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March 24, 2009
Treasury chiefs face grilling
WASHINGTON - IN A RARE joint appearance in Congress, the top men at the Federal Reserve and Treasury Department on Tuesday defended the Obama administration proposals for new authority to seize failing banks, gobble up bad debts and sell good ones to healthy competitors.
Treasury Secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke also were grilled about AIG, the insurance colossus that paid out big bonuses to employees even after sustaining losses that set a corporate US record and taking a whopping S$271 billion (US$180 billion) in government assistance.
In prepared testimony, Mr Bernanke told Congress he had wanted to sue to stop insurance giant AIG from paying millions in bonuses, but was talked out of it by legal staff.
They counseled, he said, against suing on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail. AIG's financial products division has a base in Connecticut.
The Fed chief also said action to help AIG was necessary.
'Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs,' Mr Bernanke said.
Mr Geithner said in prepared testimony before the House of Representatives panels that he should be granted unprecedented power, after consultation with Federal Reserve Board officials, to take control of a major financial institution and run it.
The treasury chief is an official of the administration, unlike the FDIC, which is an independent regulatory agency.
Last week Mr Obama said his administration would soon propose new financial industry oversight that includes a 'resolution authority' with powers similar to those of the FDIC, which can seize control of banks, take over their bad assets and sell the good ones to competitors. -- AP