Thu, Mar 26, 2009 page10

• Japanese exports suffer record plunge as US, China slow

  WORST RECESSION Analysts say Japan may announce on Friday that it faces another bout of deflationary pressure as consumer prices plummet

  • AP
  • • 
    • 
    • 

  The top US economic officials are trying to convince lawmakers to give them unprecedented powers to regulate — and even take over — financial goliaths whose collapse could imperil the entire economy. US President Barack Obama agreed and said he hoped “it doesn’t take too long to convince Congress.”

  In a rare joint appearance before a House of Representatives committee, US Treasury Secretary Timothy Geithner and US Federal Reserve Chairman Ben Bernanke on Tuesday sought to channel widespread public outrage over huge bonuses to executives at bailed-out American Insurance Group, Inc (AIG) into support for a regulatory overhaul.

  “AIG highlights broad failures of our financial system,” Geithner told the US House Financial Services Committee. “We must ensure that our country never faces this situation again.”

  Dealings between Congress and Geithner have been tense at best.

  But they were a little more relaxed in the afterglow of Monday’s nearly 500-point surge in the Dow Jones industrials, though the Dow dropped about 116 points on Tuesday. The rise came in large part in response to the administration’s unveiling of a public-private program to buy up to US$1 trillion in bad loans and toxic mortgage-related securities clogging bank balance sheets.

  Geithner is expected to lay out more details on the administration’s plan tomorrow when he appears again before the committee. Democrats in the Senate say the administration wants the proposal on taking over non-banks to move separately from the larger financial industry regulatory bill, to get it going more quickly.

  At a nationally televised news conference on Tuesday night, Obama put in a plug for the request Geithner made to Congress for extraordinary authority to take over failing companies like AIG, much as the Federal Deposit Insurance Corp (FDIC) now has for banks.

  “It is precisely because of the lack of this authority” that AIG’s problems threatened to bring down the entire US economy, Obama said.

  The government has given AIG over US$180 billion in bailout funds since it first intervened last Sept. 16. The US now owns nearly 80 percent of the giant insurer.

  “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,” Bernanke said.

  Both Geithner and Bernanke told the panel they did not become aware of the US$165 million in bonuses to AIG employees until March 10, just days before the payments were made. However, lower-level officials at both agencies were aware of the payments.

  Bernanke said it was “highly inappropriate to pay substantial bonuses” in such a situation.

  He said he had asked that the payments be stopped but was told that they were mandated by contracts.

  “I then asked that suit be filed to prevent the payments,” he said.

  But Bernanke said his legal staff counseled against this action “on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail.”

  At the House hearing, there were a few pointed exchanges.

  Representative Paul Kanjorski, a Democrat, warned Geithner about any requests by the Obama administration for more taxpayer money to support the financial bailouts for companies like AIG.

  “I assume that you recognize there’s not an awful lot of sympathy up here to necessarily provide additional funds — not going on the merits of whether the funds are necessary,” he said.

  “We recognize it will be extraordinarily difficult,” Geithner said.

  Geithner made it clear he believed the treasury secretary should be granted broad powers — after consultation with Federal Reserve officials — to take control of a major financial institution and run it.

  Republican Senator Jim Bunning of Kentucky said on Tuesday that Geithner should “be booted out of office” and that Monday’s plan for handling toxic assets was “just another step in the direction of socializing our financial markets.”
• Most Popular

  • 1

    LA Dodgers show off World Series rings

  • 2

    Homeless Sudan club defy odds in CAF Champions

  • 3

    Dodgers edge Tigers and Yankees beat Brewers in opening games in the US

  • 4

    Michkov key as Flyers beat Predators

  • 5

    US hands over first long-awaited F-16