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Former U.S. Treasury Hank Paulson was not subtle in his opening remarks Wednesday to a U.S. House committee investigating both the U.S. Treasury's decision to bail-out American International Group, Inc. (AIG) via 100% payments to its counterparties, and the U.S. Federal Reserve's quantitative easing policy. Paulson, said had federal policy makers not acted to save AIG, a failure of the financial system could have ensued, and pushed the U.S. unemployment rate to a Great Depression-esque 25%, marketwatch.com reported Wednesday.
Paulson also stood fully behind his decisions during the financial crisis's acute stage, calling them "appropriate."
"We could not have anticipated the magnitude of AIG's problems; and we had no way of letting it fail without disastrous collateral consequences," Paulson said, Dow Jones reported Wednesday. "We had to intervene, and I am thankful that we did."
Fiscal/Economic Analysis: Congress is currently chaffing because a portion of the public, perhaps as much as 40% of the electorate, was and remains adamantly opposed to the bailout, and a majority, perhaps as high as 70%, believes the bail-out enabled saved institutions to pay bonuses to executives/top professionals; i.e. that U.S. taxpayers are paying for bonuses at bailed-out institutions.
Further, while current U.S. Treasury Secretary Timothy Geithner's lack of knowledge of the 100% bailout remains an open question -- to-date there hasn't been incontrovertible evidence that he did know -- and Geithner says he did not, both the public and the Congress has lost sight of the larger issue.
Namely, that during the acute stage of the financial crisis there were NO pleasant options, only a choice between 'offensive, but less damaging' and 'offensive and catastrophic.'
Subsidizing some of the very executives who helped create the financial crisis in the first place is highly objectionable. But there was no other choice, given the way the U.S. banking system was structured at that time. That's because AIG, legally an insurance company, but in practice, the largest hedge fund in the world, was and remains massively interconnected with the global financial system. A failure of AIG would have resulted in a series of cascading defaults, and most certainly a U.S. unemployment rate far worse than the current 10% rate.
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Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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Reader Comments (Page 1 of 1)
1-27-2010 @ 5:16PM
prgibbons81 said...
Get a job in government and you too can make up numbers with no way for anyone to refute them.
1-27-2010 @ 6:17PM
william lindblad said...
Hank is probably very close to correct. I don't think that anyone cared to really find out and that is why the AIG, et.al. moves were made.
1-27-2010 @ 9:17PM
really? said...
what makes anyone think that unemployment won't be at 25% within the next 3 years anyway? same with gm... should have let them go under. same stupid mistake carter did with chrysler in the 70's by another 1 term dope.
1-27-2010 @ 9:41PM
Badabing said...
If this is true, which I doubt, and one company has the power to control the nations financial condition, then it needs to be broken up. You can bet if AIG was associated with organized crime, (read- run by guys like me with vowels at the end of their name), instead of Wall Street, it would have been shut down years ago.
2-01-2010 @ 11:24PM
bob said...
really?,
Get your facts straight. "same stupid mistake carter did with chrysler in the 70's"
1. The Feds provided a gurentee of the loan they took out, not a bail out.
2. Chrysler used the loans to build the mildly successful KCars and very successful min-Vans. Perhaps you heard of the Caravan?
3. Chrysler paid the loans back before they were due, the Feds never lost money on this deal.
4. The company was then taken over by some tea baggers who decided to take the money from the Germans (Mercedes). The Germans then ran the company into the ground.
Bottom line, the Fed action saved the company, helped it become stronger and grow. Then short term profit took over and ended the company. Had the company not "merged" they would probably be the best run US auto company right now (small, lean, with a good product mix)
1-28-2010 @ 5:33AM
des946 said...
Paulson is trying to evade the fact that AIG and the other major financial institutions who were insured through AIG, received special treatment and considerations beyond what was reasonable or necessary. Basically, the bailout of AIG was a scheme to make "the bankers whole" without any regard for their responsibilty for the frauds and irresponsible actions that they had committed. This whole affair demonstrates the power of the wealthy to commit frauds and then to not only be allowed to get away with the frauds; but they were allowed to pass the costs of these frauds off onto the taxpayers.
That is equivalent to defrauding the bank owners (the stockholders), then being provided protections from being prosecuted; and having the taxpayers have to finance the losses to the stockholders. That is a darn cozy set up for the criminals . . . the CEOs and other upper managment guys who continue to be paid their exorbitant salaries, perks, and horrific bonuses. This IS what is meant by the "good old boys clubs". These guys should all be fired and run out of the industry; and indicted and prosecuted for malfeasance too. Meanwhile Bernake and the Fed continue to protect the identity of many of these individuals. It is past time for Bernake to answer for his participation in all of this too.