Economists call for new rules
WASHINGTON — Pointing with dismay to the AIG debacle, the nation’s top economic officials argued Tuesday for unprecedented powers to regulate and even take over financial goliaths whose collapse could imperil the entire economy. President Barack Obama agreed and said he hoped "it doesn’t take too long to convince Congress."
Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, in a rare joint appearance before a House committee, said the messy federal intervention into American International Group demonstrated a need to regulate complex non-bank financial institutions just as banks are now regulated by the Federal Deposit Insurance Corp.
"AIG highlights broad failures of our financial system," Geithner told the House Financial Services Committee. "We must ensure that our country never faces this situation again."
But the two appeared divided over where the authority should reside. Geithner suggested that his Treasury Department’s powers be expanded. Bernanke was noncommittal, even suggesting the FDIC.
Both officials sought to channel the widespread public outrage over the millions of dollars AIG spent in post-bailout bonuses into support for regulatory overhaul. Geithner was expected to lay out more details on the administration’s plan Thursday when he appears again before the committee payday loans.
Democrats in the Senate say the administration wants the proposal on taking over non-banks to move separately from the larger financial industry regulatory bill, to get it going more quickly.
The government has given AIG more than $180 billion in bailout funds since it first intervened Sept. 16. The U.S. now owns nearly 80 percent of the insurer.
"If a federal agency had had such tools on Sept. 16, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties as appropriate," Bernanke said.
Bernanke said it was "highly inappropriate to pay substantial bonuses." He said he had asked that the payments be stopped but was told that they were mandated by contracts.
"I then asked that suit be filed to prevent the payments," he said. But Bernanke said his legal staff counseled against this action "on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail."
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