pose a systemic risk to our 
economy. They said they were going to buy toxic assets. They never said 
they were going to buy stock. They never hinted they would buy stock in 
an insurance company.
  This is what the Wall Street Journal said about the systemic risk 
question:

       Given the government has never defined ``systemic risk,'' 
     we're also starting to wonder exactly which system American 
     taxpayers are paying to protect. It's not capitalism, in 
     which risk-takers suffer the consequences of bad decisions 
     and in some cases it's not even Americans. The U.S. 
     government is now in the business of distributing foreign aid 
     to offshore financiers, laundered through a once-great 
     American company.

  That is fundamentally true. It is not good. I don't think we ever 
should have started down that road.
  The Wall Street Journal concludes:

       Whether or not these funds ever come back to the Treasury, 
     regulators should now focus on getting AIG back into private 
     hands as soon as possible, and if Treasury and the Fed want 
     to continue bailing out foreign banks, let them make that 
     case honestly and directly, to the American people.

  I thank the Wall Street Journal for writing the truth on this complex 
issue. I don't like the way it was done. These decisions to hand out 
billions of dollars were not made in public. Until a few days ago, we 
didn't even know who got this money. These banks, these foreign banks, 
Goldman Sachs, the ones that have been listed as getting money, we 
didn't know their names. Our Secretaries of the Treasury, the two of 
them, have been passing out this money to these banks through AIG and 
not even saying where the money went. That is no good. And how do they 
decide how much to give them? Was there a hearing somewhere where 
people came, such as in the Senate--poor as we are at it--raised their 
hands under oath or, much preferred, was there something like a 
bankruptcy proceeding where a Federal judge calls all the people in, 
collects the data, figures out what the income is and the debts are, 
and makes people testify under oath and lawyers cross-examine them and 
they get down to what the real facts are and then decisions are made 
about how to handle a company like this?
  No, apparently they went in and got down on Mr. Geithner's rug and 
Mr. Paulson's carpet and asked for $20 billion. And he said: How about 
10?
  No, I need more.
  OK, you get 13.
  Of course, they knew one another. That is just a fact. I am not 
making it up. Where did Secretary Paulson come from? He came from 
Goldman Sachs. I wonder what it would have looked like if he had given 
Goldman Sachs $13 billion publicly.
  I am not happy about it. I don't think the previous administration 
handled it well. I am disappointed that this administration has taken 
Mr. Paulson's right-hand adviser--some say the architect of his plan--
and put him in charge of it. He is continuing this indefensible 
process. I opposed it at the time. I said we are giving too much power 
to one man. In the history of the Republic, we have never given this 
kind of power to one man to pass out this kind of money. This is the 
Senate. It is taxpayers' money. We threw him $700 billion and said: Do 
whatever you think is right. He told us he was going to buy toxic 
mortgages. Remember that? Within a week, he decided he wasn't going to 
buy toxic mortgages. He bought stock; not only in banks, he bought 
stock in insurance companies.

[[Page S3581]]

It is a dangerous thing. When you get into owning these companies, 
people start wanting to know about what kind of bonuses they have, what 
kind of car the CEO drives, whether they should have a jet plane. The 
Secretary of the Treasury ought to be involved in other things besides 
managing corporate affairs. He needs to get us out of these companies 
as soon as possible.
  I talked to some people from a very solid Main Street bank, big Main 
Street bank, who were pressured to take money at the time they came up 
with this scheme. They want to pay the money back and get out from 
under the Federal boot. They are not agreeing yet to do that. I am not 
happy about that.
  I understand another bank may be the same. Others are worried about 
whether they will be allowed to pay this money back and get out. This 
bank told us, the people I was talking to: We are ready to get out. We 
think we will do better. Our stock will go up, if the people know we 
are not indebted to the government. We are strong enough. We are not 
happy about this.
  They are getting the impression and the fear they have--along with 
other banks in a similar situation--is that there is a resistance from 
the Treasury Department to have them do that, which would be 
unthinkable to me.
  I hope we will find out more about it. If there is wrongdoing of a 
more serious nature than incompetence and bad judgment, I hope it will 
be pursued. Hopefully not; I hope there is no more than bad judgment. I 
hope as Americans we learn a lesson that it is not easy and there are 
all kinds of unanticipated ramifications from the act of taking over 
private companies.
  Mr. Chairman, I ask unanimous consent to have printed in the Record 
the text of this Wall Street Journal editorial, as well as the list of 
companies benefitting from AIG's bailout.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, Mar. 17, 2009]

