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Geithner calls for sweeping authority

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Renita Jablonski: Federal Reserve Chairman Ben Bernanke wanted to sue AIG to prevent the company from paying out millions in bonuses to its employees — but he was advised it would be risky. That’s one of the revelations in testimony this morning by Bernanke and Treasury Secretary Timothy Geithner. They’re at a House Financial Services Committee hearing. They were called to Capitol Hill to answer questions about AIG and those controversial bonsus. But as Tamara Keith reports, another revelation is what Mr. Geithner wants from Congress.


TAMARA KEITH: Geithner used his opening statement to call for a new sweeping authority that would allow the federal government to take over and wind down financial institutions like hedge funds and insurance companies that risk destabilizing the economy if they fail.

TIMOTHY GEITHNER: The lack of an appropriate regulatory regime and resolution authority for large non-bank financial institutions contributed to this crisis and will continue to constrain our capacity to address future crises.

The new authority would be a lot like the power the FDIC has in the banking system. Fed Chairman Bernanke says the current AIG mess, and even those controversial bonus payouts, could have been avoided.

BEN BERNANKE: 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 policy holders and impose haircuts on creditors and counterparties as appropriate.

The grilling on Capitol Hill continues.

In Washington, I’m Tamara Keith for Marketplace.

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