Wednesday, March 18, 2009

Still More on AIG Hearings

Rep. Michael Capuano (D-MA 8th, Boston, Cambridge, Somerville) came off like an idiot. He flamed at the witnesses that it was your responsibility to regulate this stuff and then asked when they would be profitable and didn't want details. He also seemed to miss the fact that AIG has an insurance arm and this Financial Products arm which was where all the problems came from. When he asked the state insurance regulator whether AIG's plans where good ones, he seemed unwilling to accept differences between the insurance business and the FP arm, until he did.

Then he asked the S&P guy: "The credit rating agencies, must have an answer on this. You must now be absolutely certain because I know that's what you get paid to do, is to give us your opinion; when's AIG going to become profitable again?" He was flailing his arms the whole time. At least the guy had the presence to answer "I would have to have quite the crystal ball to be absolutely certain on that" and then went on a reasonable answer (some of the businesses are still profitable but until the financial markets stabilize it will be hard for AIG as a whole to stabilize.

Rep. Jeb Hensarling (R-TX 5th, Dallas, Athens) pushed on the OTS guy on his statement that they should have acted on AIG in 2004 and that they weren't lacking in power, authority, resources, or expertise. His response "In 2004 we failed to assess how bad the mortgage economy, the real estate economy would become in 2008."

Rep. Brad Miller (D-NC 13th Raleigh, Greensboro) asked if anyone was looking at if AIG was insolvent and if they were cooking their books. GAO said they had not looked into that issue and OTS said the same. And then the Congressman's time was up. It's just moronic. First neither of those agencies should have been looking into it; second, there doesn't seem to be any evidence of it, their downturn can be explained by the known info; third asking the question this way is unsystematic, and fourth getting an answer of no and doing nothing about it is irresponsible.

Rep. Ed Perlmutter (D-CO 7th) says the bonus contract seems to have contemplated their loses. He then wanted to know what a guaranteed investment contract is. Ario explained that it's when a government agency has money from a bond to say build a bridge, but doesn't need it all right away. They buy a GIC from a company like AIG to pay it back when they need it (I assume getting interest). Perimutter said ok, because it seems a lot of the TARP money went back to the states. But it didn't seem like he really listened to the answer.

Rep Joe Donnelly (D-IN, 2nd) asked Polakoff "For naked CDS, how are those anything other than gambling? Back home in Indiana if a fellow goes and places a bet on Bears game, he can go to jail. On wall street he's considered a master of the universe. How does this work? And why is it allowed? And the last question and maybe the most important. Why should we be paying for a gambling casino, just bets, there's no real product there and you know what, the casino's closed you go home." Do we have to explain the market system to congressmen? Polakoff agreed they needed to be regulated. He added that "naked CDSs are not the subject of AIG FP" and Donnelly just said "If you're a waitress or a truck driver or another hard working person, why should you pay the other side of a bad bet." This is what counts as oversight? It sounds like cable news show ranting.

A woman from CA (I didn't get a name) said Congress had a lot of finger pointing to do at itself. People came to congress saying CDSs needed to be regulated and she lost her job and Congress did nothing. And they overturned the Glass-Seigel act. Then she said to the S&P guy that "in our growing up an A means good and a AA means really good" and yet in 2008, after it had lost $12 billion it was still rated AA, "So I believe that you need to go back to the drawing board and come up with different ways to rate these agencies". Really, that's what you wanted to say? In school A meant good?!?!

That was the end of this panel.

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