Posted on 03 Mar 2009
In comments during the Senate Budget Committee hearing today in Washington, Federal Reserve Chairman Ben S. Bernanke said American International Group Inc. (AIG) operated like a hedge fund and having to rescue the company made him "more angry" than any other episode during the financial crisis.
"If there is a single episode in this entire 18 months that has made me more angry, I can’t think of one other than AIG," Bernanke said. "AIG exploited a huge gap in the regulatory system, there was no oversight of the financial-products division, this was a hedge fund basically that was attached to a large and stable insurance company.”
The insurer will get as much as $30 billion in new government capital and relaxed terms on its bailout after posting the worst loss by any U.S. corporation yesterday. Bernanke's comments foreshadow more regulation of systemically important financial companies even if they aren’t banks.
AIG "made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system,” Bernanke said. At the same time, officials "had no choice but to try and stabilize the system" by aiding the firm.
The insurer’s fourth-quarter loss widened to $61.7 billion, or $22.95 per share, from $5.29 billion or $2.08 in the year-earlier period, the New York-based insurer said. The results brought AIG's annual loss to almost $100 billion, prompting the U.S. to offer a package of equity, new credit and lower interest rates on existing loans designed to keep it in business and prevent a new shock to the world’s financial system.