the morning on september sixteenth two thousand and eight the wall street giant faced immediate bankruptcy was saved from collapse when the american came to the rescue with a with an eighty five billion dollar bill no less than two months later the american taxpayer was again forced to pay the bill when the federal reserve directed a i g to  of dollars to counter parties that included the biggest names on wall street in effect the taxpayers were propping up the hollow shells of the id by stuffing it with money and the rest of wall street came by and looted the course the circumstances surrounding the payments to the county party has created an air of suspicion and distrust among the american people starting with the new york fed nish a refusal to name the counter party the new york fed argued that disclosing these counter parties would somehow injure a in fact when the information was finally released under pressure from congress nothing happened it had absolutely no effect on the i d s business or financial condition but it did have an effect on the credibility of the federal reserve and it called into question the fed's pension for secrecy we need to change the culture on wall street and the culture among the regulators from the secrecy of transparency recognizing that only true confidential competitive or consumer information should be protected as we see it here a year and a half later f b i g e handed out b s in taxpayer dollars because of this secrecy we still don't know why or how the decision to rescue a i was made or who made the decision to offer a g s trading partner one hundred cents on the dollar in the so called counter party payment every day in the business world when a company is having financial problems its creditors have to take less money than they are owed otherwise they risk not getting any money at all they they call this a haircut in the case of a i g nobody got a haircut and said they were given a piggy bank full of taxpayers dollars and said help yourself let me just say plainly that i think just about every american would say the government should have forced a adji scallop party to take less money evidently major decisions were made by a combination of the federal reserve the federal reserve bank of new york and the bush treasury department today we will hear from witnesses who were involved in making these decisions and we hope they can shed light on a murky set of facts under subpoena the committee obtain more than two hundred and fifty thousand pages of documents from the new york  telling its handling of the i g counterparty particularly disturbing is the fact that these e mails indicate that a i g proposed to disclose to the f c c and the public the names of the counter parties and the payment but it was the new york fed that directed a i g to withhold this information as one new york fed staffer put it in a public disclosure by a i g is still subject to fed approval at least two things are clear here the entire financial regulatory system was broken and there's shouldn't be any more bailouts the lack of transparency we have seen in the double bailout of the i g leads to distrust which leads to anger the question that looms over all of this how do we prevent a repeat of the financial crisis in the future unless the congress adopt genuine financial services reform it will be only a matter of time before we see another a i g another bear stearns another lehman brothers and the next big bank will be too big to fail and the taxpayers will wind up with a deal again and again and again i asked my republican colleagues on this committee to join with me and six in the system blame is about yesterday fixing this system is about today and the future in the a r g case we can talk all we want to about complicated business deals but this all boils down to a simple concept when average people were losing their homes and jobs the same big banks that caused the problem got every dollar back courtesy of the american taxpayer and the federal reserve tried to keep important information a secret security leads to distrust and the american people now distrust what happened in the bailout congress has a right to know how and why that happened and i'd like to ask unanimous consent pursuant to our rules that spencer baucus the ranking member on financial services committee kevin brady of texas the ranking house republican on the joint economic committee roy blunt the former majority whip ron paul whose credentials on this are well understood and cliff stearns of florida be allowed to sit on the day s and should to be time allowed to ask inquest questions pursuant to the rules without objection i dish and i would ask at this time to submit for the record schedule a which is in fact the shortfall agreements between made in three and financial products since they will be referred to in questioning and we want to make sure they are officially in the record although they will not be reviewed further during this hearing thank you mr chairman thank you mr chairman for all of this and more working together with you on the subpoena documents has caused both the majority and minority to glean considerable new information in recent weeks this committee receiving these documents have caused us to better understand the new york fed pressured to abort negotiations designed to obtain a haircut as it was called from its counter parties and keep the details account of parties payments from appearing on forms the firm's forms at the  today we all know the questions we will ask is should the american people be kept from knowing until two thousand and eighteen the details of who are the ultimate beneficiaries of this bailout as i have said before i consider this a bad back door bailout the people giving us testimony today will tell us that they felt that this was essentially necessary mr chairman as you can recall founder hank greenberg has previously testified along with edward liddy and in that testimony hank greenberg made it very clear that he believed that one hedging should have occurred sooner and two bankruptcy would have been a cleaner way to resolve a company in which he is the largest stockholder i'm proud to say after that hearing their founder to help them maximize the value of a company that is currently eighty percent owned by the american people not to say that there's a lot of good news mr chairman it's clear that the money paid and it's being kept secret may ultimately cause the american people never to repay to be repaid these dollars  i'll try to can you hear me ok no you can't ok now ok i will i will focus on this microphone this time usually the problem is i'm too well heard  generally today we will have an opportunity to ask questions and the american people will have the right and i believe will receive straightforward answers so far mr chairman this is what we know we know that some of today's witnesses played a central role in the decision to bail out aig rather than allow the normal bankruptcy skin procedures to run their course we know that one of today's witnesses made the decision to pay down a parties at one hundred cents on the dollar we know that one of today's witnesses was the primary architect of the trust agreement whereby the taxpayers investment in a edgy is managed not in the interest of the u taxpayers but of the united states treasury department that was from previous testimony and we rely on that to say perhaps that is not the right answer we know that the new york fed sought to cover the counterparty payments made possible by the taxpayers money we now better understand that the new york fed transferred their earlier responsibility to the american people after tarp was passed we know that the new york fed succeeding in getting the c succeeded in getting the f c c to continue the cover up until two thousand and eighteen ten years from the date the bailout began and we know that the full amount paid to a counter parties will likely never be repaid to the american people some facts mr chairman remain unknown or uncertain secretary geithner has claimed publicly that he has rick he recused himself from the day to day management of new york fred when the cover up occurred in fact he  asserted complete ignorance of the fed's efforts to cover up the bailout details many people including members of this committee have a hard time believing that secretary geithner entered into an absolute cone of silence for those of us old enough to remember what that was on the day of his nomination his nomination was announced where was secretary geithner for the months and months that backdoor bailouts were being questioned in the media did he ever wonder why his decision to germantown ranking member eissa members of the committee thank you for the opportunity to test the five before you today i welcome the committee's attention to this issue and we will continue to work closely with this committee with all other oversight body smisek to put them i guess a little close we have a little trouble i'm almost eating it right now how's that sound system is not too good about here we keep but i don't think i can make it a closer i want to make sure that the american people have a comprehensive view of the actions we took to end this financial crisis deciding to support was one of the most difficult choices i have ever been involved in in over twenty years of public service the steps that were taken were motivated soley by what we believe to be in the public interest we did not act because he asked for help we did not act to protect individual institutions we acted because the consequences of failing would have been catastrophic for our economy and for american families and businesses more than a year removed from that terrible week of september two thousand and eight i believe that the government strategy and it was the government's strategy was the best of the available options and will ultimately cost the taxpayer far less than that he feared and far less than many alternatives many people suggest today would have been better and importantly if you join with the president in adopting his proposed financial responsibility fee american taxpayers will not have to pay one cent for the actions we took in a edgy or the actions we took with the authority congress gave the administration to stabilize this financial crisis i g s problems became acute just a few days before lehman declared bankruptcy at that time our financial system and our economy stood at the brink of collapse the banks and financial institutions that americans rely on to protect their savings to help finance their child children's education to help pay their bills were risks in which few americans had ever experience the banks and the financial markets that businesses rely on to meet payroll to build in the tory to fund new investments to create new jobs were threatened like at no time since the great depression across the country across the united states of america people were rapidly losing confidence in our financial system and in the government's ability to safeguard their economic security in the midst of this storm i g posed a much greater threat than lehman the i g was much larger it was spread across the globe and its failure would have been far worse hitting americans in ways lehman could not  idea was one of the largest life and health insurance companies in the country one of the largest property and casualty insurers providing insurance to one hundred eighty thousand small businesses and other corporate entities which together employed eight hundred million people have sold products to protect local and city governments pension funds and thousands of public and private companies through guaranteed investment contracts and protection for  and as problematic he had a gauge in a broad range of financial activities that still that strayed well beyond traditional insurance businesses using a credit rating based on the strength and profitability of its insurance companies it had become one of the largest providers of complicated financial products in the world it made hundreds of billions of dollars of financial commitments without the resources to back up those commitments should have never been allowed to take those risks but it was its insurance regulators in twenty different states the regulators in other countries responsible for overseeing their international activities and its holding company supervisors the office of thrift supervision did not act to constrain the risks he was taking important to recall that the federal reserve was given no responsibility and no authority to contain risk to add he was taking biology and none of those regulators in the moment of crisis had any ability to respond to its failure the government of the united states did not have the ability to seize a i g and wind it down in an orderly way as the f d i c can and does for banks not as a bankruptcy code nor insolvency procedures for insurance companies could have handled the job and there was no way to draw a line around  prevent its failure from wreaking havoc across the system the federal reserve was at the center of response to the crisis because it was the only fire station operating the federal reserve faced a terrible choice to support adji putting billions of dollars of taxpayer resources at risk or to let it fail and except potentially catastrophic damage the economy we were not willing to accept such to a catastrophe so just four days after the edgy was drawn into that crisis the edgy crisis we extended adji a line of credit should secured by its insurance business is in richer and the taxpayer took about an eighty percent stake in the company and began the process of restructuring management and the board and the firm itself that initial action to help stem the bleeding for a time but given the massive losses a i g faced and given the force of the store a storm moving across the global financial system it was not enough and we had to work very quickly almost from the beginning to design and implement a broader more permanent restructuring you need a capital not just a line of credit g's vulnerability to future losses to the bleeding of cash had to be reduced on november tenth the federal reserve and the department of treasury jointly announced a series of steps designed to stabilize the company the treasury invested four hundred forty billion dollars of preferred capital under the authority congress provided the executive branch under the tarp and the federal reserve help us stablished and fund two entities called maiden lane two and three to purchase a range of assets from the company that were threatening a huge financial solvency maidenly in three in particular has been the appropriate would be a part of the subject appropriately of a range of questions about how we treated firms that have brought these insurance contracts from a edgy and in this effort and i want to make this very clear in this effort our objective was as always to get what that was the to get the best the best deal for the american taxpayer and we faced a number of options if we had let defaults on the contracts he would have gone into bankruptcy triggering all the disastrous economic consequences we had feared since september that led the government to act initially if we continue to lend  money to meet these obligations its growing debt would have led to a credit rating downgrade bringing down the firm itself and putting more taxpayer dollars at risk if we had tried to force kind of parties to accept less than they were legally entitled to market participants would have lost confidence in the i g leading to the company's collapse the counter parties could have refused they could have clicked kept the billions in collateral they had already taken they could have kept the billions in securities they already had and they could have sued a i g for beach of contract we did not have the luxury of time we could not engage in protected negotiations the id's financial position was deteriorating rapidly day by day the prospect of failure was imminent so we restructured those contracts to stop the bleeding and potentially recover some value for the taxpayer in the future now although the government still faces the risk of substantial losses in its overall exposure de i g we expect that this particular transaction the the one the very one is the heart of so much controversy will be paid off in full with interest generating some profit for the american taxpayer now one of ember twenty fourth after president obama announced his intention to nominate me for sector of the treasury and after a broad consultation with the chairmen the federal reserve and others i decided to stay on as president new york fed on an interim basis but i withdrew from monetary policy decisions policies involving individual financial institutions and d day management of the new york fed i had no role before or after makoni forth and making decisions regarding what to disclose about the specific financial terms of mainly in two and three and payments to as you can or parties chairman the broad strategy that the government adopted to contain this financial crisis has been remarkably effective at stemming the crisis breaking the momentum of the crisis and repairing the damage and this has been achieved at much lower cost in taxpayer resources than many people anticipated confidence in the basic stability of the american financial system is much stronger today borrowing costs per