                          The Real AIG Outrage

       President Obama joined yesterday in the clamor of outrage 
     at AIG for paying some $165 million in contractually 
     obligated employee bonuses. He and the rest of the political 
     class thus neatly deflected attention from the larger 
     outrage, which is the five-month Beltway cover-up over who 
     benefited most from the AIG bailout.
       Taxpayers have already put up $173 billion, or more than a 
     thousand times the amount of those bonuses, to fund the 
     government's AIG ``rescue.'' This federal takeover, never 
     approved by AIG shareholders, uses the firm as a conduit to 
     bail out other institutions. After months of government 
     stonewalling, on Sunday night AIG officially acknowledged 
     where most of the taxpayer funds have been going.
       Since September 16, AIG has sent $120 billion in cash, 
     collateral and other payouts to banks, municipal governments 
     and other derivative counterparties around the world. This 
     includes at least $20 billion to European banks. The list 
     also includes American charity cases like Goldman Sachs, 
     which received at least $13 billion. This comes after months 
     of claims by Goldman that all of its AIG bets were adequately 
     hedged and that it needed no ``bailout.'' Why take $13 
     billion then? This needless cover-up is one reason Americans 
     are getting angrier as they wonder if Washington is lying to 
     them about these bailouts.
       Given that the government has never defined ``systemic 
     risk,'' we're also starting to wonder exactly which system 
     American taxpayers are paying to protect. It's not 
     capitalism, in which risk-takers suffer the consequences of 
     bad decisions. And in some cases it's not even American. The 
     U.S. government is now in the business of distributing 
     foreign aid to offshore financiers, laundered through a once-
     great American company.
       The politicians also prefer to talk about AIG's latest 
     bonus payments because they deflect attention from 
     Washington's failure to supervise AIG. The Beltway crowd has 
     been selling the story that AIG failed because it operated in 
     a shadowy unregulated world and cleverly exploited gaps among 
     Washington overseers. Said President Obama yesterday, ``This 
     is a corporation that finds itself in financial distress due 
     to recklessness and greed.'' That's true, but Washington 
     doesn't want you to know that various arms of government 
     approved, enabled and encouraged AIG's disastrous bet on the 
     U.S. housing market.
       Scott Polakoff, acting director of the Office of Thrift 
     Supervision, told the Senate Banking Committee this month 
     that, contrary to media myth, AIG's infamous Financial 
     Products unit did not slip through the regulatory cracks. Mr. 
     Polakoff said that the whole of AIG, including this unit, was 
     regulated by his agency and by a ``college'' of global 
     bureaucrats.
       But what about that supposedly rogue AIG operation in 
     London? Wasn't that outside the reach of federal regulators? 
     Mr. Polakoff called it ``a false statement'' to say that his 
     agency couldn't regulate the London office.
       And his agency wasn't the only federal regulator. AIG's 
     Financial Products unit has been overseen for years by an 
     SEC-approved monitor. And AIG didn't just make disastrous 
     bets on housing using those infamous credit default swaps. 
     AIG made the same stupid bets on housing using money in its 
     securities lending program, which was heavily regulated at 
     the state level. State, foreign and various U.S. federal 
     regulators were all looking over AIG's shoulder and approving 
     the bad housing bets. Americans always pay their mortgages, 
     right? Mr. Polakoff said his agency ``should have taken an 
     entirely different approach'' in regulating the contracts 
     written by AIG's Financial Products unit.
       That's for sure, especially after March of 2005. The 
     housing trouble began--as most of AIG's troubles did--when 
     the company's board buckled under pressure from then New York 
     Attorney General Eliot Spitzer when it fired longtime CEO 
     Hank Greenberg. Almost immediately, Fitch took away the 
     company's triple-A credit rating, which allowed it to borrow 
     at cheaper rates. AIG subsequently announced an earnings 
     restatement. The restatement addressed alleged accounting 
     sins that Mr. Spitzer trumpeted initially but later dropped 
     from his civil complaint.
       Other elements of the restatement were later reversed by 
     AIG itself. But the damage had been done. The restatement 
     triggered more credit ratings downgrades. Mr. Greenberg's 
     successors seemed to understand that the game had changed, 
     warning in a 2005 SEC filing that a lower credit rating meant 
     the firm would likely have to post more collateral to trading 
     counterparties. But rather than managing risks even more 
     carefully, they went in the opposite direction. Tragically, 
     they did what Mr. Greenberg's AIG never did--bet big on 
     housing.
       Current AIG CEO Ed Liddy was picked by the government in 
     2008 and didn't create the mess, and he shouldn't be blamed 
     for honoring the firm's lawful bonus contracts. However, it 
     is on Mr. Liddy's watch that AIG has lately been conducting a 
     campaign to stoke fears of ``systemic risk.'' To mute 
     Congressional objections to taxpayer cash infusions, AIG's 
     lobbying materials suggest that taxpayers need to continue 
     subsidizing the insurance giant to avoid economic ruin.
       Among the more dubious claims is that AIG policyholders 
     won't be able to purchase the coverage they need. The 
     sweeteners AIG has been offering to retain customers tell a 
     different story. Moreover, getting back to those infamous 
     bonuses, AIG can argue that it needs to pay top dollar to 
     survive in an ultra-competitive business, or it can argue 
     that it offers services not otherwise available in the 
     market, but not both.
       The Washington crowd wants to focus on bonuses because it 
     aims public anger on private actors, not the political class. 
     But our politicians and regulators should direct some of 
     their anger back on themselves--for kicking off AIG's demise 
     by ousting Mr. Greenberg, for failing to supervise its bets, 
     and then for blowing a mountain of taxpayer cash on their AIG 
     nationalization.
       Whether or not these funds ever come back to the Treasury, 
     regulators should now focus on getting AIG back into private 
     hands as soon as possible. And if Treasury and the Fed want 
     to continue bailing out foreign banks, let them make that 
     case, honestly and directly, to American taxpayers.
                                  ____



