Federal Reserve Chairman Ben Bernanke took the unusual step Tuesday of asking Congress' investigative arm to conduct a "full review" of the Fed's role in bailing out insurance giant American International Group.
The Fed chief's move is aimed at defusing criticism of the government's $182 billion rescue. The bailout sparked public outrage and demands in Congress for more information, especially after it was revealed that millions in bonuses would go to employees in the AIG division most responsible for the company's need for a bailout.
The Committee on Oversight and Government Reform in the House of Representatives has an investigation under way that seeks to provide a fuller picture of the AIG bailout. Those lawmakers are interested especially in details involving billions in payments AIG made to Goldman Sachs and other Wall Street firms that did business with the insurer. Some lawmakers want to know why those firms were paid fully and why concessions were not demanded.
"To provide a comprehensive response to questions that have been raised by members of Congress, the Federal Reserve would welcome a full review by GAO of all aspects of our involvement" in the AIG bailout, Bernanke wrote in a letter to the Government Accountability Office, the investigative arm of Congress.
Bernanke said the Fed, the U.S. central bank, already has provided information to Congress on the AIG rescue, has made "a large amount" of information available to the public and provided information to other oversight bodies such as the Special Inspector General for the Troubled Asset Relief Program.
Congress passed a law last year giving the GAO authority to review Fed documents in the AIG bailout. The GAO said Bernanke's request will be weighed against other demands on the agency's staff.
Rep. Darrell Issa of California, the top Republican on the House Oversight and Government Reform Committee, sounded a skeptical note about Bernanke's interest in openness.
"If the Fed is as vested in oversight and transparency as they claim in this letter, they should be quick to provide us with all the support we need to complete this bipartisan investigation," Issa said.
Shortly after Issa spoke, the Federal Reserve Bank of New York said it delivered more than 250,000 pages of AIG documents to the House committee. The New York Fed also said it did not pressure AIG into holding back information to the public about payments to the Wall Street firms.
Besides getting money from the $700 billion taxpayer-funded bailout program overseen by the Treasury Department, AIG also was given a $60 billion line of credit from the Fed. The company is tapping around $22 billion.
In the letter, Bernanke said the Fed expects to be "fully repaid" by Sept. 16, 2013, five years after the first lifeline was thrown to AIG.
Bernanke once again defended the Fed's decision to provide credit to the troubled insurer at the height of the financial crisis in the fall of 2008. AIG's failure — which would have followed the global shock from Lehman Brothers' collapse — "would likely have led to a significant intensification of an already severe financial crisis and a further worsening of global economic conditions," Bernanke said.
Despite complaints of secrecy about some details of the AIG rescue, Bernanke said it is important to explain to Congress and the public that the Fed and Treasury acted in the "best interests" of the United States and taxpayers in crafting the AIG rescue.
The overarching goal, he said, "was to preserve the financial system and to protect households and businesses from potentially calamitous effects on the U.S. economy, while doing everything possible to protect the American taxpayer."
Sen. Bernie Sanders, an independent from Vermont, who opposes Bernanke's nomination to a second term as Fed chairman because he is so angry over the bailout of AIG and other companies, welcomed Bernanke's request for a GAO review. "The American people have a right to know exactly what happened to all of the money Ben Bernanke's Fed put at risk," he said.
Sanders wants to subject the Fed to more oversight through congressional audits. Bernanke opposes that, fearing it would insert Congress into the Fed's interest rate decisions to steer the economy.