Fed: World Largest Insurance Company AIG Irresponsible

“Fed Chief Says Insurance Giant Acted Irresponsibly” report Stout, Knowlton, and Zeleny in the New York Times yesterday. The talk is about AIG, the largest insurance company in the world.

Presenting to the U.S. Senate Budget Committee, U.S. Federal Reserve Chair Ben Bernanke concluded the country was facing “a prolonged episode of economic stagnation” if the economic crisis is not dealt with aggressively. He highlighted that lower output, employment, and incomes would continue over an extended period.

When Bernanke was asked about American International Group (AIG) and its numerous lifelines, he stated that he considered that

“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. We had no choice but to try to stabilize the system because of the implications that the failure would have had for the broad economic system.”

The budget committee intended to discuss President Barack Obama’s $3.55 trillion fiscal year 2010 budget, which could increase the nation’s debt to more than $1.8 trillion, which is this year’s projected deficit. While Bernanke’s testimony indicated the budget should be approved, discussions of AIG continued to take center stage.

U.S. Sen. Jim Bunning (R-Ky.) was not appeased by Bernanke’s testimony that AIG’s reach could have far-flung implications for the entire insurance market and other sectors, noting that the U.S. Treasury and Fed continue to leave their doors wide open to companies seeking bailouts.

For the full story:

http://www.nytimes.com/2009/03/04/business/economy/04webecon.html?_r=1