Highlights: Paulson testimony at House hearing on AIG

Former United States Treasury Secretary Henry Paulson appears before the House Oversight and Government Reform Committee hearing on ''Factors Affecting Efforts to Limit Payments to AIG Counterparties'' on Capitol Hill, January 27, 2010.

WASHINGTON (Reuters) - The following are highlights from a House Oversight and Government Reform Committee hearing on Wednesday on the bailout of insurance company AIG. Former Treasury Secretary Henry Paulson and Thomas Baxter, executive vice president and general counsel for the Federal Reserve Bank of New York, were among those testifying.

BAXTER ON SECRECY FOR CDO TRANCHES, CUSIPS

"Our experts, BlackRock, tell us that if we publish that information, when the day comes -- it may be four years, it may be six years it may be longer -- when the Fed wants to sell those assets, that we will be hurt. We will be hurt because traders in the market will know what we're holding, like in a card game if one player shows his hand to everyone else, that player is prejudiced. The worry is it will injure the taxpayer interest if we show our cusip numbers and our tranches.

With these particular multi-sector CDOs, it is not customary, I am told, for investors to put this information out. And you do, again and I am relying on what experts at BlackRock have told us, you can be gamed by hedge funds and sophisticated players when the time comes when you want to sell.

PAULSON AND REP. JORDAN ON WHEN PAULSON DECIDED ON BANK CAPITAL INJECTIONS:

"During that period, when Congress was acting, the situation worsened considerably. As we got near the final vote, it was beginning to get clear to me we were going to have to think through other options. But long after, even after we put capital into the banks ... it was still my intent to proceed with an illiquid asset purchase program until we got into late October."

Paulson's exchange with Jordan

Q: When did you change mind and decide you weren't going to purchase the troubled assets and you were going to inject capital. When did that happen?

A: I came to Congress on September 18...

Q: When did you change your mind?

A: It was our strategy when we came to Congress to buy illiquid assets, to purchase illiquid assets.

Q: When? We got two minutes. When did you change your mind?

A: It was, but by the time...

Q: Before the vote on Oct 3rd, or after the vote, when did you change your mind?

A: I had begun considering putting capital into the banks as one option, as we got near the final vote. But I had not changed my mind yet on the strategy and I will say one other thing to you. Right up, even after we put capital in the banks...

Q: What is it? Did you change your mind before the vote or after the vote?

A: I changed my mind after the vote ... I did not change my mind on purchasing illiquid assets until mid- to late-October after we put the capitol in.

(Jordan then reads from book by David Wessel saying Paulson was changing his mind on the issue before the final vote)

Q: Again, I'm asking you, was it before or after? Because you've said two different things... You sold Congress on the simple fact you were going to buy the assets, that's why you needed the money...

A: Congressman, let me answer the question. Gimme a minute to answer the question. During that period, when Congress was acting, the situation worsened considerably. As we got near the final vote, it was beginning to get clear to me we were going to have to think through other options. But long after, even after we put capital into the banks...

Q: Did you express that concern to Congress?

Chairman: The gentleman's time has expired.

A: Even after we put capital into the banks, it was still my intent to proceed with an illiquid asset purchase program until we got into late October.

REP. BURTON ON INVOLVEMENT IN AIG DECISION BY PAULSON, OTHERS:

"We have this bailout of AIG and you don't know anything about it. Mr. Geithner had nothing to do with it. It just really boggles the mind that some of the biggest people involved in this whole thing from beginning to end had nothing to do with it... I don't think anybody is going to buy that."

PAULSON ON WHY AIG WAS BAILED OUT:

"If AIG collapsed, it would have buckled our financial system and wrought economic havoc on the lives of millions of our citizens."

PAULSON ON HIS INVOLVEMENT IN AIG PAYMENTS TO COUNTERPARTIES:

"I was not involved in any of the decisions made with respect to those payments, nor was I involved in any of the decisions about AIG's public disclosure of those payments."