american businesses and consumers for households for state governments have fallen dramatically the economy is now growing the support we provided to a i g in the context of the broad strategy to put out this financial risk fire was essential to achieving this really beginning of healing and recovery banks have already repaid two thirds of the tarp investments that my predecessor appropriately made the only support this administration has provided the bank since i took office to banks with seven billion dollars to regional small community banks more than seventy five percent of the emergency government guarantees that i inherited when i took into office have now been shut down and closed at a profit to taxpayers over the last year the expected cost of stabilizing the financial system has fallen by over four hundred billion dollars that is real resources that we can use to meet the many other challenges we face as a country and if congress joins with us in adopting the president's proposal for a financial responsibility fee the american taxpayer will recoup every penny of potential losses under the tarp now this economy is still in crisis but because of the government's actions the american financial system is now in a position where it can provide the credit necessary for economic growth and that is a sensual to lay the foundation for job growth and long term economic prosperity now let me close by saying this if you are outraged by edgy and you should be if you are outraged by what happened with the i g then you should be deeply committed to financial reform the united states of america should never have let institutions like the i g take on a level of risk that could threaten the stability of the financial system and the government of the united states should never have been in the position going into a crisis of this severity without the basic tools able to contain the damage and protect the taxpayer so i hope you will join us in working to put in place a strong package of financial reforms that will protect consumers protect investors protect the taxpayer and protect our economy from excessive risk taking by financial institutions and mr chairman one final thought the public servants involved in making these decisions acted solely in the public interest acted solely in the interests of the american taxpayer they are dedicated americans who bring to government service enormous experience and the highest integrity i would never and they would never be part of any decision any public decision intended for private benefit and not the public interest the decisions we made together regarding edgey were enormously consequential they were terribly difficult they were the subject of extraordinary controversy within each of the institutions responsible and for that reason they were subject to enormous care and deliberation but i believe a fair reading of history a careful fair reading of history of all the judges we made will demonstrate that the actions we took and i was there were essential to preventing broader catastrophe and the solutions we took reduce the ultimate cost of the american taxpayer and the american economy is much stronger today as a result thank you very much thank you very much mr secretary let me begin by asking a couple questions were you involved in any discussions with your staff involved where you discussed what you should or should not disclose to the public i said i had no role in making those decisions but as the record shows in the record before the committee shows a large number a number of people at the federal reserve bank of new york and the federal reserve board in washington played a very active role in thinking through those difficult choices but i'm not sure i got to get the answer the i will may say again i played no i personally played no role before the twenty fourth or after  making those decisions but you asked whether any any employees of the new york fed did of course they did when you were the president of the federal reserve bank of new york when did you read to us self matters involving specific companies and why did you  on november twenty fourth the president announced his intention nominate me a sec to the treasury that to force me to make a set of decisions about what was appropriate for me to do given the unique circumstance of that time and after consulting with the chairman the federal reserve with the chairman of my board with my general counsel and with a range of other officials collectively we decided that it was in the best interest of the fed and the incoming administr for me to remove myself from day to day involvement in the fed's policy issues to leave that responsibility to my colleagues at new york fed led by the executive the first vice president but not to step down as president and we made that decision because we wanted to make sure we were protecting the innocent independence of the fed and because i was going to be spending by necessity a huge part of my time in helping shape the president's economic agenda and i was not going to be able to give the care and effort needed to carry on running the fed on a day to day basis our judgment was that was the best decision at the time i'm confident of that in retrospect it was unique it was unique but i don't think there's a better  it's on the screen as well you had some interest in how much the counter parties were oh please tell the committee what impact the counter parties the exposure had on your decision to pay understands on the dollar this german that played no role in our decision as i said in my opening statements i testified before we had to make a difficult choice about what was going to prevent the failure of the firm at least cost to the taxpayer if we had broken those contracts if the i g had not paid them in full if we had threaten default if we had imposed haircuts if we had selectively impose haircuts that would have brought about a downgrade its rating the firm would not have been able to operate and it would have collapsed it was because of those choices we took the path we did to restructure the contracts and leave the taxpayer with some of the potential upside in those securities now judging what is systemic and why and failure of a g might matter for the system as a whole is a very difficult judgment to make there's no black and white choice in that context but our judgment was they said in my testimony that a collapse would have dramatically magnified all the effects you saw in the immediate aftermath of lehman's failure and in some ways they would've been more consequential because they would have spread to a set of insurance businesses and that would have been much worse for the country so we were guided by a simple but terrible choice how best to prevent default at  secretary geithner i think for me i think you you've answered you know that you played no role in the decision to not disclose the full payment one hundred percent payment to the counter parties that you were not part of what some of us have called a cover up is that right absolutely ok let me follow up then you if after november twenty fourth you were not involved in in any asked activity then one more just to be clear did you ever become involved with the federal reserve disclosure decision with respect to a counterparty claims after your nomination as treasury secretary other words have you ever participated or questioned or stayed involved with that no i did not  from what we were given by the fed can we put up slide one this e mail from you says to william dudley your replacement on march of two the counterparty disclosure issue long after you left you made this email what was it about and what was the answer well because as you know this question of disclosure was  subject of huge amount of controversy and most people think yeah that's for my sons and i go to you and i think most people feel as you do they said why shouldn't it be disclosed why should you vote and as you know in so i assume i was in what you might expect in that context and asking them where they were going to where they're going to change their position ok well then following up on your continued involvement and looking at them where are you on this do you believe that there should be full disclosure as the president has said that these kinds of instruments should be public that the essential they be shoot like any other instrument the details of which should be available broadly congressman i and i believe deeply that trust and confidence in the financial system requires disclosure and transparency i believe the trust and confidence in the government requires that our actions be subject to full exposure and review by careful independent analysis and i have been very very supportive since i came into office and before to making sure we are bringing an unprecedented level of disclosure to the transparency around the actions of the government i just gave you a few examples when i came yes we put the financial terms of all of the transactions we undertook into the tarp in the public domain for everyone to see one of the reasons our financial strategy has been successful and bring a measure of stability back to our system is we compel the largest institutions in the country to subject their balance sheets to a less of a secretary secretary and i appreciate what you've been doing as treasury secretary but i have in front of me from the fed mark confidential the details of who benefited who got these benefits and currently it's locked up till two thousand and eighteen by an order that wasn't negotiated in final until may of this year or later they have last year long after you were obviously able to be involved that that locks up the public knowing and these these are assets the american people have paid for in full right do you believe that we should know about these it's very important recognize that the fed did in march of two thousand and nine fully release information the counter parties and the details that transaction and based on what i know i thought that says it was appropriate then now i know a lot of people have said ok should that have come sooner i think reasonable people could come to that judgment but i did not stand in their shoes the now as as a member and the head of the new york fed and also i guess broadly a member of the board generally u should be a law to go bankrupt which was then held back on september sixteenth based on his december decision on september fifteenth not to disclose is for a broad vote of the board weren't you i don't i'm not aware the know you're for to but i'm aware of the following and i want to the witness may answer the question and then we're going to move on to the next question thank you every decision we made in the days before september sixteenth and afterwards were enormously controversial question we want is were you aware of that and if you weren't do you think you should have been aware of that for a vote on september sixteenth that's all well i was aware that there was enormous concern both in the new york fed and at the federal reserve board about the choices we are confronted a said there is nothing more controversial difficult than i think any we face in this context and i think it should be reassuring and no surprise that those actions in the record will show that those actions were the subject of enormous debate and they would sort of debate before the sixteenth and afterwards and every time we face the possibility of having to do more we all step back and do we really need to do that does that make sense and that is a good thing for the country you have people willing to debate that and argued forcefully thank you to recognize meetings in new york after that game extensively on monday and tuesday we have concluded that absolute worst thing they could have done every one of those meetings would have made the correct american economy as i've heard your testimony you come to the conclusion that a rescue package is not been passed by the congress the united states authorizing the secretary and the president  thing and they made it possible for my predecessor and the federal reserve to start to stabilize this thing and it would not have been possible without that also without that authority and without that legislation i appreciate that sometimes as a matter of fact i took that argument to the white house and that time if you remember the president was not as outspoken and i always was in a democracy such as ores transparency both bad news and dangerous news must be shared with people and part of the problem is that time we didn't share that and even today most people in this audience and most people throughout america have no idea how close we came to total annihilation disaster is that correct that is my view i think for the first sciences the great depression you were seeing a full scale run of the financial system people were taking their savings out of banks they wondered whether a dollar was a dollar whether dollar in a money market fund would be worth a dollar they worried about whether a dollar lent to a aaa company would be worth a dollar it was a basic calamitous breakdown in the fabric of our system and  recovery would have been possible without starting to stabilize a system in stem the bleeding and that was something that could not happen without the authorities that as i said many people in this room many people on both sides of the aisle voted to approve am i correct that there were discussions held at the highest echelons of the united states government and the congress at that very time as to whether or not law and order could be secured in the united states if we did not take persepolis action to assure th people that the economic markets of the united states in the world would be held secure i was not in the executive branch of that time so i can't speak to that that would not surprise me if that was the case again this was a grave this crisis we have seen since the great depression it was not going to solve itself many people advocate it we should let it burn itself out but that would have been catastrophic for the economy we're still living with the consequences of the damage in the wreckage the scale of challenges we face today as an economy fateful two weeks weren't the correct decision for the congress and i think every day about things we could have done differently and done early and i think a great strength of this country is that people in basis for fixing this mess and preventing it from happening again and we will cooperate fully in all that effort thank the gentleman to recognize do they have the authority to make these kinds of comments decisions without you knowing about of course november the eleventh when you were still at the fed and the internal memo said as a matter of course we do not want to disclose that the concession is at par unless absolutely necessary are you familiar with that me that e mail as i said i was not involved in decisions about what to disclose about the individual transactions or the names of kind of but i have enormous trust and confidence in the integrity judgment of people who were on  understanding is that it is in training and could come out as early as today are you familiar with that i don't recall his response and i don't recall in front of him but now i don't remember that no i don't but i do remember at the time there was still enormous building pressure on the fed to disclose and they did disclose you still maintain that you weren't involved in any of this yes absolutely were you aware that all of these  organizations around the world society generale goldman sachs merrill lynch deutsche bank u b s were all getting a hundred cents on the dollar absolutely you're aware of all  that why wasn't this disclosed back in november when you were the head of the fed that is a question you need to direct to the people who are responsible for that judgment when you're the head of the i was the head of had i was the head of the fellows or bank in new york until i was  fully support believe was the right choice was a decision to restructure these contracts in a way that was better for the taxpayer and for fans of the fault of the company i was fully supportive that fully aware that for us to believe that you had no role in this and didn't know anything about it when your attorneys and people to work for you were in the e mails all around the place and you were the head of the fed and you didn't know anything about it it just doesn't make any sense to me and i think a lot of my colleagues feel the same way expired but mr secretary you may answer the question i am very supportive as part of financial reform of trying to make sure that the fed is subject to an adequate level of transparency and disclosure and oversight and the chairman of th worked with many members in congress in helping shape reforms that would achieve that outcome i'm doing that the yes i'll take that in doing that though i want to be very important protecting appends the fed a monetary policy issues it would be a deep mistake for the country great mistake for the country to  and let me tell you that when i asked for the hearing i must tell you that i was extremely concerned and i was i was questioning whether you had acted that you would tell the truth is that the record i did i said is that what they were and i assume that the statement you're written statement is a statement which you would also swear to absolutely and i can tell you that as