Late to Bed, Early to Rise...
Question of the Day

AIG: We Did Our Best, and Need Better Tools

Ben Bernanke and Tim Geithner try to use the AIG bonus scandal to argue that they should be trusted more and not less.

Andrew Ward and Tom Braithwaite of the FT:

Treasury urges new powers to intervene: The Obama administration joined forces with Ben Bernanke on Tuesday to press Congress for powers that would enable regulators to seize control of troubled financial groups including “non-banks” such as insurer AIG. In a rare joint appearance before the House financial services committee, the Federal Reserve chairman and Tim Geithner, Treasury secretary, also called for an oversight body to monitor big financial institutions that pose systemic risks.

Mr Bernanke said if such tools were available when the government moved to rescue AIG in September “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”. The Fed chairman said the AIG case highlighted the “urgent need” for a new resolution authority modelled on the Federal Deposit Insurance Corporation, which protects depositors when banks fail. Such an authority would be able to seize non-banks as well as the holding companies that control big banks.

Responding to questions about $165m in bonuses paid to AIG executives after the insurer was bailed out, Mr Bernanke said he had wanted to sue to block the payments but was advised this move could be successfully challenged in court. Mr Bernanke and Mr Geithner defended their handling of the AIG bail-out but said the government needed stronger tools to prevent similar turmoil in future...