Tags: federal reserve | ben bernanke | aig | bailout

Bernanke Tells Judge He Wasn't Looking to Punish AIG in Rescue

Friday, 10 Oct 2014 01:39 PM

Former Federal Reserve Chairman Ben Bernanke said he wasn’t looking to punish American International Group Inc. for mismanagement when the board of governors authorized an emergency loan to the distressed insurer at a steep interest rate in 2008.

Bernanke retook the witness stand in a lawsuit accusing the U.S. of imposing illegally harsh terms in the bailout of AIG, capping a week of testimony in Washington from the architects of the insurer’s 2008 rescue. Maurice “Hank” Greenberg’s Starr International Co., AIG’s biggest shareholder before the rescue, is seeking at least $25 billion in damages.

Under questioning by Starr lawyer David Boies, Bernanke said he didn’t set out to punish AIG when the Fed considered a rescue. It’s potentially critical testimony at a trial where a key issue is whether the Fed acted outside its authority by penalizing AIG, as Starr claims, instead of acting as just a lender of last resort.

“I did not make any personal judgments at the time about the quality of management at AIG, but I did know of course that AIG was having difficulty making contractual payments,” Bernanke said. “The company was on the brink of failure.”

Bernanke’s stance at the time differed from that of then- Treasury Secretary Timothy Geithner, who, during his own testimony this week, was confronted by a draft article he wrote stating that the government forced losses on AIG shareholders proportional to mistakes of the firm.

Other Motivations

Bernanke acknowledged that others at the Fed may have had different motivations in September 2008.

When Boies asked whether colleagues thought AIG mismanaged its business or took on too much risk, Bernanke, citing trading in AIG shares, said, “I think a number of my colleagues were inferring that based on margin calls.”

Bernanke is testifying for the second day in the U.S. Court of Federal Claims in Washington. He defended the 14 percent interest rate on AIG’s $85 billion rescue loan, saying it kept shareholders from reaping a windfall from an action designed “to prevent the collapse of a systemic firm.”

The former Fed chairman was also preceded on the witness stand by former Treasury Secretary Henry ‘Hank’ Paulson. The case is being heard without a jury by U.S. Court of Federal Claims Judge Thomas Wheeler.

Evidence was introduced at the trial showing that Bernanke used the pseudonym “Edward Quince” for e-mail correspondence. Bernanke used the fake name to reduce the amount of e-mail in his in-box, according to testimony last week by Scott Alvarez, the Fed’s general counsel.

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Former Federal Reserve Chairman Ben Bernanke said he wasn't looking to punish American International Group Inc. for mismanagement when the board of governors authorized an emergency loan to the distressed insurer at a steep interest rate in 2008.Bernanke retook the witness...
federal reserve, ben bernanke, aig, bailout
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Friday, 10 Oct 2014 01:39 PM
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