On Hill, Geithner Seeks Expanded Powers

Timothy Geithner and Ben Bernanke had a date this morning with the House Financial Services Committee. They were both no-shows at the panel's hearing last week on AIG's bailout and executive bonuses, so today they weighed in. Since that first hearing, the House has passed a 90 percent tax on bonuses and Geithner has rolled out a plan to soak up bad bank assets.

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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel. On Capitol Hill, the nation's top two economic officials got a three-hour grilling. Both Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke expressed indignation over the taxpayer-funded bonuses at insurance giant AIG. They also used the public's outrage over AIG to plead for broad new powers, powers that would allow the government to take control of failing national financial behemoths.

NPR's David Welna reports.

DAVID WELNA: What a difference a week can make. When Treasury Secretary Timothy Geithner was supposed to appear before a House Financial Services panel last week, he begged off, citing a scheduling conflict. At the time, calls were growing for Geithner's resignation amidst the AIG imbroglio and his fumbled rollout of a plan to buy up bad assets. Taking his seat before that panel today, Geithner appeared poised and confident. After his second, more successful rollout yesterday of the plan to buy up troubled assets, his own stocks seem to have shot up as much as equities did on Wall Street, and he was making no apologies.

Secretary TIMOTHY GEITHNER (Treasury Department): This is an extraordinary time for our country, and your government has been forced to take extraordinary measures.

WELNA: Geithner then called for yet another extraordinary measure. He said the US Treasury should be given power to step in and take over firms like AIG, just like the power the FDIC has to take over banks. Fed Chairman Ben Bernanke added his full endorsement to that request.

Mr. BEN BERNANKE (Chairman, the Federal Reserve): If a federal agency had had such tools on September 16th, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties as appropriate. That outcome would have been far preferable to the situation we find ourselves in now.

WELNA: Lawmakers promise to consider the request, but many preferred talking about the AIG bonus payments that caused such a furor last week. Geithner sought to show that he, too, remained indignant.

Sec. GEITHNER: Now, I share the anger and frustration of the American people -not just about the compensation practice at AIG and in other parts of our system, but that our financial system permitted a scale of risk taking that has caused grave damage to the lives of so many Americans.

WELNA: That prompted a challenge from a dubious California Democrat, Brad Sherman. He asked Geithner to make public how many executives at firms getting bailout money make more than a million dollars, how many got bonuses over half a million dollars and how many will get bonuses this year of over a quarter million dollars.

Representative BRAD SHERMAN (Democrat, California): Are you going to give us the chart, or are you going to hide the ball?

Sec. GEITHNER: I'm going to hide the ball. I will...

Rep. SHERMAN: Are you going to give us the chart?

Sec. GEITHNER: I will reflect on the suggestion you made and see if that is a...

Rep. SHERMAN: In other words, you won't commit to telling the American people how many folks at Goldman Sachs or AIG are going to make a million dollars this year.

Sec. GEITHNER: Congressman, I will think carefully about your proposal and get back to you with...

Rep. SHERMAN: Thank you for thinking. Let me move on to the next question.

WELNA: But the sharp questioning of Geithner wasn't over. Illinois Republican Donald Manzullo wanted to know why big financial firms insured by AIG got 100 percent reimbursements.

Representative DONALD MANZULLO (Republican, Illinois): Did the people who took out insurance with AIG to insure their retirement plans get reimbursed 100 percent, so they suffered very little loss? Yes or no.

Sec. GEITHNER: It depends on the nature of those specific contracts. It depends on the nature of those contracts. But what the critical thing is, the damage to the average American pension fund...

Rep. MANZULLO: No, you did not answer the question. The average American person has already lost 40 to 50 percent of their insurance plans.

WELNA: Geithner told the House panel more financial troubles could be in store, and that in that case, it would be his obligation to seek more funds from Congress. In light of what's happened in the last weeks and months, though, he said he recognized getting those funds would be extraordinarily difficult.

David Welna, NPR News, the Capitol.

