AIG, Small Businesses, And The Budget

Floor Speech

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Mr. BRALEY of Iowa. I thank my friend for yielding. And I want to remind my friend from Kentucky that I actually had the privilege of following him immediately during that hearing and questioning the CEOs of AIG. And I have to tell you it was one of the more shocking examples of corporate greed that I've ever heard in my lifetime, and I have lived 51 years in this country.

But I think one of the things that we've talked about is the reality that we as taxpayers now own approximately 80 percent of this company because of the investment that we have made. So my recommendation to Treasury Secretary Geithner and President Obama is that we rename AIG to properly reflect and offer a lasting lesson to the American people of what happened here. I am going to recommend we rename this company ``Arrogance Inspires Greed'' because that is exactly what we learned on October 7, 2008, when we had a hearing in the Oversight Committee and got to the bottom of this problem.

So let's have a short history lesson of exactly what led this company into the crisis that brought it to the American Government for help.

We learned that the principal actor responsible for the demise of AIG was an employee named Joseph Cassano, and Mr. Cassano operated the London office of AIG, its Financial Products division, which was primarily the unit that sold credit default swaps that helped bring down AIG.

If you go back to the Presidential election, you may recall that CNN was running a feature during this time that had the 10 top villains responsible for the collapse of our financial system. The number one culprit that they identified was Joseph Cassano. Here's why.

Mr. Cassano, who was president of this division, was paid $280 million in cash during the last 8 years of his employment, far more than the CEOs of AIG made. The bulk of his money came from, guess what, a bonus program.

In fact, for every dollar that his unit made, Mr. Cassano and the executives who worked with him got 30 cents on the dollar, and this was a unit that was trading in trillions of dollars of credit default swaps.

To make matters worse, on February 28, 2008, AIG posted record losses of $5.3 billion. And the main reason for those losses was that Mr. Cassano's division had lost $11 billion.

So what did AIG do? Well, as a responsible corporate citizen, it fired Mr. Cassano. And the very next day it gave him a severance agreement that Mr. Yarmuth talked about, paying him $1 million a month and allowing him to keep that $34 million in uninvested bonuses.

So he was paid essentially, to do nothing, $1 million a month. So when we had this hearing in October of 2008, 6 months later, and these corporate CEOs who were in charge of the company during the period of time when he was receiving those payments were called to account for the conduct of this company, these are the questions and answers that I got.

The first CEO was Mr. Willumstad.

``Mr. Willumstad, let me start with you. As CEO of AIG, you had authority, until September 17, 2008, to cancel Mr. Cassano's consulting agreement for cause, but you never did that, did you?''

And his answer, ``No.''

Second CEO, Mr. Sullivan. ``As CEO for AIG during the period from March 11, 2008, when this severance agreement was signed between AIG and Mr. Cassano, through June 15, 2008, you had authority to cancel Mr. Cassano's consulting agreement for cause, but you never took that action, did you?''

His answer, ``That is correct.''

Think about that. The one person identified as the principal culprit for the financial collapse of this country and the global economy continued to receive $1 million a month after driving this truck off the cliff. It was shocking then, it's more shocking now, because the losses continued to mount.

And what the American people are demanding right now is justice by superior firepower, and we in the House and our colleagues in the Senate and the White House and the Treasury Department have to provide that firepower because the American people are demanding it, and they deserve nothing less. But there were a lot of things that came up during that hearing, and one of them we talked about was this philosophy that less regulation is always better.

Well, one of the things that came out during this hearing, and which 60 Minutes covered in two excellent stories, was that this giant credit default swap market, which at the time was estimated to be between 63 and $75 trillion, 90 percent of it was the same thing as what you and I would consider gambling.

So back in 2000, when they had a chance to get a handle on this and provide some type of governmental oversight, what happened? Well, they could have classified it as insurance and made it subject to insurance regulation in all 50 States, but they decided not to.

Then they could have decided, well, this is gambling. Let's make it subject to gaming regulations in all 50 States. They decided not to.

Well, it's kind of like a security. Maybe we should make this part of the Securities and Exchange Commission. They didn't because of this push against any form of regulation. So now, in 2009, we are sitting here with no effective oversight at the State or Federal level of this enormous credit default swap market.

That has to change, and it's part of the ongoing regulatory reform we are pushing in the 111th Congress. We have to do it, and we have to be smart about how we do it so we don't find ourselves in this position again.

I just want to emphasize justice by superior firepower. Congress has the responsibility to act.

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Mr. BRALEY of Iowa. I recall we had a lot of discussions about that as part of the ongoing debate about how to provide effective regulation to the broad scope of financial services, but I am fairly confident that no action was taken because of a lot of different reasons. But I think you have brought up a great point, one that came up at this hearing we had back on October 7. When I was in law school from 1980 to 1983, the insurance industry and the financial services sector was completely different than it is today.

