Federal Reserve Chairman Ben Bernanke Tuesday faced angry members of the Senate Budget Committee as he answered questions concerning the latest bailout of American International Group (AIG), even as the Fed chief warned that an economic recovery hinges on the government's success in stabilizing shaky financial markets and their major players, reports Jeannine Aversa at the Associated Press.
Bernanke reportedly told the committee, "I share your concern, I share your anger. It's a terrible situation, but we're not doing this to bail out AIG or their shareholders. We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."
On Monday, the U.S. Treasury Department handed over another $30 billion to the insurance giant, the government's fourth effort to stabilize AIG since September.
Facing skepticism from both Democrats and Republicans who demanded more accountability and openness, Bernanke defended the government's efforts, saying "the failure of major financial firms in a financial crisis can be disastrous for the economy."
The will be better off "moving aggressively" to solve economic problems because the alternative "could be a prolonged episode of economic stagnation," Bernanke said.
Bernanke did admit, however, that in the last 18 months of the financial crisis, the AIG episode has made him angry.
"AIG exploited a huge gap in the regulatory system; there was no oversight of the financial products division," he said. "This was a hedge fund basically that was attached to a large and stable insurance company, made huge numbers of irresponsible bets, took huge losses."
Experts say that because AIG is such a massive company with institutions around the globe, its downfall could set off a negative chain reaction.
"We really had no choice," Bernanke said. "Bankruptcy is just not a good option."
But that did little to soothe lawmakers, reports Aversa , who called for “some kind of consequence” for AIG, and further disclosure by the government on the identities of banks and other bailed-out institutions.
Bernanke answered that he hoped the government’s efforts would result in ultimate improvements.
"It isn't fair that money is going to big corporations. We are in a situation, though, where we need to stabilize the financial system." The Fed chief was reported to have said. "If we don't stabilize the financial system, we have no hope of getting the economy back to a normal state."
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