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March 24th, 2009
02:14 PM ET

Financial Dispatch: Fed chief wanted to sue AIG

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/images/03/24/art.hearing.geithner.bernanke.jpg]

Andrew Torgan
CNN Financial News Producer

Fed Chairman Ben Bernanke wanted to sue AIG in order to prevent $165 million in retention bonuses from landing in the hands of executives from the division that brought the firm to its knees, according to testimony he delivered before the House Financial Services Committee today.

But Bernanke said that he was advised against filing a lawsuit, because the government would have needed to pay "substantial punitive damages" if the Fed lost the case, essentially awarding extra benefits to the executives from the insurance company’s troubled financial products division.

Bernanke and Treasury Secretary Tim Geithner both faced tough questions this morning over the taxpayer bailout of AIG and the bonuses the company shelled out.

Treasury Secretary Tim Geithner is pushing for unprecedented new regulatory powers to seize institutions whose failure would pose serious risks to the U.S. financial system.

With such "resolution authority," the federal government could intervene and aggressively reorganize a troubled business - such as AIG - before its problems ripple through the global financial system, the officials said.

The authority would allow the government to sell or transfer assets and components of a troubled company, including renegotiating or dissolving executive compensation agreements and addressing risky derivatives portfolios.

Geithner will appear before the committee again on Thursday to further discuss the Obama Administration's proposals for regulatory reform.

Meanwhile, 15 executives from AIG have returned their bonuses.

New York Attorney General Andrew Cuomo says that adds up to about $50 million dollars. In all, $165 million dollars was paid out in bonuses earlier this month. Cuomo says he believes his office can recover about half that total and he hopes more employees will return their bonuses on their own.

Stocks on Wall Street are retreating after yesterday’s massive rally.

The Dow posted its biggest point gain of the year on Monday as investors welcome the plan to buy up billions in toxic bank assets and a better-than-expected existing home sales report raised hopes that the economy is stabilizing.

Gas prices rose 1-cent overnight to $1.966 a gallon, the 7th consecutive increase. 14 states and the District of Columbia have regular unleaded gas prices of $2 and higher. 36 states have regular unleaded gas prices below $2. The highest gas prices are in Alaska ($2.487). The cheapest gas prices are in Wyoming ($1.773)

Finally, CNN’s Personal Finance Editor Gerri Willis has some advice for those worried about losing their jobs on how to save on air travel, gyms, clothing and more. Click here for the full story.


Filed under: Andrew Torgan • Economy • Finance • Gas Prices • Unemployment
soundoff (19 Responses)
  1. Karen

    I was outraged when the taxpayers had to bailout Citigroup with $20 billion in TARP funds. That outrage grew when I opened my recent Sears Master Card statement and saw my interest rate jumped from 7.24% to 21.99% for no reason. I had never been late, over the limit and always paid more than the minimum payment.

    I had negotiated the 7.24% last year so I called to see what happened. I was informed Citigroup now financed all Sears credit accounts and I had received the "Terms and Agreement" booklet informing me of the change. I remember receiving the multipaged booklet written in very small print along but must admit I did not read it.

    Luckily, I opened my statement early enough to be able to "opt out" of the agreement and close the account to avoid an over 300% increase in the interest rate. I gladly closed the account so I can continue to pay off the balance at the 7.24% we had negotiated.

    March 24, 2009 at 5:59 pm |
  2. JC- Los Angeles

    Why doesn't Bernanke sue Alan Greenspan for dereliction of duty? I believe that hack of ages started much of this mess while also receiving a $6 million book advance for chronicling his ineptitude.

    Only in America.

    March 24, 2009 at 5:52 pm |
  3. RJ

    Congress is responsible for this happening to begin with. Now they go against the constitution with this 90 percent tax law which directly violates Article 1 Section 9 "No bill of attainder or ex post facto Law shall be passed. " What if they start doing this some more in the future with other federal money. Like education for instances. This kind of action by our congress needs to be stopped.

    March 24, 2009 at 5:38 pm |
  4. Mig

    There are very naive people in Congress who may not read details of legislation they have to vote on (saying there is not enough time is plain lazy as these people do have staff and should partition the task to get to all details of each legislation understood and analyzed). There are also very unethical and deceiving senators and congressmen who after showing their fake outrage in front of cameras are nothing but trying to be on the good side of these corporations as these corporations and their members/executives donate lots of their campaign money (back scratching). If our elected officials think these corporations are too big to fail, then they probably think we the citizens are too small for them to care!

    On another note I wonder how much in investments the AIG CEO has on other companies like JPMorgan, etc. that point back to AIG in one way or another (I wonder if that information is public).

    March 24, 2009 at 5:07 pm |
  5. HM Hanes

    Using Geithner as a scapgoat is working based on the latest gallop polls. What a shame.

    March 24, 2009 at 4:35 pm |
  6. Neo

    I'm sure AIG wanted them to sue, they would have lost even more money because the wording was put in there by someone in gov't. It's better to force them to give the money back. Release the names of the remaining half and that's it. We call that street justice and sometimes it's necessary, yes even in gov't.

    March 24, 2009 at 4:08 pm |
  7. Bob Flora

    If We Would Collect Taxes On All Bounes From All Corp., And If The Everyone In The White House Would Pay Thier Taxes , Just Like The Regular Person Does We Would Have More Money Than The Goverment Could Spend

    Bob

    March 24, 2009 at 3:53 pm |
  8. Heath

    Why can we not nationalize the federal reserve to stimulate the economy?

    March 24, 2009 at 3:42 pm |
  9. Matthew

    I'm an Executive Compensation Consultant - the issue isn't whether they got bonuses but what was the criteria for the bonus.

