Bernanke, Geithner Recount AIG, Request Expanded Power

Secretary of Treasury Timothy Geithner: “As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systematic risks just as distress at banks can. The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context.”

“The proposed resolution authority would allow the government to provide financial assistance to make loans to an institution, purchase its obligations or assets, assume or guarantee its liabilities and purchase an equity interest. AIG highlights broad failures of our financial system. We must ensure that our country never faces this situation again.”

Federal Reserve Chairman Ben Bernanke: “Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs. If a federal agency had had such tools on Sept. 16, 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.”

“I then asked that suit be filed to prevent the payments. Legal staff counseled against this action on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail. Legal action does have the perverse effect of doubling or tripling the financial benefits to the (employees).”