No, the grilling of federal banking regulators by members of Congress November 14 and 29th over their proposed rules for overseeing insurance companies which operate savings and loans were not scenes from an Oliver Stone movie but a consequence of political amnesia.
Oliver Stone, you will recall, was the movie director cited by a federal district court judge earlier this month in his opinion throwing out a lawsuit filed by Maurice “Hank” Greenberg and his Starr International.
The lawsuit alleged that the Federal Reserve takeover of AIG in September of 2008 was a conspiracy by the Fed to take control of the company to benefit others.
“Starr’s amended complaint paints a portrait of government treachery worthy of an Oliver Stone movie,” the judge said.
Instead, the judge said, “Specifically, based on Starr’s own allegations, AIG, as of mid-September 2008, was in dire straits, whether as a result of its own business decisions, the unraveling state of the financial system, the lack of available liquidity, or a perfect storm of these and other factors, and was actively considering bankruptcy.”
And, the judge added, “Far from describing actual control of AIG by an outside party, these allegations describe a moment of corporate desperation, in which AIG’s board grabbed the sole lifeline extended to the company.”
The hearings before the Senate Banking Committee and a subcommittee of the House Financial Services Committee focused on how unnecessary it was for community banks to be subject to such high capital standards going forward.
After all, only close to 600 have failed since 2008 and the Treasury has had to sell off at a loss preferred stock in dozens more as it seeks to close the books on the TARP-era.
But, members of the House and Senate at the hearing used the occasion to tell the Federal Reserve Board it should reexamine, in light of current state regulation, its proposal on the metrics to be used in becoming the consolidated federal regulator of insurance companies with thrifts.
And, also on hand to plead the insurers’ case at the House hearing was Kevin McCarty, president of the NAIC and Florida insurance commissioner, as well as representatives of State Farm and TIAA-Cref.
What was missing, however, was the history.
Officials of the NAIC testified before Congress in 2009 and 2010 that the source of AIG’s problems were actions by its Financial Products unit (AIGFP), which NAIC officials opined was regulated by the Office of Thrift Supervision (OTS) as consolidated regulator of AIG.