Fed Chairman Bernanke Angry with AIG Bailout
Bloomberg.com reports that Federal Reserve Chairman Ben Bernanke is angry about having to bail out AIG because a division of the company acted like a hedge fund, which necessitated the bailout. “If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG,” Bernanke told lawmakers today. “AIG exploited a huge gap in the regulatory system, there was no oversight of the financial- products division, this was a hedge fund basically that was attached to a large and stable insurance company.”
President Obama plans to propose a regulatory overhaul through legislation in Congress. “The company ‘made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,’ Bernanke said. At the same time, officials “had no choice but to try and stabilize the system” by aiding the firm.” After having been bailed out twice already, AIG is about to get another $30 billion in bailout funds.
“AIG is a huge, complex, global insurance company attached to a very complicated investment bank, hedge fund that was allowed to build up without any adult supervision,” U.S. Treasury Secretary Timothy Geithner said today during testimony to the House Ways and Means Committee. Because of “the risks AIG poses to the economy,” he said, “the most effective thing to do is to make sure the firm can be restructured over time.”
In his testimony, the Fed chief said that policy makers may need to expand aid to the banking system beyond the $700 billion already approved, and take other aggressive measures even at the cost of soaring fiscal deficits.
“Without a reasonable degree of financial stability, a sustainable recovery will not occur,” Bernanke said. “Although progress has been made on the financial front since last fall, more needs to be done.”
The government has stepped in to bail out large financial institutions since the fall of Lehman Brothers last fall is thought to have prompted the global financial meltdown. Ever since then, the government has stepped in to try to ensure that the remaining financial institutions stay afloat to prevent a complete financial economic collapse.