i read your written statement i'm trying to figure out as far as the the even issue getting involved with a i g and what you all did i don't know i don't know what anybody else would have done i don't think we had a choice or did you have a choice so let me say that i think we did the right thing there and that this is the where it gets sticky we also have a situation secretary geithner with the american people are concerned that a lot is being done for wall street but not enough being done for main street you understand that absolutely and one of the interesting things is that you talked about how if you had not taken the the action from the beginning how it might have affected main street the constituents of all four hundred and thirty five members did you tell us if you hadn't taken action how might it affect students in my district or businesses or whatever can you tell us that because i don't think that that's getting through thousands of more factories would have closed their doors millions more americans would have lost their jobs the value of america's houses and savings would have fallen even further than they did at that time people would have rushed to take their money out of banks it would have brought about utter collapse i don't know a better way to say it than that and if people wonder whether that was true i think all they have do is look back at what actually happens in the fall of two thousand and eight and you saw the value of american savings fall by almost forty percent trillions of dollars in lost wealth millions americans lost their homes thousands and thousands of businesses had to close that's what happens when you let a financial crisis get out of control governments should never let that happen but if they don't act and this is in a brewing pointing people understand people think it's unfair for the government to act to rescue the financial system but you cannot help economy recover you can't create jobs you create can't preserve the value people savings without a functioning financial system another moment when we requested a hearing that i was concerned about was this counter parties as you probably know i along the twenty six are members of congress to be president the sec top barofsky look into that whole issue and they have been comments at the capital levels at the counter parties were have posed some direct losses on those major banks but those losses themselves were not the issue they would not have been significant the threat to the system and this was a threat to all institutions operating with the threat of collapse of the system as in all financial values my time is running out just real quick when the when the public has so much invested in a commie is it better to err on the side of transparency the secretary as opposed to  keeping things secret of course of course so and so what would push them to push this isn't to not be as transparent i mean what would cause that there are very few cases where it is necessary for there to be either a lag in this closure or some gap i'm not sure how to how to best way explain it but like you national security like in law enforcement generally times expired but you can likely that action of confidential supervisory information but also to protect the taxpayer there are some areas in which you need to be careful about how you manage that that's a discussion though you see that with my colleagues at the fed they're in a better position to answer it but we would not want to disclose in for me that would be bad for the taxpayer make it harder for the taxpayer to recoup our investment but in general congressman i completely agree the transparency disclosure are essential the received word that you were going to be nominated secretary that's when the announcement was made so you've tried to distance yourself from decisions that were made before that but in fact you know i have not tried t know any cover up for november twenty fourth and then of course you are out of the picture from november twenty fourth forward is that correct and congressman i'm not trying to distance myself from anything i will take complete responsibility for decisions i was played a role in shaping was part of shaping including all decisions up to the twenty fourth in this case and i'm taboo to take responsibly for all decisions i've made then you are aware of a hundred cents one hundred cents on pay your taxes because that's the highest financial responsibility position in the united states government that is your right that is your right to that opinion i have worked in public service all my life i have never been a politician i have served my country as carefully enable yes i can and it is a great privilege to me for me to work with this president to help repair the damage that was here when we took office and i will do so as long as he asked me to do so to the best of my ability with great pride in this country and in him again i think you're you're putting the blame and i think you're trying to position yourself as if you don't i don't know me very amounts of money even by estimates of the treasury department there will be dollars from this deal which either you should have been over and you said you have knowledge and you fail to take some steps to further protect the i was there i know what i was responsible for i take full responsibility as a great pride in those judgments but the general time expired but the secretary may answer the question as i do i take great pride in those in retrospect with the benefit of hindsight that we gaze in making those decisions at time thank the gentleman it's my time to answer or ask questions and i'm calling myself five minutes mr geitner the new york fed agreed to goldman sachs demands for billions to the center to settle its counterparty claims with a i g one hundred cents on the dollar but for more than a year before that goldman n a i j had been locked into a dispute over that money and goldman believed it would lose up to two point five billion if ai g defaulted did you know at the time that goldman sachs had concluded it would not receive one hundred cents on a dollar from a i j in the event of default i did not know and i don't know whether that's true or not goldman had said publicly that they didn't need the government's money that it was fully hedged and would not have been materially affected if they idea defaulted but that turns out to be disingenuous committee investigators have learned that goldman supplemental insurance policy would not pay in the event that the u s government bailed out a goldman's protection would pay only in the event a i g a defaulted goldman had not anticipated the government bailout and so hadn't put that contingency in the terms of its contract that failure put goldman at real risk of losing the entire amount of disputed money once the government rescued a i g did you have any knowledge at the time did lloyd blankfein or anyone goldman ever admit to you or anyone working under you that goldman sachs was not fully hedged in the event the government took over a high g and that goldman was at risk of losing at least two point five billion if the government bailout  and impose less than one hundred cents on a dollar on counter parties a congressman i am not aware and i don't see how i could have been aware of the price precise details of the hedging strategies of all those firms to the event of a default but we made a very careful effort to try to assess working with the supervisors of all the institutions that exposure adji about what their economic exposure would be had you been dr lloyd blankfein for example about this do you remember talking to him in the goldman sachs case in particular because there were a lot of press reports that were consequence of question in this case i did ask them directly what their exposure was and i asked them to show me what their internal information system reports showed about that exposure and we're going to we're going to the committee if i may is going to have a series of questions to submit to you in writing so that you'll be given an opportunity to have an extensive answer on angela now mr secretary once the government stepped in there was only one way for goldman sachs to get any piece of the two point five billion and that was if the new york fed voluntarily agreed to give it to them now if the new york fed had fought for taxpayers goldman would have lost money it didn't have any hope of recovering in spite of public statements to the contrary the new york fed had a lot of leverage a lot to negotiate a reduction which would have saved taxpayers billions but instead the new york fed took goldman sachs position in its dispute with a i g and said of the tolly with taxpayers money now mr gardner under normal circumstances goldman sachs would have had to sue a i g in court to recover the disputed two point five billion and they would have settled for something less than that isn't it true that the new york fed gave goldman sachs a better deal than it could have ever expected from a i  or any market player at any other time congressman if we head the ability like we have for normal competencies to put them through bankruptcy if we had the ability like we have for banks to put them into an orderly winding process down wind down process like quality bankruptcy we could have done much but under the laws of the land we did not have the ability so we faced a very simple choice let id defaults were prevented what will and there was no way financial legal or otherwise we could have imposed haircuts selectively default on any of those institutions without the risk of downgrade and the fault and that is i just want to be how do you want to say mr secretary since when the saving the system require the taxpayers to give a better deal than the market would normally deliver yet you know that is what the new york fed did the government gave goldman sachs more than goldman sachs had any right to expect while at the same time giving no financial relief whatever to millions of americans facing a foreclosure crisis and if that doesn't illustrate what the new york thread thought it was working for i don't  working for i don't know what the congressman you may respond and then my time is expired congressman that is not true and it is unfair to the public servants what's not true what you just said what you know what what it i is not true that the actions we took an edgy were for the benefit of anybody but the millions of americans who at that point were suffering from the response or crisis since the great depression the only way to help reduce that damage protect that damage was to fix the system and prevent catastrophic failures were made a crisis worse that is the only motive that underpin these actions by the government i thank the gentleman my time's expired the chair recognize mr duncan thank you  on that in the september twenty third issue of the quote the fed may well have mitigated our current crisis by sowing the seeds for the next one and they say in fact the fed has exacerbated the possibility of another similar even larger crisis in fact the way they put it they say quote as a result in less real reform happen saying we face the prospect of another bubble burst bailouts cycle that will be even more dangerous than the one we've just been through now i said you know that the american people have are very very angry about been manipulated in such a way as to allow just mind boggling salaries and bonuses and allow very few elitists at the top to come out like robber barons or to an extent really not known in american history because of big government through the federal reserve system our free market system was not allowed to operate and it seems to most of us that it's not capitalism win government uses billions and billions of taxpayer money to prop up a very few well connected firms now that leads me to two questions one has the treasury informed any of these financial giants that we will not follow too big to fail policies in the future and secondly do you think we should limit the salaries of these ridiculously excessive salaries and bonuses that are even being talked about even today in any of these firms that taxpayer bailout funds carson it was a very thoughtful question you asked exactly the right question in a financial crisis you face this tragic choice you can let it try to burn itself out and let the damage spread to all sorts of innocent victims or you can act to prevent it knowing that acting to prevent it will create the risk that in the future investors will expect the government to step in the future and safe from the consequences of failure that is a dilemma at the heart of strategy and financial crisis to stand back and let it burn is irresponsible it's what happened the great depression it almost happened to this country the moral just pragmatic fear choice and this should be true if you're a republican or democrat is to act to protect the innocent but as you said wisely by definition that creates the risks we sow the seeds for future crises and that's why in the financial reform problem we all plan we all have a huge stake in trying to make sure we not just limit risk taking the future but that investors and equity holders and creditors and managers and executives do not run these firms with the expectations the government will be there again and that's why it's so important we put in place types of bankruptcy mechanisms that we have now for banks but we do not have for institutions like now absolutely we have made clear in public in crystal clear terms in reform proposals that are now moving through the congress that we get and this expectation of two biggest failing government assistance and if you look at what we have done since we came to office we have moved very aggressively to pull the government out of these institutions to make sure we are not in a day longer than is necessary to replace the public capital with private capital and we've done that by forcing disclosure and forcing firms to recapitalize with private money precisely because we want to limit the scale of the government's involvement and end this exceptional period as quickly as we could and that strategy has been very very effective in ways that people on the right and the left should welcome on the right it means that the government is out much more quickly than anybody expected on the left people should know with competence now that we have far more resources now available to help address the long term challenges we face as a country to reduce our long term deficits and try to meet the things that we have to do to fix what was broken in this country but you asked a very good question and i agree very much with the thrust of your concern well that was a good answer to my first question but my second question was do you think bonuses and these bonuses and salaries should be limited in any way in these firms that did receive government bailout money i think what  compensation across this country and in the financial system was terribly catastrophic in the it is judged by it came as in the wave of a huge increase in income inequality in the united states over decades in the financial it was much worse and it was much more consequential because it helped encourage a level of risk taking that again brought the system to the edge of collapse so it is deeply important in the public interest of the country that con congress legislate reforms that will change how bankers are paid government can't do it alone no shareholders and their representatives on the boards of these firms have to bring about much tougher limits now firms american taxpayer and i'll explain why i'll give you two examples we had the situation with bear stearns the circumstances of the saying the world is on the brink we got a disaster we're worried about the whole system melting down force them down to two dollars a share because the american taxpayer money was in the bailout and that was something that was supported by the fed buys treasury because we felt that because the taxpayer was bailing them out that the shareholders of bear stearns should not be held harmless now you have a different situation here a slightly different number of weeks later where goldman sachs largely that's that's a principle beneficiary of all this and we don't negotiate a nickel not a cent awful what they're getting you're in the same position you're supposed to be  negotiating on behalf of the american people now you're saying oh the regulations were different let me tell you something we were changing the rules and regulations every single day we were taking action the fed on the thirty three hund got two cents on a dollar the folks at goldman sachs got one hundred cents on a dollar and that is just unacceptable totally unacceptable you had the opportunity and you know i just think it was a terrible decision on your part and also on mr paulson's part and he's up later and we'll talk to him by then i do expect the two to look and the thing about changing over to the obama administration you get the same people who are relying on you the american taxpayer when you're you're in one job and the american american taxpayers relying on your on the other job i don't see a conflict i really don't you could have done the right thing by those people by the american taxpayer because their money was put into that being put into this deal was not and it just stinks to the high heaven what happened here and i and i