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Bernanke: Mad as Hell About AIG, But Bailouts Averting 'Disaster'

Posted Mar 03, 2009 05:32pm EST by Aaron Task in Newsmakers, Banking
Related: AIG, GS, MS, DB, XLF, SKF, FAZ
A day after the government unveiled AIG bailout no. 4, the insurance giant's failure was a major topic of conversation during Q&A after Ben Bernanke's testimony before the Senate Budget Committee.

"I share your concern, I share your anger," the Fed Chairman said in response to a question from Sen. Wyden (D-Oregon) about AIG.

Bernanke was particularly peeved that AIG "exploited a huge gap in regulatory oversight" to essentially operate a hedge fund on top of its core insurance business. As a result, he said an AIG failure would be a "disaster," affecting both the insurance industry and Wall Street firms that are counterparties on derivatives trades with AIG.

"It's a terrible situation, but we're not doing this to bail out AIG or their shareholders," Bernanke declared. "We're doing this to protect our financial system and to avoid a much more severe crisis in our global economy."

That may very well be true but Bernanke could not, or would not, say:

  • Who, exactly, are AIG's counterparties?
  • Why AIG debt holders are being treated as if they owned Treasuries, and not the debt of a (once) private firm that has all-but collapsed under the weight of its own greed and incompetence?
  • How many more times the government will have to bailout AIG, or how much money will ultimately be spent, before this mess is resolved?
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