    Did they accomplish what they were being paid to do? Did accomplishing the objectives save/earn the company more than the cost of the bonus. If so, it's money well spent.

    If not, the Executives/Directors that set up and approved the plan should be held accountable.

    I want to see the details of the bonus agreement - what did we get for $165 Million?

    March 24, 2009 at 3:13 pm |
  10. Sharon S

    Bernanke and Geithner are clearly the scapegoats here and Bernanke is being stupid by trying to sue AIG for something he gave them!

    Get real, Congress needs to be grilled Let US the people Grill each and everyone in Congress and let us see what their reactions are?

    I'm sick of Geithner being used to take all the heat, do I like the man? NO! Do I trust him NO! But at this point I don't think any of us Trust anyone in Congress and I think that each and everyone who signed that bill should be treated equally and be held responsible as all of them did it not just one or two people!

    We need to get over this and move on but the next time Congress pulls something stupid like this I think we the American People need to HOLD them ALL accountable!

    March 24, 2009 at 3:01 pm |
  11. mike

    Why is no one talking about the BofA Merill Lynch Bonuses that were conveniently dated not to be covered by the legeslation and in fact were significantly more money than the AIG? Anderson, you are the right person to get to the bottom of this. I appreciate your hard questions and the fact that you are looking out for us.Many thanks. I look forward to hearing your reporting on this particular topic. It seems very relevent considering the current outrage.

    March 24, 2009 at 2:51 pm |
  12. Michael "C" Lorton, VA

    Don't sue AIG--–because if you loose you are going to have to pay compensatory and punitive damages--but it is OK to bail them out--remind me never to retain their lawyers.

    March 24, 2009 at 2:43 pm |
  13. Sandra

    Congress is always pointing fingers at everyone else to take the focus off of them and what they are NOT doing. Before releasing any money to AIG these details should have been worked out. Congress should accept a great deal of blame for their many mistakes made during this whole process. We hand a blank check to AIG and ASSUME they are going to act responsibly. To them it's just business as usual....which is why they are in this mess in the first place.

    March 24, 2009 at 2:42 pm |
  14. HM Hanes

    It would be nice to see congress let these men get back to doing there jobs and not to have to waste time today and thursday on childish lashings with poorly written retoracle questions.

    March 24, 2009 at 1:39 pm |
  15. Jullane Jackson

    I watched the Liddy grilling. Liddy stated that the individuals receiving the retention bonus' were not those that caused the financial distress of the company. When questioned by Republican Don Manzullo, he stated that those dealing in mortgage defaults and regulatory capital, the areas causing the problems, were gone. The remaining individuals were in "other derivative trades", such as currency hedges, which were healthy areas of business. These were the individuals that were receiving retention bonus' – so that when they were told in January of 2008 that they were losing their jobs, they would refrain from looking for other employment, and stay on the sinking ship to maximize return of the $1.6 trillion of business. What has happened to the "news" agencies that this is being glossed over in order to create a bigger story? Not one news agency reported this. Truly sad state of affairs.

    March 24, 2009 at 1:24 pm |
  16. RLWellman

    I think it is sad that Congress who is doing the grilling of these two people are trying to take the heat off of themselves. They think we are stupid and can't see what they are doing. I believe it is time for all of them to look for different jobs and maybe the American people can remember this when it is time for their re-election.
    How many other people in Congress received money from AIG like President Obama and Mr. Dodd? How many other companies have given money to these people?
    Isn't it about time someone looked into the stimulis bills and omnibus bill to see what's in all of them? The Government doesn't need any more money then what they have already. Isn't time they reduce their ranks and cut their budgets like everyone else in the USA has done?

    March 24, 2009 at 1:22 pm |
  17. Lisa in CA

    What I find amusing is Congress grilling these two men on what they knew when. When will Congress grill itself on why THEY failed to read the bill they signed.

    I'd further like someone to grill AIG's Board of Directors as to why they would even consider having a contract that would give a bonus – retention or otherwise – to any employee that did not perform their job properly. In other words, why would one give a bonus to someone who basically failed in their job?

    I thought a bonus was for outstanding job performance, exceeding expectations, making (as opposed to losing) lots of money for their company, etc. We have Board of Directors of these corporations who are basically allowing the rewarding of failure. What's even more scary - they want to keep them. Whatever happened to the days of "you didn't perform your job, you're fired"?

    March 24, 2009 at 1:22 pm |
  18. earle,florida

    The only concern I have about the government bailout of AIG would be the unfair advantage they've been given over their compeditors to make good on their (pay-back) mistakes. If you look at the " Insurance industry", that played by the rules,they are losing clients to AIG,now offering a wider range of coverage/programs with lower premium cost! Bottom-line we are rewarding failure once again without mandating timely/future rules with no end-game in sight,...! PS Please remember that AIG's bailout was not about AIG,but about the financial undermining of the United States Credit Worthiness through-out the world being swindled by one of ours,under our own eye's!!!

    March 24, 2009 at 1:19 pm |
  19. JLS

    I understand the grilling of these two men regarding not just the AIG debacle,but the entire bailout situation. I do find it interesting that our "leaders" (members of Congress) questioning these men couldn't use professionalism in their interrogation. These are the people that we sent to Washington to represent us and our concerns. I don't think I would have yelled at them like do a small child. These are accomplished men in their own right and deserve to be treated professionally. Not everyone did this, but I found difficult to listen to without getting snotty back in their face! Yes, it is a mess, but you have to give the system time to work. No one what to do. Many of the world's best and brightest have told us that, so why are we grilling only 2 people? Personally, no one knows who to blame so we pick on the guys sittin' at the table. Personally, I'm embarrassed by our Congressional leadership!

    March 24, 2009 at 12:41 pm |