don't like the op a station and to top it all off the disclosure was not there the disclosure was not there at the proper time to tell the american people and tell us congress what was going on and that is just inexcusable and it makes me doubt it makes me doubt your commitment to the american people it makes me doubt mr paulson the paulson's commitment to american people and i think the commitment to goldman sachs trumped the responsibility that that our officials had to the american people congressman i respect your opinion i know you hold those opinions strongly but i completely disagree the american taxpayer would not have been better off if the government had made a possible for equity holders in bear stearns to get more money the american taxpayer would not have been better off if we had let default none of us did anything out of we were changing the rules day by day and we had the banks at a position where we could have exercised a lot of leverage and and you chose not to do this i just showed you not to do it i disagree with you and it doesn't mean we have to pay them one hundred cent always let them fail there are improvements here and there never to use that leverage not not in this case in this case exactly no nanda thirteen three we could have taken different steps than we took here thirteen three had nothing to do with this in this particular case what thirteen three was in support of you'll understand thirteen three was authority given to the federal reserve to protect the financial system from broad based runs that give us the authority only to lend against collateral to make sure that firms that were solvent could fund we do that because of the catastrophic damage caused by decades of previous financial crises we use that authority because we thought there was no other choice look we use that authority to let me just play my time gentleman when you know when when hank paulson pulled nine banks into a room and said you're taking bailout money that was extraordinary action ok time is expired i must he could have done the same thing negotiating a better rate on behalf of the american taxpayer back if that would have been possible we would have done it why would i want to be sitting here before you today having to spend actions that look like they could have been avoided there is nobody who was part of the decision that would not have done a little bit impossible i try to be as careful as i can in explaining the reasons why i was not possible but it's comes down to this basic tragic choice if you are prepared to default you can impose haircuts if you can't accept the consequences do not have any leverage it would have been vastly more expensive the american it would have been much more damaging to people department came in and said this before i go further i would like to make one critical point it is important for everyone and especially policyholders and the insurance companies to understand that the insurance companies which are regulated by new york and other states are solvent and have the funds true but maybe this is helpful to go back a little bit when it came to us that we can remember the fed is not their regulator that had no responsibility authority over what how they ran their business that was the province of other regulators it was inconceivable to me that this was a problem we were going to have to try to solve and we got all the people we could including the new york state insurance commissioner other people to look at it  fault of the firm protected those companies mr geithner's on the result of failure the testimony we received previously from those who were looking at those arms was that they were substantially sound and so the catastrophic effects that that you something that we would all have been we would all have been concerned about i disagree completely the people with this it can look at this and they can come to different judgments but the people who are responsible for looking at those insurance companies frankly had no idea of the risk and you could not separate those companies from the companies that have taken terrible risk the tragic thing in the structure of the company was they were so closely linked they couldn't separate and why would we have not been possible to tightly connected they could not have been separated and the insurance supervisors who were responsible for did not know the extent to which the financial basis of the insurance companies was so connected to the holding believe that when it all becomes public and it hasn't all become public because we don't have everything from you that this may turn out to be the largest theft in history that there were parties that were participating in with their mortgage back securities and through other credit default swaps in two defrauding mr and mrs american citizen on main street who was receiving a loan on their home that was negative in loan to value ratio and also had a greater risk that was be ripped it was being and that the risks were being under understated because i truly believe that for throughout this system that it brought down the systematic mortgage crisis system on the process that there was a significant amount of defrauding going on and that people need to be held accountable i don't think in your system where you're bailing out you're taking into consideration those that were bad actors i completely agree that this country allowed the laws of the land a terrible erosion in underwriting standards a terrible amount of predation and abusive practices in mortgage lending and consumer finance we should never let that happen quickly thank you mr chairman mr secretary welcome can you provide for the record a copy of the recusal agreement that you signed when you were at the new york that i did not sign a refusal agreement i withdrew from day to day management operations policy the new york fed and my colleagues both in washington and in new york can attest to that so there was no formal agreement no as i said in my testimony what i did is i decisions i did not go to the f o m c meeting in december and i withdrew from all decisions about these individual cases involving the financial system and from day to day management now was the right thing to do at that time thank you for clarifying that number two a lot of people think that the president of the new york fed works for the u s government but in fact you work for the private banks that aleck did you know that is true and can you provide for the record the names of the handful of bankers on the board of the new york fed that elected you in two thousand three goldman sachs with the largest domestic recipient of fun in this town or party arrangement let me ask you now is treasury secretary your chief of staff is the gatekeeper for access to you could you thank you the transaction was disturbing to many observers why did our government not require the bank creditors to take the lead and bear some of the costs in any plan to  and just after september fifteenth when the three major rating agencies downgraded credit rating you made hundreds of calls and the most over two hundred twenty five to secretary paulson who was then secretary of treasury what did he work for prior to his appointment as secretary of treasury he worked for goldman sachs now goldman sachs as i understand it got the most encounter party payments of any domestic institution is that true fourteen billion dollars i actually don't know if that's a matter of public generale got the most from an international forum but goldman sachs was number one now you made about one hundred calls to federal chair this i just want to say is very important because when you were suggesting that the people who were involved in this were not acting in the public interest and you were suggesting that they were working for the private interest not the public interest and that is not true i would never and i believe none of those individuals ever part of any decision like that and i think these people were people experience operating under exceptional circumstances with no precedent doing the best they could for what was in the public interest might bring about when it came to us and started to try to walk us through their financial condition they had advisors with them and they were also in discussion with other advisers that were not with us in the room at that time  when when did that dollar amount become after the discussions at what point time did a dollar amount drop that you mean the initial terms of the initial loan i think that that decision probably just on the eve of the formal agreement i mean we know again we were trying to do it what would that have been do you remember that well have been you know the sixteenth is when we concluded the transaction so would have been just before that let me ask the counter parties when was that meeting with the counter parties to discuss what the payment might be to them do you remember those i do not believe there was in a meeting with cantor parties what i asked my colleagues to do after looking at a range of options is to approach the counter parties individually and try to negotiate concessions so there was no actual meeting where all the county counter parties were in a room and i don't think i have to check the record i'd be happy to check that i get back to you but i do not believe that my colleagues in europe and brought them in a room together so when you say your colleagues these are people that actually work for you they were under your direction absolutely and they acted in my direction yes sir so you are aware of the one hundred percent payment to the counter parties as i've said many times negotiate any of them down i mean it's it's i think it's that i mean these were separate meetings i guess i mean did you question to go shooting skills so some of these people were again these were very talented been because once the government gets behind it it like you said it takes away your negotiating are exactly right you're exactly right and i don't i don't know i'm not sure but i think i'm not mistaken and probably tried to do that before for the government but i can't speak to that today but these people with the create a false swaps they were all bright people they knew the high risk of what they were getting involved with did they not well you know the tragic the taxpayer and is this deal being renegotiated and is anybody at the treasury working with to try to renegotiate to do it is a card that is a better deal for the to congress into the country and said we faced an extraordinary circumstance that failure to act to help rescue the financial industry would hurt people on main street innocent bystanders in this process and you took the action that you did and you properly said that we need to learn the lessons from what happened and the administration the congress and working to do just that here in the house we already passed a wall street accountability bill to try and do two things number one provide the fed and others with the tools to make sure you don't have a situation where for becomes too big to fail in a manner that it hurts innocent people second to make sure that there's a failsafe if somehow that happens there is a pool of money raised from the banks not from the taxpayers to pay for the rescue and number three and this president has proposed this a fee on the biggest financial institutions fifty billion dollars plus in assets to recover every penny of tarp money and i think it's important to understand everyone understand that includes every penny extended a every penny extended to the counter parties now in the house we passed a bill and we had an amendment to that bill offered by congressman gary peters of michigan i've got it right here and it says that that will remain on the biggest banks not just to capitalize a fund to be used in the event of future problems they have to pay for their but it says that on into you recover every penny and i must say i was surprised i wish all our colleagues on the other side of the hour here i was surprised that this very simple idea was rejected by the other side in a vote we had on this and that  would have ensured it passed but that was a vote to make sure that we get back every penny that the taxpayer gave every penny that the taxpayer gave to the counter parties so if you could just speak to the importance of making s number one we take measures to prevent this from happening in the in the future but just as importantly making sure we let everybody on main street that their money that they help to rescue the package will be recovered if we adopt the proposal in the house and the president's proposal if congress joins the president in adopting this proposed financial see in the american taxpayer will not be exposed to a penny of loss for everything the government had to do to fix this mess in or everywhere else that is not enough though we believe it is very important to make sure we work with congress to put in place constraints that would prevent this from happening again it was a tragic story of the country not to act sooner to limit risk taking by some of the largest institutions where they were operating with not enough capital and no oversight and we have to make it clear in the future that we're going to we're going to be able to let firms fail without costing the taxpayers money and without costing collateral damage now it's relevant to say one thing the cost of the american people cannot be captured in the simple financial cost of the  will protect them from those costs if congress passes this fee but the cost of the crisis are much more damaging because much more damage that can never be captured by the accounting cause of losses under tarp but we have a great it's exactly right and it's better than that though congressman because the specific transaction that is subject of so much attention appropriately in this hearing themselves are likely to earn the taxpayer modest profit but the government is still exposed to some risk of loss on the rest of its investments but if we adopt this fee the taxpayers will not bear a penny of that cost you just to be clear there are sixty eight billion dollars worth of lost thirty thirty point four billion associated with this a deal we're talking about now so there's significant loss to the taxpayers already through tarp and so this new tax is simply about making up for that revenue mr mister mr secretary do you support h r forty one seventy three the wall street reform and consumer protection act because i'm not sure which included a provision that i think mr kanjorski authored to give the government the ability to limit risk taking by banks that we make sure those translate into limits that will actually prevent risk taking the future so it's consistent with h r forty one seventy three staff that really worked to change that kanjorski amendment well again we worked closely with members of that committee on a whole range of those provisions to make sure that they met the intent no you're not answering my question on that i'm absolutely work with them  ok you testified last month before the joint economic committee quote i would not support reinstating glassed a goal and i don't actually believe that the end of glass to go all played a significant role in the cause of this crisis do you still stand by that statement absolutely how do you reconcile that belief with this rule that in essence limits or forces banks divest hedge funds and private equity and all these other additional elements that is in essence glass to go well what glass steagall did was to allow banks to underwrite equity and to engage in a whole range of other types of financial activity insurance as well it out limited that ability and to be clear were and we support as i think the bill that you started did support it did actually provide authority to limit a set of activities eagle ok so it also says that if you engage in a certain type of if you have a certain for many a bank holding company you have to add here to certain rules correct that's right ok you also testified before the financial services committee of which i said last year that finance quote financial products and institutions should be regulated by the economic function they provide and the risk they present not the legal form they take that's right i grew that and show you support a rule that says based on a legal form you take you have to hear to these principles how do you reconcile they're perfectly consistent but let me sta principal again they're perfectly opposite know what we're saying is and this is very important to understand if you are operating in the financial markets you're helping companies raise credit raise capital you're helping make markets work you're providing liquid markets it doesn't matter should matter to us or the american people whether you call goldman sachs whether you're called j p morgan used to be subjected to a set of constraints on capital on leverage and how you're funded that limit the amount of risk you take if in addition to that you want to own a bank and operate a bank then there are other limits good in the public interest so that again you can't take advantage of that access to the safety net to subsidize  activities that are not essential to but basically you're saying if you just simply drop the bank holding company label you're out from under that really not and that would be a mistake for the country are arguing that we actually with the one page