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Fed, Treasury chiefs grilled in Congress

 Estevan Olivares, from Washington, uses a bullhorn as he protests AIG bonuses and bailout in front of the AIG offices in Washington, Friday, March 20...
 Treasury Secretary Timothy Geithner, left, and Federal Reserve Chairman Ben Bernanke, prepare to testify on Capitol Hill in Washington, Tuesday, Marc...
 Treasury Secretary Timothy Geithner, right, and Federal Reserve Chairman Ben Bernanke arrive on Capitol Hill in Washington, Tuesday, March 24, 2009, ...
 Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hea...
 Treasury Secretary Timothy Geithner, left, talks with Federal Reserve Chairman Ben Bernanke on Capitol Hill in Washington, Tuesday, March 24, 2009, b...
 Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hea...
 From left, Treasury Secretary Timothy Geithner,  Federal Reserve Chairman Ben Bernanke, and William Dudley, president and chief executive office of t...
 Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hea...

AIG Outrage

Estevan Olivares, from Washington, uses a bullhorn as he protests AIG bonuses and bailout in front of the AIG offices in Washington, Friday, March 20...

AIG Bonuses

Treasury Secretary Timothy Geithner, left, and Federal Reserve Chairman Ben Bernanke, prepare to testify on Capitol Hill in Washington, Tuesday, Marc...

AIG Bonuses

Treasury Secretary Timothy Geithner, right, and Federal Reserve Chairman Ben Bernanke arrive on Capitol Hill in Washington, Tuesday, March 24, 2009, ...

AIG Bonuses

Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hea...

AIG Bonuses

Treasury Secretary Timothy Geithner, left, talks with Federal Reserve Chairman Ben Bernanke on Capitol Hill in Washington, Tuesday, March 24, 2009, b...

AIG Bonuses

Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hea...

AIG Bonuses

From left, Treasury Secretary Timothy Geithner, Federal Reserve Chairman Ben Bernanke, and William Dudley, president and chief executive office of t...

AIG Bonuses

Treasury Secretary Timothy Geithner testifies on Capitol Hill in Washington, Tuesday, March 24, 2009, before a House Financial Services Committee hea...

The chiefs of the Federal Reserve and Treasury Department on Tuesday argued in a rare joint testimony in Congress that the Obama administration needed new authority to seize failing nonbank financial institutions, gobble up bad debts and sell good ones to healthy competitors.
Treasury Secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke also faced a grilling about their handling of one such company, American International Group Inc., the insurance colossus that paid out big bonuses to employees even after sustaining losses that set a corporate U.S. record and taking a whopping $180 billion in government assistance.
Bernanke defended action to prop up AIG, saying catastrophe loomed over the global economy if it collapsed.
"Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs," Bernanke said, referring to the decade of the Great Depression.
Geithner told the House of Representatives panel that the financial crisis sweeping the country and the globe required that he be granted unprecedented power, after consultation with the president and after securing backing from two-thirds of the Federal Reserve Board, that would have enabled the Treasury Department to take control of a major financial institution like AIG and run it. The treasury chief is an official of the administration, unlike the FDIC, which is an independent regulatory agency.
"As we have seen with AIG, distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can," Geithner said. "The administration proposes legislation to give the U.S. government the same basic set of tools for addressing financial distress at non-banks as it has in the bank context"
Last week President Barack Obama said his administration would propose new financial industry oversight that includes a "resolution authority" with powers similar to those of the Federal Deposit Insurance Corp., which can seize control of banks, take over their bad assets and sell the good ones to competitors.
Obama, meanwhile, was preparing for a televised prime-time news conference Tuesday in which he will tell Americans and the country's business community that excessive bonus and compensation payments are "of bygone days," according to his spokesman.
White House press secretary Robert Gibbs also said in television interviews Tuesday morning that the president will emphasize in opening remarks that all Americans _ workers, investors and corporate titans _ must understand their interdependence and work together to pull the country out of its worst financial and economic crisis in more than 50 years.
In an opening statement Bernanke sought to blunt congressional attacks on his handling of AIG by saying he had wanted to sue to stop the insurance giant from paying millions in bonuses, but was talked out of it by legal staff. They counseled, he said, against suing because Connecticut law provides for substantial punitive damages if the suit would fail. AIG's financial products division has a base in Connecticut.
The broad powers sought by Geithner would allow Treasury to set up a conservatorship or receivership for the ailing company. The government would have the power to take control of the firm and sell or transfer parts of it to reduce its risky position, the document said. The secretary also would be allowed to make loans, buy assets, guarantee loans and take equity stakes to help stabilize the company.
He said such powers could have headed off the government's need to bail out of AIG to the tune of more than $180 billion. The company recently paid at least $165 million in bonuses to employees who worked in a division that has been blamed for the insurance company's near-collapse last year. The bonuses were paid even as AIG reported a stunning $62 billion loss, the biggest in U.S. corporate history.
Government bailouts of AIG, Citigroup Inc., Bank of America Corp. and others have put billions of taxpayers' dollars at risk over the past year and angered the American public.