Federal Reserve Chairman Ben Bernanke said on Tuesday he was "angry" insurance company AIG had to be bailed out by the government, but emphasized publicly that the aid to the company was necessary to ensure financial stability.
The comments came at his first appearance in front of Congress since the U.S. government provided a $30 billion in aid to insurance giant American International Group (AIG: 0.4301, -0.0201, -4.46%) earlier this week.
Bernanke, who testified in front of the Senate Budget Committee to discuss the economic outlook regarding the Obama Administration's budget proposal, said the aid to AIG was needed to "preserve financial stability."
"If there is a single episode in this entire 18 months that has made me more angry, I can't think of one, than AIG," Bernanke said, in response to a question from Ohio Sen. Ron Wyden. "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, made huge numbers of irresponsible bets, took huge losses... we had no choice."
The U.S. government provided $30 billion in additional aid to AIG on Monday, bringing the total cash support for the struggling insurance giant to $186 billion, as the credit crisis continued to cause massive problems for the company's toxic balance sheet.
This is the fourth time the government has had to step in to help AIG, who came close to bankruptcy in September in the same weekend that Lehman Brothers failed.
"We took those actions because we felt that the failure of the world's largest insurance company ... would be devastating to the stability of world financial system," Bernanke said.
In his prepared remarks regarding the economy, Bernanke said regarding the economy that "the near-term [economic] indicators show little sign of improvement" and that the economy will continue to struggle for the rest of this year.
One notable interaction during the committee meeting came between Bernanke and Sen. Chuck Grassley, R-Iowa, who asked Bernanke to comment on the White House's current economic forecast, which Bernanke said, was "optimistic."
In its budget proposal, the Obama Administration based its tax revenue projections on an economic forecast rosier than the projections of most Wall Street economists, notably the unemployment rate.
Currently, the White House forecasts an unemployment rate of 8.1% this year. The Federal Reserve, which by tends to be conservative in its projections, has a unemployment estimate in the range of 8.5% to 8.75%. Wall Street economists are predicting unemployment could easily exceed 9% this year.
Bernanke, as he has said repeatedly in previous testimony, believes inflation will "remain quite low over the next couple of years" primarily because the economy will remain sluggish for the foreseeable future.
In his testimony last week, Bernanke told the Senate Banking Committee that he believed the economy would suffer for 2009 and that 2010 would be a "year of recovery."
In regards to Obama's budget and the $780 billion economic stimulus package, Bernake said that the government will run enormous deficits for several years, but must eventually return to "fiscal stability" once the economy recovers.
"Without fiscal sustainability, in the longer term (the economy) will have neither financial stability nor healthy economic growth."
Just another example of millionaires saving millionaires. Do they really think we're that stupid? Let these poorly run companies tank and send the money to American citizens instead!