rule they know it does not it does not do that with full consultation the gentleman's time has expired and the chairman recognizes himself for five minutes thank you mr geithner for being here number one i just want to remind them and colleagues on both sides that the whole request for the bailout had to be administered by the treasury department was at the request of president bush i understand your testimony that the people responsible for administer made the best decisions they could under the circumstances i just want to ask a couple of questions that start with one of the statements you made mr geithner about the fact of the actions taken has stabilized the financial system i'm not here to argue that the question i have is has it helped the broad main street economy and there are many who believe and i'm among them that wall street got out ahead of  itself got in the business of self enrichment rather than financing american jobs american entrepreneurs and actually transformed itself from an entity that was about creating jobs into the greatest job killing machine in the history of the country there's two things that i want to ask one is that the bank president obama has endorsed you see that is essential to have the folks who are largely responsible for the financial meltdown to pay the cost so that it is not the taxpayer says that correct absolutely in the reforms we proposed to the congress back in june at the center of that proposal was a basic principle which in the future   second there are a number of us well over sixty that are supporting a tax on wall street bonuses and i just want to get your opinion on this and i'll give an example of the kind of conduct that was allowed to occur it's been reported you know in the new york times that goldman sachs had a department that bundled subprime mortgages then had folks who advocated to the rating agencies to give it the highest rating possible  went to its trusted clients in sold those and then it went to its trading desk and sold them short is that the type of conduct that you think should be monitored encouraged by any financial regulatory  monitor congressman i believe deeply that we need tougher rules in force more effectively evenly to me sure that consumers and investors are not taken advantage of and the system open window of the federal reserve and of course goldman and other firms received direct path through payments when he was bailed out correct and when mr paulson your predecessor was on the phone requesting this money this was not anything that you made the request for he assured us that wall street had learned its ways goldman and the other wall street firms are back to their old ways they've been so successful and let's give them credit they're good at what they do the question is whether what they do is good for the economy and for main street they've been able to set aside one hundred forty to one hundred sixty billion dollars do you have an opinion for bonuses and they could lend that out they could add it to their capital base in the third choices they can put it in their pockets which is the one they have chosen do you think in view of the fact that much of their profit was made through taxpayer generosity it would be appropriate to tax bonuses suggested by legislation that fifty percent about fifty thousand of course would be happy to take a careful look at that legislation talked about how best to deal with that the basic principle that we support fully is to make sure the american taxpayer is not exposed to a penny of losses from the actions the government had to take under the and i completely agree as i said earlier that we need to work with the congress to make sure we bring about fundamental changes in how bankers are paid so that they are not taking risk because imperil the economy as a whole doing that is hard to do right we've tried in the past  funds have reduced lending to american enterprise and folks in vermont who run businesses asked me if those guys make so much money how come they can't lend me any i agree and if you i think on the paper today were we are close to proposing to the congress that we take a large amount of the resources that we've gotten back from banks in the large banks and devote them to exactly that objective trying to make sure that small banks and small businesses have access to credit thank you m fifteen eighteen months ago relative to the initial tarp bailout you were involved in all that you thought it was the right decision to make at the time seven hundred billion dollars i thought it was absolutely essential to the point country had no choice and this committee had several hearings on the bank of america merrill lynch and you were involved in that decision we have e mails to talk about you know you were in the loop you know what was going on there you were supportive of what took place with the merger of with the acquisition of merrill by bank of america yes or no that is right that at that time i was part of an effort to try to find a solution private solution to marilyn to that point and i thought that that action was necessary appropriate and today you have said that you know you think the initial decision relative to a i g in the payment of the counter parties you think that was appropriate use you say that strong in your written testimony you talk about this is in the best interest of the american i do i do we did not act to help foreign banks we acted because the consequences of failing at that time in those circles it would have been catastrophic to our economy american families and american businesses you think it was definitely the right decision i do and the staff that worked for you at the new york fed would be i meant with that analysis that this was so critical this had to get done the sky was going to fall the world was going to end if we did not do what you decide to do relative to the counter parties and the sixty billion dollars that was spent is that correct  i believe it is but i think there are to be fair to say there were those among us involved in this in each of the end issues involved washington new york treasury who were deeply troubled by that choice were not comfortable with this help with what you thought it was what you had to do with i believe that yes and it was so important as you said in your written and your testimony here this morning oral testimony that you know this was critical to american families american business and i don't believe that this begs the obvious question why the secrecy relative the disco if it's that important sixty two billion dollars why in the heck not disclose it when it's happening since you've subsequently done that why the secrecy and frankly why weren't you if it's that critical if it's that of why the heck did you recuse yourself why were you involved well again just to step back is that when the fed disclosed this in march of two thousand and nine i thought it was the right thing to do and i think reasonable people looking back at this could say why wasn't that possible sooner i think it's a reasonable what was in the puddle in november when it was all going down but all i can say is what i understand was involved in and i was not involved in discussions about decisions about what to do with that particular transaction the counter parties or the details and that's because let me ask you this is do you believe the decision that was made by the folks who work for you at the new york fed to not disclose until march not disclose when it was all taking place do you support that decision occupy and have really a fair sense to evaluate those actions in that case and i don't feel like i can put myself in their shoes at that time let me let me let me let me tell you what i think happened but i do believe that they acted with great integrity care and judgment here's hatter here's what happened mr lynch was on the right right trail that i mean this is a pattern we've seen it you came to the congress united states you said give us seven hundred billion dollars attached to that money that you know i'm saying i'm saying the told the nine biggest banks we're not going to buy the troubled asset you're going to take the tarp was inadequate that was one of the best decisions one of the most important one but i understand the pattern with the congress and i say it was told one thing ten days later entirely different action was taken place i  don't think that's actually correct what congress authorized you don't think their lawyers passed that bill because they understood that the money that the taxpayers are going to put up is going to be used by troubled asset as i said i can't put myself in your shoes but i think the salient point is the authority that the president bush asked for gave my predecessor the authority to put capital in banks and doing that there's a pattern with the right image to check here's a pattern the government comes to the taxpayer says we need more of your money we need a boatload of your money the world's going to and we're going to do it  we want to for a specific purpose than they do a super something else then they come to that they come to taxes we need more of your money and we're and we're going to we're going to use sixty billion dollars and they don't disclose to the taxpayer what's going on up this this is why we never should have travelled down this road this unprecedented involvement this firm in ways to protect the taxpayer the extent we could from the risk of greater losses and our choice was at that point this very stark tragic choice which is to let the fault or not and we thought that  payments to its counter parties for their toxic assets even a factor in determining the amount of bailout money to award for an insurance company or any financial institution operate they need to be operate with a high credit rating without that they could not borrow money to function they could not write insurance contracts because people would not believe they would have the financial wherewithal to back those commitments so the rating is critical if we were to have distorted on any of those legal contracts you would have been downgraded the counter parties would have the right to take more money and to default on and to bring about the basic lapse of the firm so it's that stark tragic choice if he had not paid they would have lost the rating and the firms would have collapsed the from would have collapsed if we had continued to lend the money for them to make those payments the rating would have also been jeopardy because they already had allowed at that point so the choice was again to restructure them so that we limited the drain of cash and left the taxpayer with any potential positive return on those underlying securities so you are saying that account of parties would have had a right through bankruptcy a legal right to sue to recoup that claim ok did did anyone involved re we are guided by what was going to be the best way at least cost to prevent a fall and protect the system and the entire system was at stake then and no firm in the country would have been insulated from the collapse of the entire american financial system and our judgment was that i'd use the fall would have materially raised the probability of that brought a collapse so again our choices were terrible choices but they came down to what was the best way to prevent that outcome on the best terms for the taxpayer ok so then they get to the point of being too big to fail to know goes where that widespread throughout the spread everywhere involving a whole range of things and you had a world that was burning so again the first time since the great depression you had financial systems around the world really at the brink of  stopping stopping in their tracks and it's those two conditions that are most risky if the world had been stable everything even fine we weren't on the edge of the worst recession generations then we could have been afford to be completely indifferent to the fate of  default we thought about keeping watching that money keep running out the door with the counterparty still holding the underlying assets we thought about negotiating over time trying to stretch it out if we could find a better way to solve that problem none of those options were realistic you know the more feasible they were not better than the choice we chose and again if you i think if you look back and you think a fair reading of this although the government is still exposed to substantial risk of loss those losses are much lower today the actions we took and this transaction which again people are so understandably concerned about is put the taxpayer in a better position than it's simply we information so that we can do the reform to make sure the next time this process comes up we have procedures and laws that address this and so it's real important that we identify how this went so we can try to correct it make sure doesn't happen again not only in march you knew that there was a so called disclosure issue but in february you had said in a speech that one of the major issues that you were concerned about is the lack of disclosure that was causing the american people not to trust the system now i think we'll all agree that in layman's terms what the average citizen when they heard disclosure issue they hear cover up now why in a system that's s'posed to be open the american people have a right to know where their money goes why was there even a disclosure issue why were we even discussing the so called cover up all the hundred sixty billion dollars where it was going in this process why was that even an issue that as soon as you knew that there was a problem there that somebody didn't clarify this was that your staff had basically did not inform you that there had been this cover up this disclosure issue and did you make that the decision or was that decision made out psycho's a i g sent the information over it was an internal process within the government itself that said we're not going to slow to the public this information my colleagues the new york fed i think it put in the public a very thoughtful explanation of the judgments they wrestle with and ultimately and i know that their colleagues in washington spent a huge amount of time throughout those months trying to wrestle with how to meet the understandable public interest in greater disclosure of these things and they ultimately i think appropriately came to decision that they could and should put that information in the public domain now you're exactly right i have been a great proponent of greater transparency and the centerpiece of the strategy that we adopted to fix this mess in the financial system was to force the largest banks in the country to disclose for the first time to the public to all investors the scale of losses they might face in the event this recession was much more damaging that proved to be and that provided the basis for private investors judging who was strong who was less strong and deciding to put capital into those institutions did you or you told in other words to your staff know the cover up was there a disclosure issue was there before you knew it was there throughout that period of time were you involved in those discussions as i said in my thing i'll say again i played no role in decisions about what to disclose about these transactions to these individual counterparty did you did your staff make the decision not to inform you include you in that decision making process yes they did although i mean why would you want to did it would you want to know about that or would you prefer that you didn't know about it at the time i think in retrospect i wish i had known frankly but after november twenty fourth i appropriately remove myself from decisions about a whole range of policies of that was dealing with but the people who are making those decisions in close consultation with people in washington and with legal counsel are people of great judgment and normal integrity and i have confidence not in their judgment but in the quality of decisions they made throughout that period of time do you feel today that at the time that they made the decision to do the cover up the disclosure issue that they felt you did not want to know about it at the time you think they made a decision out of my entire time there i was never aware of a situation in which my colleagues sought to shield me from something consequential i was president of the new york fed i was going to be accountable for decisions made on my watch but after the twenty fourth reasons that  disclosure issue when were you informed i only knew about these discussions about disclosure when they started to be in the public domain i actually do not sure what the right point of order here is but i recognize how to read a sleeve busy the secretary as i also recognize the need for this congress some people on both sides of the aisle to be able to ask some questions we have been waiting patiently here all day i in terms of the amount of time that he would be allowed so if we continue then he will not be able to testify so i think that's the issue that we have to deal with so that's the reason why we cutting it because it was agreed that this would happen and of course i understand it is several people that did that have an opportunity to raise questions but what we what i would suggest is that you put the questions to the secretary and writing and he will answer because if not then the second witness we