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Treasury Chief Calls For Power To Seize Firms

Treasury Secretary Timothy Geithner called on Congress to grant extraordinary powers to take over failing financial institutions as he and Federal Reserve Chairman Ben Bernanke faced a barrage of lawmakers' questions over bonus payments at ailing insurance giant AIG.

"The United States government does not have the legal means today to manage the orderly restructuring of a large, complex nonbank financial institution that poses a threat to the stability of our financial system," Geithner told the House Financial Services Committee.

'We Need To Strike The Right Balance'

The authority Geithner seeks would allow the government to take control of a firm and sell or transfer parts of the company to reduce its exposure to risky investments. The secretary would have the same powers as a chief executive officer, with the additional ability to "renegotiate or repudiate" a company's contracts, including those with its employees.

Bernanke echoed the Treasury secretary's request for authority to seize teetering nonbank financial companies — a follow-up to the plan Geithner outlined on Monday to use a government-private partnership to remove up to $1 trillion in tarnished mortgage-backed securities and other toxic assets from banks' balance sheets to spur lending.

But public outrage over hefty bonus payments to executives of American International Group as taxpayers shell out $180 billion to bail out the company means that Geithner in particular got an earful from lawmakers at the congressional hearing.

Geithner said he shared the "anger and frustration" of the American people over the AIG bonuses as well as the corporate practices that led to its near-collapse and triggered the government's decision to extend its initial $85 billion "revolving credit facility" to the company.

"We must ensure that our country never faces this situation again," Geithner told lawmakers. "To achieve that goal, the administration and Congress have to work together to enact comprehensive regulatory reform and eliminate gaps in supervision.

"We need to strike the right balance between encouraging investment and prudent risk-taking to get our financial system moving again," he said.

AIG, Lehman Strategies Compared

Bernanke said it was "highly inappropriate to pay substantial bonuses" to AIG employees. He said he had asked that the payments be stopped but was told that they were mandated by contracts agreed to before the government seized control of AIG on Sept. 16. Even so, the Fed chairman defended the need to keep the company afloat. The global insurance behemoth has 74 million customers worldwide and operations in more than 130 countries.

"Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs," Bernanke told the panel.

The committee chairman, Rep. Barney Frank (D-MA), opened the hearing by comparing the government's bailout of AIG with its decision to let financial services firm Lehman Brothers Holdings fail.

"I believe we have two very important negative examples before us of how not to proceed," Frank said. "Neither one is what we should be doing going forward."

Republican Rep. Scott Garrett of New Jersey said the American public wanted a "straight answer on the handling of the AIG bonus fiasco."

"There's also been some question as to the extent of the Treasury Department's involvement in altering provisions in the so-called stimulus package, ensuring that the bonuses would, in fact, be honored," Garrett said.

Although Geithner has said he did not learn of the bonuses until a few days before they were made public, The Wall Street Journal has reported that the Treasury Department worked closely with AIG on compensation issues since the bailout of the company began.

Public Anger Still Simmers

President Obama said Tuesday that he hoped it would not take long to convince Congress to approve the new authority requested by the Treasury secretary.

But the administration's financial rescue plans have slammed up against public anger over the AIG bonuses last week. A key element of the White House plan is to prop up companies, such as AIG, that are considered "too big to fail."

The bonus debacle has prompted calls on Capitol Hill for Geithner's resignation from those who criticize him for failing to head off the politically sensitive bonuses. But Wall Street gave an overwhelming vote of confidence to the secretary's so-called Public-Private Investment Program for Legacy Assets unveiled Monday, with the Dow Jones industrial average rallying to a nearly 7 percent increase, one of its biggest-ever advances.

Meanwhile, New York Attorney General Andrew Cuomo said Monday that 15 employees who received some of the largest bonuses from AIG have agreed to return them in full, totaling more than $50 million.

Government bailouts of AIG, Citigroup, Bank of America and others have put billions of taxpayers' dollars at risk over the past year and angered the American public.

From NPR staff and wire services.

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