Bernanke Says Insurer AIG Operated Like a Hedge Fund
Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. operated like a hedge fund and having to rescue the insurer made him “more angry” than any other episode during the financial crisis.
According to Bloomberg, Bernanke told lawmakers today: “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. 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 Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.
Bernanke blamed the company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system. At the same time, officials had no choice but to try and stabilize the system by aiding the firm.
It’s believed that banks relied on AIG’s financial products unit to back about $298 billion of assets through derivative contracts at year-end, making the firm a “systemically significant failing institution” that has to be propped up.
AIG has reduced the number of bets made by the financial products unit that sold credit-default swaps by more than 25 percent since October and cut expenses by “ hundreds of millions” of dollars. But that’s not enough.
Critics including former AIG Chief Executive Officer Maurice “Hank” Greenberg said the strategy of breaking apart the insurer and selling units wouldn’t reap enough to repay AIG loans.
AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday. The insurer’s first bailout package grew to $150 billion last year. After failing to sell enough subsidiaries to repay the government, the company had to turn to the government again. The company may need more support if financial markets don’t improve.
AIG’s fourth-quarter loss widened to $61.7 billion, the New York-based insurer said yesterday. The results brought its annual loss to almost $100 billion, prompting the U.S. to offer a package of equity, new credit and lower interest rates on existing loans designed to keep it in business and prevent a new shock to the world’s financial system.
The first rescue of the insurer came in September the day after officials couldn’t find a buyer for Lehman Brothers Holdings Inc., leaving the investment bank to file for bankruptcy. AIG also marked a turning point in the relationship between the U.S. Treasury and the Fed, with the central bank pushing then Treasury Secretary Henry Paulson to seek cash from Congress for additional bailouts.
Whether we like it or not, America’s federal policy is now driven by the need to avoid another Lehman.
According to Bloomberg, Bernanke told lawmakers today: “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. 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 Barack Obama seeks legislative proposals within weeks for a regulatory overhaul. The U.S. government has had to deepen its commitment to prevent AIG’s collapse three times since September as the company accumulated the worst losses of any U.S. company.
Bernanke blamed the company “made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system. At the same time, officials had no choice but to try and stabilize the system by aiding the firm.
It’s believed that banks relied on AIG’s financial products unit to back about $298 billion of assets through derivative contracts at year-end, making the firm a “systemically significant failing institution” that has to be propped up.
AIG has reduced the number of bets made by the financial products unit that sold credit-default swaps by more than 25 percent since October and cut expenses by “ hundreds of millions” of dollars. But that’s not enough.
Critics including former AIG Chief Executive Officer Maurice “Hank” Greenberg said the strategy of breaking apart the insurer and selling units wouldn’t reap enough to repay AIG loans.
AIG is getting as much as $30 billion in new government capital and relaxed terms on its bailout announced yesterday. The insurer’s first bailout package grew to $150 billion last year. After failing to sell enough subsidiaries to repay the government, the company had to turn to the government again. The company may need more support if financial markets don’t improve.
AIG’s fourth-quarter loss widened to $61.7 billion, the New York-based insurer said yesterday. The results brought its annual loss to almost $100 billion, prompting the U.S. to offer a package of equity, new credit and lower interest rates on existing loans designed to keep it in business and prevent a new shock to the world’s financial system.
The first rescue of the insurer came in September the day after officials couldn’t find a buyer for Lehman Brothers Holdings Inc., leaving the investment bank to file for bankruptcy. AIG also marked a turning point in the relationship between the U.S. Treasury and the Fed, with the central bank pushing then Treasury Secretary Henry Paulson to seek cash from Congress for additional bailouts.
Whether we like it or not, America’s federal policy is now driven by the need to avoid another Lehman.
posted by Jiu Zhuang at
10:59 AM
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