Geithner seeks new powers over financial corporations

 

Wednesday, Mar 25,2009, 11:13:26 AM   Click:

Copyright: The Associated Press. All rights reserved. This material May not be published, broadcast, rewritten or redistributed.
Source: AP Online
Wordcount: 822


WASHINGTON_Treasury Secretary Timothy Geithner asked Congress on Tuesday, broad powers to regulate new non-bank financial companies, as the troubled insurer American International Group, whose collapse would imperil the economy.

"AIG is largely the failure of our financial system," said Geithner in the House Financial Services Committee. "We must ensure that our country has ever faced this situation."

At the same time, Federal Reserve Chairman Ben Bernanke indicated that he had considered filing adapted for maintaining AIG to pay millions of dollars in executive bonuses, but that its legal counsel advised him not to.

Geithner acknowledged that the current climate of anger, anger, including those of retention bonuses, will complicate the efforts of the Obama administration to get more bailout money from Congress. "We recognize that it will be extremely difficult," he said.

Geithner Bernanke joined in calling for greater government more complicated and troubled financial companies _ they can be treated in the authority exerted on banks by the Federal Deposit Insurance Corporation. This includes the power to seize control of institutions, the care of their bad loans and other illiquid assets and selling bonds to competitors.


AIG is a colossus interconnected globally, with 74 million customers worldwide and in over 130 countries. The government has decided that it was simply too big to let fail.

"Its failure could have resulted in a 1930's style, financial and economic global fusion, with catastrophic consequences for the production, incomes and jobs," Bernanke told the panel.

Geithner, Bernanke and New York Fed President William C. Dudley has shown a rare joint appearance before the panel. Their testimony came one day after the Fed unveiled a new bank rescue plan under which the government would be responsible for up to $ 1 trillion in sour mortgage-backed securities, with the help of private investors.

That pleased Wall Street and the Dow industrial soared nearly 500 points. Tuesday, Wall Street has given some of its gains. The Dow fell just over 30 points in midmorning trading.

Tuesday, much discussion centered on ways to help the government better cope with the future of AIG, as firms whose failure could devastate the financial system and drag down the economy .

"As we saw with AIG, in great distress, interconnected, non-deposit financial institutions may pose systemic risks as the distress in the banks," said Geithner. "The Administration proposes legislation to give the U.S. government the same set of tools to deal with non-bank financial difficulties, as it did in the bank"

Geithner made it clear that he believes that Treasury Secretary should be given unprecedented power, after consulting with Federal Reserve officials, to take control of a large financial institution and run it. The head of the Treasury is an officer of the hotel, unlike the FDIC, an independent regulator.

The witnesses asked whether AIG would have been handled differently, including the payment of $ 165 million in bonuses this month, if such powers existed last September, the Fed began when the government bailout of the insurer.

"Of differently. It could have been taken into receivership or conservatorship. ... The bonus issue would not have arisen, "said Bernanke.

He said the contracts provide for bonuses could have been adjusted and we could take haircuts "against some of AIG's financial obligations to other companies.

AIG has become a symbol of reckless risk-taking Wall Street. The House voted overwhelmingly last week to move 90 per cent of taxes on big bonuses and more, but not as punishment, the legislation is Senate.The even before premiums are from AIG reported d an astonishing $ 62 billion loss, the largest United States in history.


The government alleges AIG four times, to the tune of over $ 180 billion in total.

New York Attorney General Andrew Cuomo said Monday that 15 employees who received some of the largest premiums AIG agreed to return in their entirety, totaling approximately $ 50 million.

Bernanke said it was "very inappropriate to pay bonuses" to employees. Bernanke said that he requested that the payments stop, but it was said they were mandated by the contracts concluded before the government took control of AIG on September 16.

"I then asked who agreed to be introduced to avoid the payments," he said. Bernanke said that his personal legal advice against such action on the grounds that the Connecticut law provides for punitive damages in cases where such a prosecution has failed. AIG in the financial products division has a base in Connecticut.

AIG bonus PR has created a headache for President Barack Obama, when he tried to gin public and political support for his economic policies, plan to rescue banks and overhaul the regulatory structure the country.

Government to rescue AIG, Citigroup Inc, Bank of America Corp. and others have put billions of taxpayer dollars at risk in recent years that have angered the American public.

___

Associated Press writer Martin Crutsinger contributed to this report.