Defaulting banks - where will it stop?

[Jan Klimkowski]

Shameless.

The bankers' coup d'etat continues... :captain:

STEPHANOPOULOS: And some are saying you should go back and recoup on another, much bigger issue having to do with AIG, and that’s all the payments they made to their so-called counterparties. Let me show our viewers who got the money from AIG after they got a government bailout -- $13 billion to Goldman Sachs; $12 billion to Bank of America; more than $30 billion to a series of foreign banks. That has upset a lot of members of Congress. Elijah Cummings and 26 other members of Congress have written a letter saying they want to know why an attempt wasn’t made to renegotiate.

Let me read exactly what they said. “Was any attempt made to renegotiate and close out these contracts with haircuts? If not, why not? What was the benefit of the decision to pay 100 percent of face value to the American taxpayers who provided the bailout funds, and how did it support the goal of ensuring the stability of the economic system?”

Now, Goldman Sachs, for example. Their chief financial officer said he had no material economic exposure to AIG. So why weren’t they forced to take a discount?

GEITHNER: George, we came into this crisis as a country without the tools necessary to contain the damage of a financial crisis like this. In a case of a large, complex institution like AIG, the government has no ability, had no meaningful ability to come in early to help contain the fire, contain the damage, prevent the spread of that fire. Restructure the firm, change contracts where necessary, and helped make sure that the financial system gets through this...

STEPHANOPOULOS: But it would have been the right thing to do, right?

GEITHNER: If we had the legal authority, that’s what we would have done. But without that legal authority, we had no good choices. We were caught between these terrible choices of letting Lehman fail -- and you saw the catastrophic damage that caused to the financial system -- or coming in and putting huge amounts of taxpayer dollars at risk, like we did at AIG, to keep the thing going, unwind it slowly at less damage to the ultimate economy and taxpayer.

STEPHANOPOULOS: So how about now, Goldman Sachs is taking other government money. They got this $13 billion whole from AIG. Congressman Brad Sherman and others have said, they should give that $13 billion back.

GEITHNER: George, the important thing is, we have no legal ability now. That’s why I went to Congress last week, to propose a broad change in resolution authority so that we have the capacity to do what we do with banks now.

STEPHANOPOULOS: But wouldn’t it be the right thing for Goldman?

GEITHNER: To give that money back?

STEPHANOPOULOS: Uh-huh.

GEITHNER: Look, again, the government of the United States in a situation like this has to make sure that we’re containing the damage that might come from default by a major complex financial institution. We need better legal authority to do that, did not have that authority coming into this crisis. It’s a tragic...

STEPHANOPOULOS: So nothing to be done looking back, but going forward, that’s exactly the authority you would want.

GEITHNER: Absolutely. Our obligation now, again, is to defuse and help unwind this deeply complicated problem that AIG presents. But we want to work with the Congress to put in place stronger tools, stronger resolution authority, so the government can come in more quickly, earlier, before things have passed the point of no return, contain the damage, prevent the fire from spreading, restructure the firm, have it emerge stronger, at less risk to the taxpayer. That’s what we need. We should have had this before this crisis, but we didn’t. But we need to move quickly now.

http://www.cqpolitics.com/wmspage.cfm?pa...0003087586