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Bernanke Admits Ignorance, Fires Back At Inquisitor

1:30 P.M. UPDATED

In testimony that just wrapped up before the House Financial Services committee, Fed Chairman Ben Bernanke said he still doesn't know why regulators weren't prepared for last year's financial sector collapse.

It was under simple-yet-probing question from Rep. Joe Baca (D-Calif.) that Bernanke made the surprising admission.

Bernanke was repeating his case for larger, more comprehensive regulation to try to prevent another systemic failure of the sort that AIG caused.

"We weren't prepared for that," he said, adding that there were large, unregulated gaps in the system.

"Why weren't we prepared if we knew there were loopholes?" Baca asked.

"I don't know the answer to that," Bernanke admitted.

Earlier, Bernanke came the closest that anyone is likely to see to flashing public anger when responding to some hounding from Rep. Donald Manzullo (R-Ill.), who was demanding a "simple yes or no" from Bernanke, Treasury Secretary Tim Geithner and N.Y. Fed President Bill Dudley on a complicated matter.

"Not one of you three can give me a yes or no?" Manzullo thundered.

"That's because it's a poorly posed question," Bernanke zinged back. Naturally, Bernanke's facial expression remained unchanged.

Rep. Sherman Attacks Geithner

12:16 P.M.: Treasury Secretary Tim Geithner just got a big helping of wrath from Rep. Brad Sherman (D-Calif.).

Sherman has been marching to put AIG into government receivership, which he said would have prevented the controversial bonuses. Further, he's waging a war against big salaries and bonuses paid to executives getting government bailout money.

Today, he is pressing Geithner for a "chart" of every bailout-receiving executive -- numbers, not names -- who earned a salary of at least $1 million and/or got a bonus of $500,000 in 2008; and every executive who will earn $1 million and/or get a bonus of $250,000 this year.

"I don't think it's just about AIG compensation," Sherman said. "I don't think the American people should be blindsided by bonuses on a Saturday that are going to be paid out on a Sunday. Are you going to give us the chart, or are you going to hide the ball?" Sherman asked, his voice rising.

"I will reflect on the subject..." Geithner began, before being interrupted by Sherman.

"You won't commit to telling the American people how many folks at Goldman Sachs are going to make a million dollars this year?" Sherman said.

"I will think..." Geithner began, before Sherman interrupted again.

"Thank you for thinking," Sherman said, sarcastically. "I will move on."

Sherman then attacked Treasury official Neel Kashkari, the man in charge of doling out the federal bailout, because Kashkari, in testimony before this same committee in December, would not label a $3 million -- or $30 million -- bonus as "inappropriate," Sherman said.

"Is this the guy who should be running the TARP program?" Sherman asked.

"It is not Mr. Kashkari's job to make those judgments. That is my job," Geithner responded, with some anger in his voice. "Mr. Kashkari is an excellent public servant."

Geithner: I Should Have Known About AIG Bonuses In Sept.

11:53 A.M.: Treasury Secretary Tim Geithner said he should have made the effort to learn about the controversial AIG bonuses last September, when he was helping to orchestrate the insurance giant's bailout as president of the New York Fed.

"I knew we had a big mess on the compensation side to deal with," Geithner said. "I did not have -- I should have had -- but I did not have detailed knowledge of the compensation until I was briefed by my staff on March 10."

Geithner added that he has since "discovered" that information about the bonuses had been in the public domain since January.

N.Y. Fed President: AIG May Need More Bailout Money

11:45 A.M.: New York Fed President Bill Dudley said that AIG may need even more taxpayer bailout money.

However, that likelihood will be diminished if the economy improves, he said.

"We can't say unconditionally what sort of money AIG is going to need or not going to need in the future," Dudley said. "But if we fix the financial system," that will improve the economy and lift AIG, he added.

Geithner: I Don't Want Govt. Detailing Executive Compensation

11:26 A.M.: Treasury Secretary Tim Geithner said that government should not be in the business of determining the details of executive compensation.

"I do think it is appropriate to put in place strong standards that govern compensation" on a general level, Geithner said, but added that the government "should not be setting precise, detailed amounts of compensation and distribution."

Geithner also put in a plug for more and better bonuses for corporate risk-managers and auditors in order to attract and retain top talent in the police departments of companies.

Bernanke: AIG Collapse Could Have Caused Second Great Depression

10:41 A.M.: Fed Chairman Ben Bernanke said that if the government had not intervened to save AIG, its collapse could have caused a second Great Depression.

"At best, the consequences of AIG's failure would have been a significant intensification of an already severe financial crisis and a further worsening of global economic conditions," Bernanke testified. "Conceivably, its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income, and jobs."

Geithner: I'm Trying To Get Rest Of AIG Bonuses Back

10:31 A.M.: Treasury Secretary Tim Geithner outlined a number of efforts to get back the AIG bonuses that have not been voluntarily returned.

Geither said that the amount of the outstanding bonuses will be deducted from the $30 billion recently promised to the troubled insurance giant. Also, Treasury is working with the Justice Department to see what avenues are legally available to seize the bonuses. Finally, Geithner wants AIG to repay to Treasury -- out of its operating budget -- any remaining bonus money.

