Progress Illinois

Take a look at this footage from Tuesday's U.S. House Financial Services Committee on Tuesday, in which Federal Reserve chief Ben Bernanke "break[s] with traditional comity" to call Rep. Don Manzullo's (R-IL) question "poorly posed":

Not Manzullo's finest hour.

So what was the Rockford Republican talking about in the first place?  Here's an excerpt from Bernanke's opening statement, with the relevant section in bold:

The Federal Reserve and the Treasury agreed that AIG's failure under the conditions then prevailing would have posed unacceptable risks for the global financial system and for our economy. Some of AIG's insurance subsidiaries, which are among the largest in the United States and the world, would have likely been put into rehabilitation by their regulators, leaving policyholders facing considerable uncertainty about the status of their claims. State and local government entities that had lent more than $10 billion to AIG would have suffered losses. Workers whose 401(k) plans had purchased $40 billion of insurance from AIG against the risk that their stable value funds would decline in value would have seen that insurance disappear. Global banks and investment banks would have suffered losses on loans and lines of credit to AIG, and on derivatives with AIG-FP. The banks' combined exposures exceeded $50 billion.1 Money market mutual funds and others that held AIG's roughly $20 billion of commercial paper would also have taken losses. In addition, AIG's insurance subsidiaries had substantial derivatives exposures to AIG-FP that could have weakened them in the event of the parent company's failure.

Manzullo's take-away seems to be that the point of bailing out AIG was to protect that sliver of the public whose retirement plans had bought AIG insurance on their so-called "stable value funds," which the Wall Street Journal described this way: 

These funds typically maintain a relatively steady "crediting rate" -- essentially the yield investors receive -- by investing in diversified bond portfolios and then using contracts from banks and insurers to protect against sharp market swings.

But as Bernanke's statement shows, protecting the stable value funds with AIG insurance was just one of numerous factors that led the government to take the action it did.  Manzullo clearly doesn't want to hear that.  He wants a "yes or no" answer to his ridiculously narrow question.

In the beginning of the clip, New York Federal Reserve chairman William Dudley tries to answer Manzullo by explaining what would have happened if those stable value funds had taken a hit.  The scenario he lays out is pretty simple:

DUDLEY: The insurance was on the stable value funds.  If the investors in the stable value funds had taken losses in the AIG case, this would have destabilized stable value funds broadly across the U.S. economy.

In short, stable value funds beyond just those insured by AIG would have been adversely affected.  Yet rather than absorb Dudley's response, Manzullo hectors him: "The answer is yes, isn't it?"  He goes on to complain, "Not one of you can give me a yes or no answer on that question!"  And it just goes downhill from there.

The Huffington Post's Ryan Grim hits the nail on the head with his analysis:

The most generous interpretation is that Manzullo is hoping to create footage for a future campaign commercial.