NEW YORK—Earlier this week, Federal Reserve Chairman Ben S. Bernanke told lawmakers that having to rescue American International Group Inc. made him “more angry” than any other event during the Wall Street crisis.
In a testimony in front of the Senate Budget Committee on Tuesday, Bernanke warned that the country faces a deeper recession if the crisis isn’t dealt with quickly and forcefully.
But the Fed chairman reserved his harshest words for the insurance giant, which earlier this week reported the largest quarterly loss ever announced by any U.S. company—$62 billion. The loss forced the U.S. government to throw another $30 billion to the insurer, the third bailout for AIG since last September.
In response to a question from Sen. Ron Wyden, “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 said.
“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.”
Bernanke accused the firm’s London-based financial products arm of making irresponsible bets and taking advantage of loopholes in the regulatory system.
The Fed chief warned that it may take much more than the current $700 billion of aid for the financial industry to bring about an economic recovery. Last week, President Obama outlined in his budget an additional $700 billion-plus earmark to rescue the financial industry, if needed.
The Fed stepped in to bail out AIG last year because the firm was one of the largest issuers of credit default swaps—insurance on debt instruments. If left for dead, the firm faced a collapse that could bring serious consequences to the global financial markets.
The $30 billion in additional financial funding is in addition to $150 billion that the government already gave AIG.
“We had no choice but to try to stabilize the system because of the implications that the failure would have had for the broad economic system,” Bernanke said.
Standing pat would have caused “shockwaves through the entire insurance industry,” he added.
In a testimony in front of the Senate Budget Committee on Tuesday, Bernanke warned that the country faces a deeper recession if the crisis isn’t dealt with quickly and forcefully.
But the Fed chairman reserved his harshest words for the insurance giant, which earlier this week reported the largest quarterly loss ever announced by any U.S. company—$62 billion. The loss forced the U.S. government to throw another $30 billion to the insurer, the third bailout for AIG since last September.
In response to a question from Sen. Ron Wyden, “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 said.
“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.”
Bernanke accused the firm’s London-based financial products arm of making irresponsible bets and taking advantage of loopholes in the regulatory system.
The Fed chief warned that it may take much more than the current $700 billion of aid for the financial industry to bring about an economic recovery. Last week, President Obama outlined in his budget an additional $700 billion-plus earmark to rescue the financial industry, if needed.
The Fed stepped in to bail out AIG last year because the firm was one of the largest issuers of credit default swaps—insurance on debt instruments. If left for dead, the firm faced a collapse that could bring serious consequences to the global financial markets.
The $30 billion in additional financial funding is in addition to $150 billion that the government already gave AIG.
“We had no choice but to try to stabilize the system because of the implications that the failure would have had for the broad economic system,” Bernanke said.
Standing pat would have caused “shockwaves through the entire insurance industry,” he added.