One of the things that came out of the hearing was AIG's insurance business was very successful, which is why, even though they lost $11 billion in their London office, they only had a loss of $5.3 billion, because of the offsets from their insurance business.

But back in those days, most insurance companies were mutual companies. Their sole responsibility was to their policyholders.

And then we saw a lot of blurring of lines between various types of financial services providers. Why is that important? Well, in this case it's important because insurance companies, going way back to the McCarran-Ferguson Act, have had an exemption from antitrust oversight by the Federal Government.

And yet when you see companies that formerly limited their involvement to providing insurance products branching out into other types of financial services and vice versa, you get a lot of confusion. And then the big push, as my friend from Louisville mentioned, is returning profits to shareholders, not providing a conservative return on investments to protect policyholders.

So what happened is as continued de-emphasis on regulation was part of the Federal approach to all of these products, we had things going on that were completely beyond the control of the average investor.

In fact, these CEOs testified during the hearing that their understanding of credit default swaps was, in fact, quite limited, which is a shocking thing when you think of how deeply this company that they were shepherding was involved in this one high-risk financial investment tool.

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Mr. BRALEY of Iowa. We have all sat here during this financial crisis and have heard over and over again from Treasury ``this company is too big to fail.'' And I'd like to propose right now on the floor of the House of Representatives, the people's House, an exception to that rule, which is there are some companies that are too arrogant to save.

Here's an example of what I'm talking about. I'm going to quote to you--and I quoted this during the hearing on October 7. This is from a September 28, 2008, article of the New York Times. This was a comment made by the same Joseph Cassano who headed AIG's London office and who brought about this $11 billion first quarter loss that took them over the cliff.

Here's what he said when asked to respond to this financial crisis. He said, ``It is hard for us,'' AIG, ``without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in these circumstances.'' One dollar.

Then, apparently his math skills are somewhat lacking because he obviously earned a heck of a lot more than $1--$280 million over an 8-year period. That just shows the level of arrogance that these financial prognosticators have.

I'd like to throw this question over to my friend from Memphis. I remember when the Fed was trying to have discussions about what type of financial oversight was appropriate for these new financial devices called mortgage-backed securities and credit-default swaps.

Then-Fed Chairman Alan Greenspan was a firm believer in ``just let the market regulate itself.'' In fact, that is what his recommendation was on credit-default swaps.

So then we saw this market grow to a $100 trillion-plus market with no Federal or State oversight. I guess we should be shocked that anyone would be surprised that we would find ourselves in this predicament.

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r. BRALEY of Iowa. Will my friend yield for a followup comment, and then I want to yield back to Mr. Yarmuth on this point that I think is an important complement, with an e, to the regulation piece, and that is the whistleblower protection. Because one of the things that Mr. Yarmuth and I had a key role in was passing out of our Oversight Committee the Whistleblower Enhancement Bill of 2007. It was an enormously overwhelmingly bipartisan bill. It passed on the floor of this House with over 330 votes which, as all of us can tell, if you're not naming a post office, that is doing pretty good down here.

Unfortunately, it ran into obstacles in the Senate and did not get to the President's desk in the 110th Congress. And then Congressman Chris Van Hollen, who's a Democrat, and Congressman Todd Platts from Pennsylvania, who's a Republican, had the brilliant idea when we were putting together some of this financial recovery legislation in the stimulus bill, let's put the whistleblower bill back in. We're putting a lot of money into the economy. We want to provide protection to Federal employees to report instances of waste, fraud, and abuse.

And it passed overwhelmingly here and it went to the Senate. One Senator decided that that was not appropriate, and it came out of the bill. I think the American taxpayers are fed up with the lack of accountability. They want people to be protected when they have the courage to put their lives and their careers on the line and stand up for American taxpayers.

That is why we had a press conference last week to reintroduce the bill as a standalone bill. I hope we quickly get it over to the Senate and I hope this time the Senate understands that the American people are outraged. They want us to be on their side to protect their hard-earned dollars. I think this is a critical component we need to push.

With that, I will yield to Mr. Yarmuth.

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Mr. BRALEY of Iowa. Well, the concluding remarks I just want to offer to the American people are, AIG is now a symbol of Arrogance Inspires Greed. That should be the lasting hallmark of this sad chapter in our Nation's history.

The other thing is, the American people expect us in Congress to provide justice with superior firepower. We have got a lot of intellectual firepower on both sides of the aisle, a lot of bright, creative people who have had diverse world experiences.

And to my colleague's reference about cleaning up, I spent a lot of time doing janitorial work putting my way through college and law school. I have got to tell you, I am excited to be here at this important moment in our Nation's history. We need bright, creative people with critical thinking skills, and together we will solve this problem.

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