will not be able to hear from at all and i think that mr chairman if i could if i could be so bold my guess is if we were to survey or or talk to the people on this panel particular people who haven't had a chance to ask questions i think with all due respect we'd much rather hear from the current treasury secretary than the pastor every secretary who schedule is probably a little bit more flexible than i understand that but the point of the matter is that we have a hearing that's been scheduled and of course had been struck and i wish we could sort of stay here and allow everybody to do that but the point is that i think in this situation i'd be delighted to heel to the gentleman again yes and i appreciate it because you've always been so fair and very generous and personally very good to me is there a way that we could vote on which direction to go into you know it's actually up to the chairman but let me say what what i'd like to do you know i would give a minute to two on this side in a minute to two on this side and that is i mean we have to move forward and we have a scheduled hearing that he is looking for so the gentleman who so look at a certain information in order to get information we need to talk to the president secretary we need to up to the past and of course we have others that we feel would want to get only a military and i join with you in that you know consent for two additional minutes per side equally divided by reserving the right to object mr chairman i just want to say that any member of this perhaps want to rewrite history and i understand given the history why they might want to do that in your opening statement you talked about the need for financial regulatory reform could you expand on why we need that particular when it comes to regulating that which was resisted from regulation in the past like derivatives and credit default swaps i don't think it's a hard case to make i think you just have to look at the wreckage caused by the crisis to say the system failed dramatically and again the two most simple failures that happened is people were allowed to take risk without constraints we let a system operate where institutions that were huge inconsequential operated with no adult supervision with no constraints and they brought the country to the edge of collapse let me just say one thing in common with the following firms fannie and freddie the largest investments in the country a i g a set of specialized insurance companies a whole range of consumer finance companies a bunch of stories they all had one thing in common which they were not subject to a set of sensible rules to constrain the risk they to take what we propose in financial reform is the change that it's a simple imperative that's not that's not enough though because people make mistakes in the future so we need to make sure when they make those mistakes that we can let them fail and failure can happen without catastrophic damage we need to be able to contain the damage isolated draw a line around it put them out of their misery put them out of existence without the taxpayer being exposed and we to make sure that we don't have a system where the taxpayer is exposed the risk of loss with investors and creditors live with the expectation the government will be there again and again that's something that is a i think we all have a huge obligation responsibility it was the laws of the land allow that to happen the law of the land made it impossible for the government and i think we need to work together to change that i thank the gen billion dollars of american taxpayer bailout the fact followed by goldman sachs now you said this economy is in crisis this year goldman sachs will give six sixteen billion dollars of bonus payments about five hundred thousand dollars per employee but again the actions we took were necessary in the public interest better than the alternative to help prevent catastrophic damage and if you are outraged as i think you should be about how the economy and our system was in this mess i hope you'll join with us in trying to work to make sure it doesn't happen the future this is not something that should be republican or democrat there is a deep i think moral obligation we have to try to make sure that we put in place reforms that will prevent this from happening again if the government had done that sooner this would have been less damaging and a critical part of the failure was we ran a country largest economy the world lot and one of the great strengths of our country is again people will look back and come to their own judgment where we made the best choices but i am very confident that we made the best of a set of terrible choices that there were no better alternatives we did not have the option of bankruptcy we did not have the option of default we did not have the option of selective haircuts it would have been catastrophic to let the institutions fail we didn't rescue we intervene so that we could dismember it safely without wrecking the country in the system i think the big mistakes we made as a country and there are mistakes that we have to reflect on deeply for a long time for why the government inaction or to of financial crises is if you don't soon or things get to the point where they can cause catastrophic damage and if you let it if you stand back and hope it'll burn itself out correct itself it'll be good healthy adjustment for the say that for another day what i would like to ask you about is this idea that they are going to make profits going to read two statements and ask you a question from neil barofsky testimony that that's coming up the first one is quote on page thirteen treasury's own tarte financial statement estimates the treasury will not be made whole but is rather projected to lose more than thirty billion dollars on its investment second quote later in the same paragraph narrowly asserting that taxpayers we  made a hole and quote on maiden lane three just one part of the counter party transactions without mentioning the huge losses treasury expects to suffer on other inextricably linked parts of the very same transactions is simply unacceptable the american people deserve better so my question and hoping that you can respond of those two statements is when you refer to profits from the counterparty bailout are you counting the cost of the thirty five billion dollars in cash handed over to counter parties  to the counter parties or just the twenty seven billion dollars they got directly from the new york times and i think that mr bruff actually agree on this and i said in my saying i was very clear the government is still exposed to substantial risk of loss on its investments in the the federal reserve in this transaction i think more generally is unlikely to face and that is a good thing we should welcome that but the government is still exposed to risk of loss we don't know how large those losses will be well your for two is not a projection it's just an estimate based on current market prices but the really important thing i hope you'll join us in this is if we adopt this risky financial responsibilit actions congress required the second treasury to propose a way to make sure taxpayers are held harmless we did that i hope you will join us in supporting that because there is no reason why the american taxpayer should be exposed to a penny of mr chairman i'd also ask just one thing will you agree the secretary said he would answer our questions to join with me in ensuring that all questions are answered or that we bring the secretary back assuming he does not answer him for some reason suggesting that suddenly now we have the taxpayer through insurance on the hook for these risk takers who are out here i think it's important we take these things off the books and if it goes down it goes down in the on the up in the banks and insurance funds on the taxpayers as a whole are not on the hook for all of us i think it's very important go down the road because i think what you've done with with a federal government as the official underwriter of all investments in the world if we're underwriting foreign contracts investments what we've done we've gone down that road and i'm appreciate your comments time's expired in keeping with the necessity of making sure the members who do not ask question the last round are given  ok and then in november it was the same group president bush's secretary of the treasury mr bernanke and the new york fed decided to give additional funds some of which we used to pay at the counter to the contracts later came to a point whether or not to pay the counter parties one hundred percent of those contracts or not but once the decision made not to let them go bankrupt you lost any leverage really to argue in terms of getting them being able to pay less one hundred percent is that a fair said that there were phone calls between the new york fed and us some two hundred twenty five telephone conversations between the head of the dea during this period of time so i think we might be fair but assuming that you were discussing some of these matters well we ha here people draw the conclusion that not to allow us to go into bankruptcy would have been devastating because the consequences would have been severe it would be enormously helpful if you could put yourself in the position of the local bookkeeper for medical firm or housekeeper or lawyer or teacher's aide how specifically with that individual have been harmed if you had not made the decision to not allow you to go back what were the consequences to them and part of the argument is state regulation that they were so intertwined with the finance but let me ask one other question before we get into details of that bankruptcy was an option but it also meant and then we put more money in because they couldn't fail or where in the other everything from citibank to merrill lynch and everything else there were processes where there were conditions on money coming in where there were guidelines on money coming in and they use the leverage of the threat of bankruptcy to to do that then then in this case it appears then it was different and it partly is that the creditors are different furthermore that some of the critical information here was withheld from being the request of the new york fed that had that been public people would have seen it and there was an attempt to even keep it wider because that was protocol that information to understand what was going on behind and it's extremely frustrating to financial products and london was without assets and had a tremendous involvement in counterparty positions about two point eight trillion dollars and whose counterparty positions were starting to fail and they had on them the national internal decision of a jeep was to use the assets of the world's largest insurance company and they sought permission and it was pending and finally approved by their regulator the state of new york to take assets out of the insurance company about thirty billion dollars and use those assets to cover their exposed counterparty positions now if that had happened at that time those insurance companies would have failed because their assets would have been taken converted and they would have been enough to cover the counterparty would have wiped out the short which in turn would have affected every insurance holder in the country that was involved with a id at the time and would have been a catastrophic collapse of the shorts industry not notwithstanding the counterparty and derivative position now luckily as the regulator in the state of new york didn't grant permission to use that thirty million dollars until much later when it was futile and at that point the losses on the counterparty positions i think rose to fifty five billion dollars and were climbing on a daily basis and that's when the infusion of funds you talk about a two way i g or the capacity of government funds to cover those counter party losses they didn't cover all those losses and subsequently a lot of the american people believe that a sort of wall street club and let me finish that you all play golf together and you have a lot of fun and then you you know when the biggest come around you able to kind of distribute him i mean i'm just saying do you know that that's how people feel i sure do and he's going to give voice up i said even though i'm not a golfer i sure know that's how people feel yeah and they and they when they see these deals going on then the next thing they do is they begin to look at where people worked and then they see the relationships and then they say well you know we don't have a chance because it seems like they're kind of looking out for themselves but not looking out for us and so you know you you just gave a statement about transparency and  you know that i think one of the things that bothers people is when they don't see transparency then they begin not to trust and when they begin not to trust it becomes very difficult for them to go along with any program and then when you put on top of that that they can't see themselves benefiting and i know that you mentioned that if we didn't do what we did you know what it may have gone up to twenty five percent but it's often people even see that you understand  congressman you've got it and that's why people are very very angry as i understand why they're angry at your wife lisa no because they don't see the connection and they don't recognize that what was done stock and warrants summary of senior preferred terms as posted on treasury's department website the following condition is noted quote no bonus pulls be able to sing of whiners in respect of each of two thousand to create any bonus pool for senior partners considering it had just found it necessary to extend what he big dollars to the firm through the tarp yeah i'm not going to get into second company right this company to perform well and needed to hold the team together in order to repay tax right and the taxpayers were saying to themselves look these objects dollars  business profit from taxpayer assistance that makes people angry to hold that part of that anger is not a diversion from what we need to do but is an incentive to fix the system so that we'll have resolution and never again will have a company that's so big too big to fail so the taxpayer has to come up with money and that a company can be liquidated down in a way in which the taxpayer not on the hook again but i understand there's an anger out there on their frustration i think it's a very understandable i think there's a number of ways to do something about it but the best way to do something about it is reform were not involved oh yes you heard a little bit about it but on november sixth when they gave sixty two billion dollars to all these parties and looted all you guys i knew nothing about it and yet it you got two hundred million dollars in tax benefits because you didn't have to pay capital gains on five hundred million dollars what stock i would strongly disagree with well that's what's been reported let me just explain well it's ok came before our caucus and then we have this bailout and you don't know anything about it mr geithner had nothing to do with it it just really boggles the mind that some of the biggest people involved in this whole thing from beginning to end had nothing to do with it they didn't know what makes you want to think that some clerk someplace was making these decisions i don't think anybody's going to buy that and mr geithner and in this situation where they are and you were the c e o of goldman sachs back in two thousand and it was a longstanding relationship between you and goldman sachs that you were well aware of goldman sachs was a major counter party on a lot of these credit default swaps with when you were the c e o at goldman and that relationship continued after you left you would have known that these people were it was but by the time before the vote on october third or after the vote was considering putting putting capital into the banks as one option as tool mid to late october after we put the capital in after we put together you're just so i'm clear you're saying you didn't change your mind until after the vote so i want to i want to point to this the book the day wessels book that came out in the fed we trust page two twenty six to twenty seven and you've just been given a copy what it says house of representatives jack to the bush administration bank rescue plan on the twenty ninth of two thousand and eight the next morning mr paulson ran into michelle davis the spokeswoman and policy corner in the treasury building quote i think we're going have to put equity in the banks he said despite what paulson had told congress buying toxic assets was going to take too long davis gave him a blank stare quote we haven't even gotten a bill through congress she remembers thinking how are we going to explain this she told her boss we can't say that now he took the advice so again i'm asking you was it before or after a has now done that in for opposing and my question to you is do you agree given everything that the financial industry then in addition to taking measures to prevent this from happening in the future we number one it but most importantly i don't want that to take our focus off of dealing with what is a real problem just about doesn't happen but would you agree there should be a mechanism in place to ensure that at the end of the day the taxpayer