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Bernanke Sought Lawsuit Over AIG Bonuses

POSTED: 04:26 PM ET, 03/24/2009 by Amanda Zamora

Federal Reserve Chairman Ben Bernanke testified today that he wanted to sue bailout recipient American International Group to stop the insurance giant from paying its employees $165 million in bonuses, but said Fed lawyers advised against litigation.

Bernanke's testimony before the House Financial Services Committee comes several days after AIG CEO Edward Liddy told lawmakers that the Fed signed off on the bonuses long before they became public.

In today's hearing, Bernanke defended the AIG bailout, saying its collapse could have spurred another Great Depression, but said he found AIG's plan to make retention payments to executives who played a primary role in the firm's collapse to be "highly inappropriate."

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. 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.

The chairman testified alongside Treasury Secretary Timothy Geithner in a bid for broader authority to seize troubled institutions such as AIG. As Bloomberg's Craig Torres reports, "while the Federal Deposit Insurance Corp. has the power to take over failing deposit-taking firms and wind down their assets, no such authority exists for financial firms that aren't classified as banks, such as AIG or a hedge fund with extensive links throughout the banking system."

New York Attorney General Andrew M. Cuomo yesterday announced that 18 of the 25 most senior executives at AIG Financial Products have agreed to return their bonus payments, amounting to $50 million of the pledged $165 million.

Ire over the AIG bonuses was swift and furious, with the House initially moving to pass a 90 percent tax on the biggest payouts and President Obama echoing public outrage, only to backpedal in a "60 Minutes" interview on Sunday, saying that a special tax on AIG executives would be unconstitutional.

Jared Bernstein, an economic adviser to Vice President Biden, underscored the president's reservations in an interview on ABC's "This Week."

"I think the president would be concerned that this bill may have some problems in going too far -- the House bill may go too far in terms of some -- some legal issues, constitutional validity, using the tax code to surgically punish a small group," Bernstein said. The Senate has delayed any action on the measure.

By Amanda Zamora |  March 24, 2009; 4:26 PM ET Economy Watch
Previous: $50M in AIG Bonuses Returned, Broader Treasury Powers Sought, Bailing Out the Rich | Next: AIG Execs' Bonus Hold-Out, The Pitch for Expanded Powers, DOJ Invokes 'State Secrets

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Bernanke! Woulda, coulda shoulda!
Sterling Greenwood/AspenFreePress

Posted by: AspenFreePress | March 24, 2009 5:43 PM

Thats OK I want to sue Bernake or put him on trial for printing US currency without authorization from the Constitution. The Federal Reserve is stealing your wealth!

Posted by: gdod25 | March 24, 2009 6:15 PM

The American tax payer should get the Bush Administration to account for the initiation of the bailout. The then Treasury Secretary, Hank Paulson must account for his decision and his setting of the terms and conditions for TARP and a host of other bailout programs.
Tim Geithner and Ben Bernanke, were also a carry forward from the Bush Administration and so were many sitting members of the Congress and Senate then. They were public servants working within the constraints of the power given. Had they misled law makers in information and action, then they should be held accountable.
However, it occurred to me, a stark contrast in the line of inquiry meted to Hank Paulson then, and to Bernanke and Geither now, by the same Houses and Committees.
If there is merit, Hank Paulson should be recalled to account for the lapses in judgment,leading to the uncontrolled payouts to the exclusive band of wealth wreckers from Wall Street.

Posted by: kmarkt | March 26, 2009 1:06 AM

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