In his testimony before the Senate Budget Committee Tuesday, Federal Reserve Chairman Ben Bernanke showed his frustration with the numerous American International Group Inc. (NYSE:AIG) bailouts, saying the rescue of AIG has made him more angry than any other rescue.
Bernanke said AIG's financial service unit was basically a hedge fund operating in a traditional insurance company. He said they had no choice but to step in to rescue AIG to stabilize the system.
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"AIG was a strong insurance company that was ambushed by financial products," he said, adding that it needs to get strong enough to stabilize and pay back the government.
Bernanke also said the timing and strength of any economic recovery will hinge on the government's ability to prop up shaky financial markets.
"Without a reasonable degree of financial stability, a sustainable recovery will not occur," the Fed chairman said Tuesday in testimony prepared for the Senate Budget Committee. "Although progress has been made on the financial front since last fall, more needs to be done."
The Obama administration revamped a $700 billion financial bailout program aimed at helping strengthen banks, but in its first budget seeks a placeholder or standby authority for as much as $750 billion in new aid to the financial industry. Whether those funds will be needed "depends on the results of the current supervisory assessment of banks" and the evolution of the economy, Bernanke said.
He added that the economy and financial markets "face extraordinary challenges," and doing less now would eventually prove to be more costly. "We are better off moving aggressively today to solve our economic problems; the alternative could be a prolonged episode of stagnation" that would cause budget deficits to swell further, increase unemployment and undermine incomes "for an extended period." - Donna Block
See video and transcript of Bernanke's testimony