had agreed to stay for another eight minutes it's been ten minutes for that reason i dismiss the gentleman who had who had the time to tell him his time had passed the former chief financial officer of the financial services group of ai g and stephen friedman the former chairman of the board of directors of the federal reserve bank of new york and current member of the board of directors or directors of goldman sachs may i ask the witnesses to stand while i administer the oath do you solemnly swear to tell the truth the whole truth and nothing but the truth let the record reflect witnesses that have answered in the affirmative you may all be seated i'll ask the witnesses to summarize their testimony in five minutes the yellow light means you have left the red light means stop and then of course we will have time for all the witnesses have opening statements so i believe that given the four votes then members will be back by the time your statements are done the questions thank you mr rusty when you present your testimony first transparency to the i g bailout generally and in particular to the counterparty payment this past november we issued our audit an order that was requested by representative cummings and twenty six other members of congress including members of this committee reporting on the decision making process that led to then president geithner in the federal reserve making the decision the choice to pay one hundred cents on the dollar effectively par value for a series of securities that at the time were worth less than half of that amount and as we demonstrate in the audit that was in fact a choice a series of policy choices that were made that limited the ability of the federal reserve in its negotiations and a choice to conduct the negotiations in the way that they did in our audit in our testimony we lay out the different justifications and explanations given by the federal reserve many of which secretary geithner repeated this morning and our responses in some cases are criticisms of those policy decisions what i like to focus today though is expanding a different theme in the audit and that's looking at the tone and amount of effort that went into those negotiations even assuming all those policy dishes decisions which restricted the latitude of the federal reserve how were those negotiations conducted well sensually number of mid and senior level executives at the f r b and why i reached out to their counterpart at a i g's counterparty they did basically over the telephone and after informing them that the even the negotiations themselves were voluntary they asked if they would be willing to take a haircut on the on the on the amount of concession for seven of the eight the answer was no for the eight u b s the answer was yes so long as the other counter parties also agreed to a similar concession the federal reserve at that point it decided to shut down negotiations not to pursue that willingness to go to negotiate and decided with the approval of secretary geithner to pay one hundred cents on the dollar because stands in stark contrast to a negotiation that occurred just a few weeks earlier and this of course was the negotiation by which the government purchased one hundred twenty five billion dollars of preferred securities from the nine largest institutions as part of the tarp capital purchase program there unlike in a i g with the principles that were involved president geithner secretary paulson and chairman bernanke on behalf of the government and on behalf of the counter parties the banks some of the exact same banks that were subject the i g discussions the chief executive officers there on like an a i g the conversations were conducted over the telephone each of those c e o s was summoned to washington and told to appear a treasury conference room gather together and there unlike in a i g the message was forceful president geitner chairman bernanke secretary paulson others made it very clear about the importance that they believe that this negotiation was how important it was for the banks to agree the use the terms like that it would be good for the country for them to do so no such similar effort was taken with respect to the i g negotiation and the result of the capital purchase program resulted in the savings of billions or tens of billions of dollars for the taxpayer we don't know we can't know but we do know because we've recently been informed by the french regulator the same regulator that the federal reserve cited  one of the great barriers to achieving the effect of negotiated haircut recently told that in fact they would have been willing to engage in just such a negotiation so long as it was at a very high level so long as it was completely transparent and as long as it was universal agreement everyone came around the table and we also know that if such negotiations occurred more successful they would have addressed all of the concerns that secretary geithner addressed this morning and many of the concerns that are outlined in iowa and our audit of concerns by the troubling comments from treasury that impact transparency and of course i'll be available to answer any questions that you or or other members of the committee may have thank you thank you  good afternoon madam madam chairman ranking member i and other members of this committee thank you for inviting me here today as the general counsel of the federal reserve bank of new york i welcome the opportunity just a few words about autumn two thousand and eight when our nation was challenged by a financial crisis of a kind we had not seen since at the new york fed we were literally working around the clock trying to implement a number of liquidity programs directed toward market stability today we consider some of the actions taken during those frenetic times with respect to everything we have done since this crisis began has been with the goal of stabilizing our financial system and assisting our economic recovery turning to september of two thousand and eight and the actions taken by the new york fed the board of governors of the federal reserve system and the department of the treasury they were designed to avoid the catastrophic systemic consequences that would have resulted from a bankruptcy every american would have been adversely impacted we did not lend because we wanted to but because we had a decision might have been easier on us but it would have been worse for all allegations that this was a backdoor bailout designed by the federal reserve to assist the banks at the expense of the american taxpayer these allegations are not true  announce an earnings loss of nearly twenty five billion dollars on november tenth two thousand that we reached agreement with the counter parties to terminate their credit default swap contracts by that date by successfully address a potentially calamitous rest of the economy and in doing so texted the interest of the american people madam chairman and ranking member i said members of the committee thank you for the invitation to appear before you today from september two thousand and five and till may of last year i was senior vice president and chief financial officer of the financial services division at american international group i left in may two thousand and nine on excellent terms and continue to provide advisory services to the company while i plan the next phase of my products credit default swaps by purchasing the underlying multi sector bonds from f p swap counterparts at the same time that related swaps were terminated i understand that the committee's interested in learning more about these transactions these transactions were critical to a significantly reduced the risk of substantial collateral postings to counter parties that f p was required to a reserve bank board of directors is really more akin to an advisory board is it is actually sort of a hybrid more akin to that than it is to the board of directors of a typical corporation reserve bank directors serve part time observations on the economy and markets make recommendations on monetary policy and approve the bank's budget internal controls and policies and procedures  d personnel matters but consistent with the structure created by the federal reserve act the directors of the twelve federal reserve banks have no role in the regulation supervision of the twelve regional federal reserve acting at the direction and with the oversight of the board of governors of the federal reserve system in washington and other words the board of governors in washington effectively is the board of and consistent with the ground rules whether as chairman of the new york federal reserve board or otherwise i was not involved in the decision to bail out a decision to  i am advised that on the evening of november ninth two thousand and eight the chair of the bank audit committee and i received a telephone summary briefing from bank officials about the transaction  at that point the deal had been signed up and was to be announced by the board of governors the next the next morning  policy include input from a diverse array of bankers borrowers and community leaders because the boards once again by design include bank executives and bank shareholders many current would have conflicts of interest if the reserve bank boards of directors also had any authority over or any role in individual supervisory matters matters like the new york reserve bank rescue of a of new york had the final say on disclosure the committee has however in its possession an e mail i believe it is up there was obtained by subpoena  t it involves a senior person in your office and the word said or any public disclosure by was still subject to f r s york is not being upfront with was not being upfront with the american people here behind the scenes where these where these e mails that puts the federal reserve in a understand why the counter parties want to be paid one hundred cents on the dollar horse but why would the government want to do that i mean you cannot assume in a situation like this if somebody wants to do evil or want to cheat the taxpayer we're trying to  get the need the appearance of trying to place ourselves at the table with the parties including the government including the federal reserve including so your selves when your testimony lay out what had just i mean again if if if you have to assume that that the best and not the worst then what would be the best reason necessarily in the audit but even expecting them it seems to me that taking the effort of parents you know secretary geithner the time is frequently speaking to the c e o s of of many of these counterparty it seems to it seems that just putting a little extra effort i said would you accept one hundred cents on the dollar less one hundred cents on the dollar what anybody would answer no to that question i mean the surprising thing is that one of them did answer yes and that wasn't for and why do you think he answered yes and the others answered  no i think they were willing to negotiate because i think that you know if you look at it from there you know the others answered no he said yes only as long as all the others would say yes those idea was that we would be hard to stick with the others i mean there must have been some mr baxter economy that made him do what is he a patriot and the others not but i think that there was you know this was this was u b s i think there probably was a recognition that the federal reserve had done so much for the global economy and the american taxpayer put in putting the american taxpayer has sort of literally taken the entire global economy on its back and was supporting not just the u s and situations but with the global systemic risk that the sacrifices the taxpayer had made and that i think is a powerful argument from the threat of bankruptcy this negotiation with the counter parties was taking place in the first week of november two thousand and eight so how would it how would the threat of bankruptcy have played during that what about the bankruptcy and i have three responses first that threat was not credible given the actions of september two thousand second that that threat of bankruptcy was not if you are holding that card and i'm trying to explain exactly why we had no bargaining power with respect to the bankruptcy rest the first is it was incredible the second is it wasn't true and it would have been on ethical for us to suggest otherwise and the third is it would have been counterproductive because the biggest threat we were facing at that point was the threat of the credit rating agencies doubt about it i understand that a nuclear bomb threats are not credible so tell us what was said at least some sense yes of course you're not going to put them into bankruptcy we do not question nearly as much the bottom line here is we question how you got to the regulatory power as a promise or a threat to extract money from someone and that raises all kinds of considerations that are not consistent with the rule of law and if you do see another point you apparently didn't think you said we might consider as much as a two percent concession but only if everyone does it everyone else does that as well and there was there was a fairly effective blocking action there by u mr baxter i'm going to move nathanson i've had more than a lot of time because it took you all so long to get back i'm going to move to the ranking member i think the chairwoman and i certainly think that this was a good case for your not necessarily want to go floor so forgive me for maybe not playing total catch up your old boss secretary now secretary geithner spoke lowing lee about the staff and the hard work and the people involved but we now believe and understand that a staff report was done within the fed that said let's go bankrupt and that that was never ever brought before the board that in fact chairman  he pulled it so it not be considered by the broader board of governors are you familiar with that study i am not you are not so he kept it from a person who was i mean these e mails show you were at the center of all of this he kept from you his own staff decision chairman bernanke did not trust his own governors or even the new york fed inner circle with a recommendation to said let him go bankrupt does that surprise you study and i'm sorry i thought ok well with any luck and with the indulgence of the chair we will get discovery on that as of right now all i have is a whistleblower and one senator who confirm that it exists but has said on c and b c that he can't release it even though he thinks it's damning additionally you're familiar with the schedule a of the documents ok so this this under directed form shows five clearly perpetrated by getting this made confidential and not disclosed the public until two thousand and eighteen that work continuing until may of this year or last year congressman there was no cover up i can explain the processing of the schedule if you can just tell me the first part which is are you familiar with the work that went on to seal this from being disclosed in public f c c filings at least until two thousand and  eighteen i am familiar ok and you know short way do you think that is right or wrong i think all of the conduct was perfectly appropriate ok well i'm going to i'm going to leave that because although i don't agree ultimately i just to that answer and we'll see in time on other people when you put up slide twenty three please can you please explain what happened following your receipt of an e mail from our marshall  that salary increase i was also concerned about that salary increase and as a result of our collective concern i had conversations with a no foul in this case it had nothing to do with the public filing it had everything to do with we didn't think this was appropriate ok the salary freeze last question for you and i want to quickly go to sig tarp do you know of a compelling legal authority that would have prevented from going bankrupt now the words did the fed have the authority to let them go bankrupt because secretary geithner's implied that he didn't have any options and he didn't have the authority to do anything but what he did that's pretty much  anyone at the new york fed to your knowledge in fact do a study or come up with a legal opinion that said you can't do anything else except let them go bankrupt or do this and you can't let them go bankrupt first we were not the supervisor  on september sixteenth of two thousand and eight so we had no sooner either but i thought my question is since secretary geithner was there and said there was no other choice your boss made the call do you know of a legal opinion that he was given or that exists today as to that well i was his chief legal officer and i would say then what i say now and that is we need a resolution statute in this country to deal with institutions as s a we didn't have that tool in september of two thousand and eight and we still don't have that to a congressman ok i really need it but you know i'm going to ask for two more minutes quickly to sort of counter a very long time but i'll be very i think the chairman illegitimate two minutes mr brodsky your report contradicts so much of what we're hearing from people that were there are there as to whether we'll get paid back me just break it down to just two questions and then take the rest of the two minutes for your answer one is it true that we're just not going to get