Federal Reserve Chairman Ben Bernanke warned Congress Tuesday that the economy could stagnate for years unless the financial system is stabilized, as lawmakers criticized the government's decision to provide insurance giant American International Group with another $30 billion in aid.
Bernanke said the Fed and Treasury Department have no choice but to provide capital to AIG and troubled banks considered too big to fail, as the U.S. and world economies falter. The government has provided trillions of dollars in financing since the credit crisis erupted in 2007. Bernanke said more may be needed.
"If there's a single episode in this entire 18 months that has made me more angry, I can't think of one (bigger) than AIG," Bernanke told the Senate Budget Committee. He said the insurance firm exploited regulatory gaps to run an unchecked hedge fund that made "irresponsible" bets and is now taking huge losses that threaten other firms.
Treasury Secretary Timothy Geithner told a House hearing there was "no adult supervision" at AIG.
AIG on Monday reported losing a staggering $61.7 billion in the fourth quarter of 2008. The Treasury and the Fed then stepped in with $30 billion in aid. The funds, to help the company restructure, came atop nearly $150 billion in previous assistance.
Bernanke said that without action, the nation could face a "prolonged episode of economic stagnation." At one point, he said flatly that without a stable financial system, "we have no hope of getting the economy back to a normal state."
Lawmakers warned the Fed not to underestimate the depth of public frustration about the bailouts. Sen. Ron Wyden, D-Ore., said the central bank needed to disclose names and details of banks getting Fed loans.
"The American people are in the dark on this issue," Wyden said.
Others worried regulators might prop up banks that should be closed. "The public has just about had it," said Sen. Lindsey Graham, R-S.C.
Bernanke said the government is trying to directly reach businesses and consumers. The Fed and Treasury on Tuesday launched a $200 billion program designed to spur up to $1 trillion in lending for education and auto loans, credit cards and other consumer products. The first loans will be issued March 25. Bernanke said the program will cover commercial real estate, which faces a "looming crisis."