Today, Treasury Secretary Tim Geithner and Fed Chief Ben Bernancke testified on Capitol Hill about Geithner’s latest plan to give the Treasury new power to take over non-bank financial institutions. To be honest, I didn’t realize that the Treasury didn’t have this power over high-finance institutions; only commercial banks may be legally seized and unwound by the FDIC. Bernancke makes a good point for having this power, vis-a-vis the AIG debacle:
Mr. Bernanke told members of the House Financial Services Committee that if the government had had such authority in September, when the depth of A.I.G.’s troubles became obvious, the company could have been put into receivership or conservatorship and regulators would have been able to “unwind it slowly, protect policyholders” and take other prudent measures.
“That outcome would have been far preferable to the situation we find ourselves in now,” Mr. Bernanke testified.
AIG, as we’ve noted previously several times, is full of a bunch of idiot financial hacks, who recently cemented that status by claiming that they earned huge bonuses in their hard work to destroy the economy. The point that Bernancke and Geithner made today, namely that it would have been better for everyone – taxpayers, creditors, the government, etc. – if the government had been able to put AIG into receivership in September, rather than begin a long process of slowly buying it (but still not having any say it how it was run), is very appealing. Hopefully the Congress will agree, and spare us from another similar disaster in the future.