paid back by anyone's reasonable estimation certain funds and two had had we used other means to underwrite so much as will buy assets at a discount or we won't buy them we will guarantee for give or buy at a discount you decide whether you want our aaa rating versus actually getting the transfer at a time when these banks wanted to transfer if any of these other techniques that you are now aware of that logically could have been used would we be in as bad a situation of not getting paid back as we are and then please exact lab arrayed on what we're seeing of what we're not going to get paid back that lies and that doesn't even include by the way the idea that the money's come back and it's being respect in other ways but just as to the your knitting can you give us as much knowledge investment when you're looking at these counterparty payments you can't look at just one part of the name they were basically into chop if you will there is the federal reserve loan to maiden lane three which purchased the securities is about twenty nine billion and the rest were counterparty payments the balance of about thirty three billion had previously made so a total of about sixty two billion now with the chunk that the federal reserve lent to maiden lane that portion which we've been hearing about how that is on track to be paid back in the tax the federal reserve bank of new york actually make a profit on that i see no reason to think that that's not true that that may very well be accurate that one piece of it however the other and these really are two sides of the same coin and we've been critical of trying to separate that out and only looking at the federal reserve and saying oh because that's going to get paid back it's a profit that other part is part of the projected thirty billion dollar loss one of the reasons why are so critical is that if you just say on these transactions where the federal government attacks here is on track to be made whole for someone who's not as familiar with the intricacies of these transactions as we all are you would get the mis impression that the counter party payments the decision of a hundred cents on the dollar is going to leave the taxpayer whole and buy treasuries own calculations you can't separate that thirty billion dollars of of of anticipated a lot from these transactions because the money that came from a loan from the federal reserve a separate loan that was then paid down with taxpayer money through the tarp i'm sorry it's i think it's very difficult and i think it's inappropriate to separate value and thereby saving the american taxpayer possibly billions of dollars and i think that as the federal reserve and the secretary of knowledge the whole plan that the hope from the federal reserve was to attempt a negotiate if there was an agreement among the parties to pay to accept less than our that obviously would have violated any of the policy concerns that have been described and i think very much these negotiations could have been conducted in a different way a more forceful way to comparison that that you cited to secretary geithner earlier and which is discussed in our testimony is looking back to the capital purchase program when the nine banks were summoned to washington d c and as mentioned in my testimony that is a pretty good example of what could have been done there of course it was the principals that were involved in the negotiations for both sides whether it's the secretary then president geitner or secretary paulson chairman bernanke behalf of the government and the chief executive officers of the one banks on the other side that didn't happen with the forcefulness of those negotiations being told that this was important to the american people i'm not suggesting threatening to pull their license or or using regulatory authority to punish those that didn't participate but emphasizing how was important was the policy makers the united states government that didn't happen with respect and indeed again these were conversations that were done largely over the telephone of mid level executives those nine confines of the policy consideration now we've been somewhat critical of some of those policy considerations and we disagree with some of them as reflected in the audit but i think that what bothers them is that even if you step all of those concerns they could have just tried a little harder and maybe it would have been unsuccessful we don't know but as i noted in my testimony we spoke to the french regulator and they said if the negotiations went something like that they would at least be willing to engage and we know that u b s would have been willing to engage and we don't know what the reaction is of the other potential counterparty because that telephone conversation from then president geitner or then secretary paulson or chairman bernanke saying hey this is important we want you to be involved we know they were talking to the c e o s on a regular basis but this wasn't elevated that level and we'll never know what the result might have been but it may have resulted in saving the taxpayers billions if not tens of billions of dollars but we just don't know the answer ok thank you so we were looking at that and we were being told by the that unless something happened with respect to the credit default swaps before november tenth that there was a strong probability of a downgrade now a downgrade would have been catastrophic it would have brought us back to where we were in september on the brink of bankruptcy so from those of us who are working at the new york we looked at that as a hard deadline two of those seven were french and they were supported by the french government in their refusal perhaps was it said perhaps up to two percent but we need to be treated just like avoid the end part of the question for the secrecy was to avoid the risk of the rating agencies downgrading the securities and bonds is that true your impression the federal reserve has cited as one of the reasons justification for paying the counter parties that are was one of the concerns about the effect of rating agencies and why why hadn't they already been downgraded they actually had had been downgraded up and up until that point but you believe they were keeping up in other words in many many hearings that you've been here and so on it seems to me that to have a private economy work one thing has to happen is because you know khalilzad or whatever the big insurance for state employees there is the biggest i guess investor and he said he's only got a couple people to track if those rating agencies are accurate the list i'm collapses and it's it seemed to be questionable whether they were moving fast enough in the economy  downgrade it and in effect here a partner in the fed was trying to help disguise it i mean ultimately one of the observations in our audit is the outsized influence the credit rating agency had throughout this process as mr baxter just stated would be put into bankruptcy that that was a legitimate fear that the federal reserve had because of the results of the rating agencies and of course so much of the lead up to a problem with the result of the rating agencies first overvaluing and the  and the counter parties had gotten collateral for that diminution in value those bonds which we now have a bond come back in value as our nation emerges from the worst financial i never wanted to conceal that congressman it is inaccurate to say that you asked for special conditions where the market where markets wouldn't be able to see they might speculate if they saw that you were taking agreement so there was a misunderstanding in the beginning i think as to why that was an attached now the commission came back and said we need we need that exhibit attached and then we made an application for confidential treatment because we to the schedule is the numbers and the identifying information for the cards if you will that the fed holes in its hand in this vehicle that's what we're keeping confidential now and for the right reasons because we're worried when we sell out that portfolio that if they if the street knows what we're holding it will hurt the taxpayer interest that's the only reason it's not a cover up well gentlemen  at one hundred percent of our value however after bloomberg and the new york times published e mails around into disclosure questions began to emerge about how the events surrounding the maiden lane for a transactions were disclosed to the see one of the first being that it was send you a letter asking whether your staff already knew about the e mails that were released to the press and did these e mails affect conclusions that you reached audit i was also interested in whether you plan to open the audit he responded quickly as you recall saying that it was not your policy to comment on open investigation is that correct yes and i want to clarify i want to clarify in your office audit and investigations are different tasks conducted by different person now in different divisions is that right that's correct generally speaking ok and what are the missions of those  divisions audit as as you know under isa we are have the responsibility to both audit and investigate all actions taken under the top tarp that's what it i think the think of audit it's almost investigation without the presumption that there was a crime or a violation it is a is a review a historical review of what occurred and looking to see what went wrong what went right and explaining bringing basic transparency making recommendations our investigations division is a law enforcement agency where like the f b i for the for for the tarp these are it's populated generally by special agents who have full law enforcement authority guns bad and the authority to make arrest we also have attorney advisors  support personnel and we lose something in the investigations division it's because we're taking a look to see if there was misconduct if there is some reason there's an allegation or we suspect in certain cases whether it is a crime or even a civil violation we do support civil investigations as well we move it over into that section so with respect to your letter and the request we didn't receive many of the documents that this committee received and including those documents as well as some other documents that pertain very directly to some of the issues directly addressed in the audit and we have does it surprise you that you didn't receive them when you would i mean now looking at back some of the documents i'm extremely surprised that we didn't receive  and that's why we're conducting an investigation to determine what the circumstances were of wise and specific documents that we requested were not provided to us so an open investigation is not the same as an open audit is that right that that's correct and i assume you can not say whether the open investigation is civil or criminal is accurate one investigation at this stage in particular we're just starting out we're just taking a look and see where it goes if it does result in  preparing an investigative report which will provide to you in this committee reporting on our findings can you tell us what the timeframe is for this so you just you just have to take the time and figure that one out and we're going i mean for us to do this right two hundred  fifty thousand pages of documents that this committee received we also received going to take us some time because we really can't determine what we didn't receive and so we go through literally every page of those document and given the significance and importance of this of this matter i usually drive my agents pretty hard and ask them to move very very quickly in this instance i told them above all to move quickly but we need to be very thorough and very accurate and that will be  we get our hands around the docket so i hesitate to understand a time limbert reported this morning that you are quote probing whether the new york fed improperly limited the release of information about payment bank account to parties is this correct ok and you comment on that yes we also have opened a probe into some of the allegations that came here and again i i really want to stress that when we open investigation we're not presuming misconduct or or anything like that it's been suggested that there was misconduct again and so what we're doing it's our job our responsibility our statutory responsibility when when such issues are raised we have to go look at it and as i said if everything was done in a legally dollars for a purchase price of twenty seven billion dollars that's not true is it is partially true what they don't say is i got twenty seven billion of taxpayer funding and they  got thirty five thirty five billion dollars worth of collateral i mean it is true in addition to the twenty seven billion that came from aid lane three all that other a lot of that they previously been paid which was made possible largely by the other loan from the federal reserve which was back filled forty billion dollars by taxpayer money and i think the secretary's full testimony he does acknowledge that there is an ai g lost but we cite in our testimony was a statement that was put out by treasury  which was completely unbalanced and gave the impression that the taxpayers would be made whole because of that narrow issue of maiden lane and and well like that actually what the statement this morning the mesas th ey purchased securities with sixty two billion for purchase price of twenty seven it is literally true in the maiden lane three facility that is what occurred it is literally true he said in the end the prices paid for their security is where they're fair market value that's not true either is it again with respect to the maiden lane three part of it it is literally true but to look at these transactions as a whole when you look at the counter parties did receive one hundred cents on the dollar for those securities and for tearing up the credit  contracts so the total compensation when you include the collateral they're able to keep that was effectively part value because the counter parties say received sixty two billion dollars and all the twenty seven day and have it paid directly from the special purpose earnestly hope that as congress works its way through restructuring our financial regulatory system they will have some form of resolution authority the people who are on the firing line the next time a crunch comes and one will come at some point in the future the ability to effect some sort of a conservatorship or a resolution to wind down the i think that people who are making thank you very much chairman and thank you for being here friedman let me ask you what was the role of the board of directors of the federal reserve bank of new york sachs your former shareholder current shareholder and then you buy thirty seven thousand more shares of that company that you're overseeing therein lies the problem let me ask you i noticed in dealing with treasury and the fed that there are a not you are talking about a financial transaction where the goldman sachs people were in a commercial transaction with that's expected to respond to our questions without objection thank you chairman and thank you for all making this incredibly successful hearing i think this is probably our finest bipartisan hour i think that witnesses whether they like the west questions or not would certainly agree it was bipartisan back thank you very much let me thank all of our witnesses for being here today and of course we really appreciate the fact that you've taken the time to come and without objection as i enter this by and into the committee record but deep deep disappointment when taxpayer dollars are involved transparency must be first and the last focus of the government again let me thank you very very much for your term move forward thank you very much as to sixty seven introduced by representative michael hind this measure recognize the cultural and historical significance of naruse expresses appreciation to the iranian americans for their contributions to society and wishes iranian americans and the people of iran a prosperous new year eighty five seven and to do so by representative patrick mchenry honest jimmie johnson did two thousand and nine nascar sprint cup champion eight red ten fourteen introduced by me represented the dolphins towns recognizes that support the goals and ideals of north americans inclusion month forty two thirty eight introduced by representative betsy markey designates the facility of united states postal service located at nine thirty thirty ninth avenue in greeley colorado as the deputy for post office building  forty four twenty five introduced by representative paul taco designates difficile of the united states postal service located at two hundred sixteenth street in north choice new york as the martin marty mohawk post office eight forty four ninety five introduced by representative gabrielle giffords designates the facility of united states postal service located at one in the north taylor lane any comment on these bills thank you mr chairman we have reviewed these postal namings and resolutions and with a possible reservation for yours we find them all to meet the requirements  no reserve we recommend approval immediate passage movement previous question i ask unanimous consent that the measures previously described be reported favorably about a committee without objection s