         ATTACHMENT A--COLLATERAL POSTINGS UNDER AIGFP CDS \1\

                              [$ billion]

        Counterparty                                      Amount Posted
Soiete Generale....................................................$4.1
Deutsche Bank.......................................................2.6
Goldman Sachs.......................................................2.5
Merrill Lynch.......................................................1.8
Calyon..............................................................1.1
Barclays............................................................0.9
UBS.................................................................0.8
DZ Bank.............................................................0.7
Wachovia............................................................0.7
Rabobank............................................................0.5
KFW.................................................................0.5
JPMorgan............................................................0.4
Banco Santander.....................................................0.3
Danske..............................................................0.2
Reconstruction Finance Corp.........................................0.2
HSBC Bank...........................................................0.2
Morgan Stanley......................................................0.2
Bank of America.....................................................0.2
Bank of Montreal....................................................0.2
Royal Bank of Scotland..............................................0.2
                                                               ________
                                                               
    Top 20 CDS Total..............................................$18.3
Other...............................................................4.1
                                                               ________
                                                               
      Total Collateral Postings...................................$22.4

\1\ The collateral amounts reflected in Schedule A represent funds 
provided by AIG to the counterparties indicated after September 16, 
2008, the date on which AIG began receiving government assistance. The 
counterparties received additional collateral from AIG prior to this 
date, and AIG's SEC report relating to ML III reflects the aggregate 
amount of collateral that counterparties were entitled to retain 
pursuant to the terms of the ML III transaction.

[[Page S3582]]



   ATTACHMENT B--MAIDEN LANE III PAYMENTS TO AIGFP CDS COUNTERPARTIES
                              [$ billions]
------------------------------------------------------------------------
                                                             Maiden Lane
                                               Maiden Lane       III
   Institution (Counterparty may differ)      III Payments     Payments
                                                 Made to       Made to
                                             Counterparties     AIGFP
------------------------------------------------------------------------
Deutsche Bank..............................           $2.8
Landesbank Baden-Wuerttemberg..............            0.1
Wachovia...................................            0.8
Calyon.....................................            1.2
Rabobank...................................            0.3
Goldman Sachs..............................            5.6
Societe Generale...........................            6.9
Merrill Lynch..............................            3.1
Bank of America............................            0.5
The Royal Bank of Scotland.................            0.5
HSBC Bank USA..............................        \1\ 0.0
Deutsche Zentral-Genossenschaftsbank.......            1.0
Dresdner Bank AG...........................            0.4
UBS........................................            2.5
Barclays...................................            0.6
Bank of Montreal...........................            0.9
Other payments to AIGFP under Shortfall      ..............         $2.5
 Agreement.................................
                                            ----------------------------
      Total................................           27.1          2.5
------------------------------------------------------------------------
\1\ Amount rounds to zero.

 ATTACHMENT D--PAYMENTS TO AIG SECURITIES LENDING COUNTERPARTIES 9/18/
                              08-12/12/08

                              [$ billions]

      Payments to Counterparties by Institution U.S. Securities Lending
Barclays...........................................................$7.0
Deutsche Bank.......................................................6.4
BNP Paribas.........................................................4.9
Goldman Sachs.......................................................4.8
Bank of America.....................................................4.5
HSBC................................................................3.3
Citigroup...........................................................2.3
Dresdner Kleinwort..................................................2.2
Merrill Lynch.......................................................1.9
UBS.................................................................1.7
ING.................................................................1.5
Morgan Stanley......................................................1.0
Societe Generale....................................................0.9
AIG International Inc...............................................0.6
Credit Suisse.......................................................0.4
Paloma Securities...................................................0.2
Citadel.............................................................0.2
                                                               ________
                                                               
      Total....................................................\1\ 43.7
\1\ Amounts may not total due to rounding.
  Mr. SESSIONS. I yield the floor.

                          ____________________