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Fed wanted to block AIG bonuses Fed wanted to block AIG bonuses
(about 3 hours later)
Federal Reserve boss Ben Bernanke says he wanted to take legal action to stop insurer AIG paying millions of dollars of bonuses but was advised against it.Federal Reserve boss Ben Bernanke says he wanted to take legal action to stop insurer AIG paying millions of dollars of bonuses but was advised against it.
He also said that had AIG collapsed, it would have caused a 1930s-style global financial and economic meltdown.He also said that had AIG collapsed, it would have caused a 1930s-style global financial and economic meltdown.
Mr Bernanke was testifying before US Congress along with Treasury Secretary Timothy Geithner on the need to reform the US financial system.Mr Bernanke was testifying before US Congress along with Treasury Secretary Timothy Geithner on the need to reform the US financial system.
Mr Geithner asked for new powers to take control of failing institutions.Mr Geithner asked for new powers to take control of failing institutions.
Widespread outrage
Mr Bernanke said it was "highly inappropriate" to pay substantial bonuses to employees at the AIG division that was the primary source of AIG's collapse.Mr Bernanke said it was "highly inappropriate" to pay substantial bonuses to employees at the AIG division that was the primary source of AIG's collapse.
This is an unprecedented grab of power, and before that occurs, there ought to be a real debate about whether we should give that authority to the Treasury Secretary House Minority Leader John Boehner
He said lawyers advised against legal action to prevent the payments, on the grounds that state law provided for substantial damages if the lawsuit failed.He said lawyers advised against legal action to prevent the payments, on the grounds that state law provided for substantial damages if the lawsuit failed.
"Legal action could have thus have the perverse effect of doubling or tripling the financial benefits to the AIG-FP employees," he said."Legal action could have thus have the perverse effect of doubling or tripling the financial benefits to the AIG-FP employees," he said.
AIG's decision to pay bonuses despite being bailed out by the government had sparked widespread outrage in the US.AIG's decision to pay bonuses despite being bailed out by the government had sparked widespread outrage in the US.
Nine of the 10 executives who received top bonuses from US insurance giant AIG have agreed to return them.Nine of the 10 executives who received top bonuses from US insurance giant AIG have agreed to return them.
Andrew Cuomo said he hoped to recoup $80m (£55m) of bonus payments - which amounts to about half of the $165m paid by AIG on 15 March. New York's attorney general Andrew Cuomo said he hoped to recoup $80m (£55m) of bonus payments - which amounts to about half of the $165m paid by AIG on 15 March.
So far they have recouped about $50m.
Failures
Mr Geithner said that AIG's collapse highlighted the failures of current regulation.
He said that a new regulatory authority needed the tools to unwind an institution of the size and complexity of AIG.
"The US government does not have the legal means today to manage the orderly restructuring of a large, complex, non-bank financial institution that poses a threat to the stability of our financial system," he said.
The US has spent a total of $170bn on rescuing AIG since September 2008.The US has spent a total of $170bn on rescuing AIG since September 2008.
However, House Minority Leader John Boehner said he had concerns about giving the Treasury greater authority.
"This is an unprecedented grab of power, and before that occurs, there ought to be a real debate about whether we should give that authority to the Treasury Secretary," Mr Boehner, an Ohio Republican, told reporters.