Bernanke says AIG bailout made him ‘angry’
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Federal Reserve Chairman Ben S. Bernanke, who unfailingly presents a mild-mannered demeanor to the public, told Congress today that the federal rescue of insurance giant American International Group actually ticked him off.
From Bloomberg News:
‘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 told lawmakers. ‘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’s comments foreshadow tougher oversight of systemically important financial firms, and come as President Obama seeks legislative proposals within weeks for a regulatory overhaul. In another sign of tighter regulation to come, Bernanke said regulators should have authority to bar new financial products that may be destabilizing to markets.
The government on Monday provided another $30 billion in capital to prop up AIG, after previously committing up to $150 billion in federal funds to save the company.
Investors’ disgust and concern over AIG helped darken Wall Street’s mood on Monday, driving the Dow Jones industrial average below 7,000 for the first time since 1997.
AIG ‘made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,’ Bernanke told the Senate Budget Committee.
Wall Street’s expectation of much greater federal oversight of the financial services industry is almost certainly one factor keeping investors away from battered financial stocks. The fear is that tighter regulation will severely crimp the companies’ earnings potential for years to come -- the inevitable fallout after the disaster the industry has caused.
-- Tom Petruno