Dems show frustration as AIG bailout expands

Senate Democrats are growing frustrated over the federal bailout of
American International Group Inc., a venture that some Democrats
believe has become emblematic of a larger lack of government
transparency under President Obama.

The Treasury Department’s plans to infuse another $30 billion into the ailing financial conglomerate, which has already soaked up about $150 billion in taxpayer money, has pushed some Democrats over the edge of tolerance.

{mosads}Treasury leaked its plans as news broke over the weekend that AIG would announce a record quarterly loss of $62 billion.

The simmering tension between lawmakers on Capitol Hill and the principal architects of the Obama administration’s effort to revive the national economy, Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, came to a boil Tuesday at a Senate hearing.

“Taxpayers have been kept in the dark on this AIG issue,” Sen. Ron Wyden (D-Ore.), a senior member of the Budget Committee told Bernanke, who testified before the panel. “They’re looking at this massive infusion of money. They can’t figure out who’s being rescued and why they’re being rescued.”

As Fed chairman, Bernanke does not have formal control over the Troubled Asset Relief Program (TARP), from which the $30 billion will come. TARP falls formally under the jurisdiction of the Treasury Department.

Lawmakers nevertheless regard Bernanke and Geithner as working hand in hand as the principal strategists of the administration’s broad economic recovery plan. And they are challenging Treasury and Fed on its handling of AIG as they feel growing pressure from angry constituents.

The newest intervention represents the fourth time the federal government has intervened to help AIG. It comes on top of a $60 billion loan, $50 billion for the purchase of toxic assets and a $40 billion purchase of preferred stock shares.

Top Democratic leaders defend the actions of Geithner and Bernanke.

“I think the work that Treasury has done in an effort to stabilize this organization has been essential,” Senate Majority Leader Harry Reid (D-Nev.) told reporters Tuesday afternoon.

Reid added that the handling of the TARP program has become much more transparent since Obama took office.

But not all Democratic leaders feel assured about Geithner’s and Bernanke’s approach.

“I’m really troubled by the manner in which we’re dealing with AIG because of the risk exposure to the taxpayer, which is growing dramatically,” Sen. Patty Murray (Wash.), Democratic Conference secretary, told the Fed chairman hours earlier.

Bernanke defended his and Geithner’s actions, arguing that they had no choice but to pour billions into AIG.

“We were then forced — we had no choice but to try to stabilize the system because of the implications that the failure would have had on the broad economic system.”

Bernanke argued that AIG’s failure “would be devastating to the stability of the world financial system” because of the investors and “millions of policyholders” who have financial ties to the conglomerate.

But lawmakers remained unconvinced.

“The AIG deal is unprecedented. You get the sense that there’s an open-ended spigot out there for AIG while small businesses, hi-tech startups and others try to get a loan,” said Wyden before a Democratic lunch meeting later Tuesday. “Part of getting confidence back is to ensure fair treatment.”

Sen. Bernie Sanders (Vt.), an independent who caucuses with Democrats, said he does not approve of how Treasury has handled the bailout of AIG and other companies blamed for spawning the economic crisis.

“It’s really disheartening, $30 billion on top of all the other money,” he said. “If after pouring in trillions of dollars we’re back to where we were a year ago, that’s not good enough.

“I’m less than impressed,” he said of Bernanke and Geithner. “I’m afraid a lot of the guys who are addressing this issue were previously part of the problem. I think we need some new thinking.”

Sanders noted that Bernanke, who has served as Fed chairman since 2006, and Geithner, who served as chairman of the New York Federal Reserve Bank until this year, failed to recognize the brewing financial catastrophe.

Geithner also faced questions about AIG Tuesday during an appearance before the House Ways and Means Committee. Rep. Lloyd Doggett (Texas), a Democrat on the panel, expressed frustration that government officials charged with overseeing AIG have faced little accountability.

“When we look at what happened in the timeframe between the first AIG bailout and at least last Friday, unlike some of the conditions that were imposed on the auto manufacturers, there’s no indication that there’s any effort to get different management,” he added.

Geithner acknowledged that tens of billions of dollars worth of bad investments made by AIG put government officials in an awkward position but defended the course of action taken so far.

“Your government made the judgment back in the fall that there was no way that you could allow default to happen without catastrophic damage to the American people,” he said.

Democrats’ frustrations over AIG are symptomatic of broader concerns over the lack of transparency from the Fed and Treasury.

“As a general proposition I don’t think there’s been enough disclosure here,” said Wyden.

Sen. Byron Dorgan (N.D.), chairman of the Senate Democratic Policy Committee, said Congress needs more information.

“The fact is that we don’t know much of what the Fed is doing,” he said. “When they opened their Fed window to investment banks for the first time in history we had no information about how much money went out in those circumstances.”

Dorgan said that taxpayers through the Fed, Federal Deposit Insurance Corporation and Treasury have been put at risk for as much as $8.5 trillion.

Walter Alarkon contributed to this article.