AIG wrath on the Hill: Geithner, Bernanke testify RAW STORY

Published: Tuesday March 24, 2009





Print This Email This During a Tuesday hearing of the House Financial Services Committee, Treasury Secretary Tim Geithner asked lawmakers to give him new regulatory powers to deal with the country's massive financial crisis.



The Treasury Secretary asked for powers similar to those of the Federal Deposit Insurance Corporation, which can seize control of banks, take over their bad assets and sell the good ones to competitors.



Geithner, who in the eyes of much of the public, has struggled to an extent to find his footing in dealing with the massive financial crisis, asked Congress to give him even more power to take control of a troubled financial institution and run it, after consultation with the Federal Reserve. The treasury chief is an official of the administration, unlike the FDIC, which is an independent regulatory agency.



House Minority Leader John Boehner has already come out against Geithners request for more regulatory authority.



This is an unprecedented grab for power, Boehner said. Before this occurs there ought to be a real debate about whether we should give that to the Treasury Secretary.



Geithner said he didn't learn of the controversial AIG bonuses until March 10. At that time Geithner said he asked AIG CEO Edward Liddy to re-negotiate the payments but was informed that they were legally binding.



Federal Reserve Chairman Ben Bernanke said he originally wanted to sue AIG for the millions in executive bonuses but was talked out of it by his legal staff.



According to a report from Bloomberg, New York Fed President William Dudley speaking at the hearing said, We did not think it was legally permissible" to overrule AIGs decision to pay bonuses.



Bernanke seemed to support Geithner's call for more regulatory power, noting that if the government had had more power to take control of financial institutions in September, the way the FDIC has the authority to take control of failing banks, the government "could have taken haircuts against some of the counterparties without out taking a default."



"Because we have no legal mechanism in place, we did not have the ability to selectively impose losses on their counterparties," Geithner said of the rescue of AIG in September.



Committee Chairman Barney Frank interrupted testimony at several points to chastise protesters attending the hearing for their disruptions.



"I do not know how you think you advance any cause to which you might be attached with this kind of silliness," Frank said to the protesters.



Geithner said the American people were "understandably skeptical" in the need for more bailout funds, particularly to AIG. Going forward, more "clarity" would be required of the recipients of Troubled Asset Relief monies on how exactly they planned to use their funds and who they would be making loans to.



"I completely agree that the American people deserve to see much higher accountability," Geithner said.



Rep. Maxine Waters (D-CA) extensively grilled Geithner on his knowledge of Goldman Sachs involvement in the design and implementation of the Fall 2008 government bailouts.



This small group of decision makers at the center of it is Goldman Sachs and that is what is causing a lot of the distrust [of the public], Waters said.



Geithner defended the actions taken by former Treasury Secretary Hank Paulson, who is also a former Goldman Sachs CEO, and other Treasury officials with ties to the bank saying, it was deeply unfair to suggest that they were making decisions that were in the interest of Goldman Sachs but were not in the greater interests of the American people.



He also defended the decision, under questioning from Rep. Carol Maloney (D-NY), to pour billions into AIG to keep it from failing saying, I dont believe there is any plausible argument that AIG was not systemic then or that its failure today would not be systemic.



Calling Congresss reaction to the AIG bonuses kabuki theater, Rep. Brad Sherman (D-CA) pressed Geithner to agree to release a list of the executive compensation packages of all of the TARP recipient companies. He specifically asked for information on executives earning more than $1 million and those receiving large contractual bonuses.



Im not going to hide the ball, I will reflect on the suggestion that you made, Geithner said to Sherman.



Rep. Ron Paul (R-TX) questioned Bernanke on the need for deposit insurance, and the governments role as a lender-of-last-resort, saying isnt that what creates moral hazard? Isnt that the problem and not the solution?



Bernanke said those government policies were here to stay for better or for worse and that those protections required government oversight.



Paul objected to the proposal for new regulatory power, saying that once the current recession passes, any new regulatory powers would likely be there to stay for 10 to 15 years.



With AP wire reports...









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