Bernanke: I Wanted To Sue To Stop AIG Bonuses

10:14 A.M.: In testimony about to be delivered before the House Financial Services committee, Fed Chairman Ben Bernanke said that he wanted to file a lawsuit to stop the AIG bonuses when he heard about them but was counseled not to by Fed lawyers.

"My reaction upon becoming aware of these specific payments was that, notwithstanding the business purposes that might be served by this action, it was highly inappropriate to pay substantial bonuses to employees of the division that had been the primary source of AIG's collapse.," Bernanke's testimony reads.

Here, Bernanke is referring to the bonuses given to AIG's Financial Products (FP) division, which sold the derivatives that nearly brought down AIG, leading to $170 billion in delivered or promised government bailout money.

"I asked that the AIG-FP payments be stopped but was informed that they were mandated by contracts agreed to before the government's intervention," Bernanke's testimony reads. "I then asked that suit be filed to prevent the payments. Legal staff counseled against this action, on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail; legal action could thus have the perverse effect of doubling or tripling the financial benefits to the AIG-FP employees."

Keep checking back here for live updates as the hearing continues.

Bernanke, Geithner To Testify On AIG Bonuses

9:16 A.M.: In a rare joint appearance, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner will testify before Rep. Barney Frank's (D-Mass.) House Financial Services committee today at 10 a.m. to answer these questions: What did you know about the AIG bonuses and when did you know it?

Check back here for live reports from the hearing.

You can read Bernanke's testimony here.

Lawmakers are looking to beat up on someone for the AIG bonuses and probably walked away only half-satisfied from their hearing last week with AIG chief executive Edward Liddy, who took over the troubled insurance giant last fall at the government's request, coming out of retirement for a $1 salary. Kinda tough to beat up on him.

Also at 10 a.m. today, a Senate Judiciary subcommittee will take up the topic of “Abusive Credit Card Practices and Bankruptcy.”

-- Frank Ahrens
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By Frank Ahrens  |  March 24, 2009; 1:30 PM ET
Categories:  The Ticker  | Tags: AIG, Barney Frank, Ben Bernanke, Edward Liddy, Tim Geithner  
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Next: The Motley Fool's 'Blame Bracket:' March Madness for the Crisis

Comments

For the life of me I can't understand how any company lawyer could draft an employment contract with a bonus structure that didn't also include baseline performance requirements...a job descripition...terms of release...profit and loss responsibility...sales goals...yada, yada!

Someone really should ask Secretary Geither and Chairperson Bernanke, did Hank Paulson really leave the building?

Bernanke used the term "mandated"...that's a government/statuary term. I have never seen "mandated" in a contract of any kind.

Have you actually read one of these so-called "employment contracts"? Or, is the public just supposed to trust that hundreds of billions are being thrown out the door because politcal appointees said it's okay?

Posted by: Vunderlutz | March 24, 2009 11:03 AM | Report abuse

With the bailout money, do the US taxpayers effectively become part owners of AIG or others?
Will there be an oversight board, similar to the auto oversight?
Presuming the answer to one of these could be yes, then do the US taxpayers effectively become shareholders and/or members of the Board of Directors? As such, the taxpayers should get a vote on executive compensation (not to mention corporate jets and office remodeling).

Posted by: dreeck | March 24, 2009 11:55 AM | Report abuse

Re: New York Fed President Bill Dudley said that AIG may need even more taxpayer bailout money.

If the economy improves, those toxic paper assets will become less toxic. And they will be worth more. So is what Bill is hinting at that the taxpayer money will keep AIG solvent until such time as AIG will begin to recoup huge [windfall] profits.

The taxpayer should share in those profits. If the toxic paper is socialized, then the eventual profits should also be socialized, and not privatized.

Or, is AIG like the gambler at the blackjack table, asking for a loan to keep him in the game, becuase there is a winning streak just around the corner.

Posted by: dreeck | March 24, 2009 12:05 PM | Report abuse

sherman doesn't have to be rude.

fr***ing rudeness from our elected officials. Great examples for the American people to go by!!!

these are elected officials.
not only should they be cordial, but they should be respectful. We just want the facts. We don't want Sherman or any other elected official on the panel to "vent their anger". Get to the points, get to the facts and then get the job of recovery done.
You are wasting my time Senate Committees with your wrath and character assassinations.

I will buy Timothy Geitner any kind of beer he wants after today.
for taking the sh*** !!
from our wonderful elected officials.

Posted by: TheBabeNemo | March 24, 2009 12:35 PM | Report abuse

Are Geithner and Bernanke wearing the same tie?

Posted by: Brendan1234 | March 24, 2009 1:03 PM | Report abuse

"Fed Chairman Ben Bernanke said he still doesn't know why regulators weren't prepared for last year's financial sector collapse."

For sure for days folks. Why regulators weren't prepared-----because they were not watching, auditoring, or checking the companies that were out-and-out breaking regulatory requirements (btw--that's the USCODE and law) for 8-9 years. now......gee, why weren't the regulators prepared again???? i forgot.

and tell me again, who was President for the last 8 years?????


Posted by: TheBabeNemo | March 24, 2009 3:56 PM | Report abuse

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