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Financial chiefs take new plan to US Congress

IN a rare joint appearance in the United States Congress, the top men at the Federal Reserve and Treasury Department yesterday defended the Obama administration's proposals for new authority to seize failing banks, gobble up bad debts and sell good ones to healthy competitors.

Treasury Secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke were also grilled about American International Group Inc, the insurance colossus that paid out big bonuses to employees even after sustaining losses that set a US corporate record and taking a whopping US$180 billion in government assistance.

President Barack Obama, meanwhile, was preparing for a televised prime-time news conference in the evening US time in which he was due to tell Americans and the country's business community that excessive bonus and compensation payments are "of bygone days," according to his spokesman.

White House press secretary Robert Gibbs also said in television interviews yesterday morning that the president would emphasize in opening remarks that all Americans - workers, investors and corporate titans - must understand their interdependence and work together to pull the country out of its worst financial and economic crisis in more than 50 years.

Bernanke told Congress that he had wanted to sue to stop insurance giant AIG from paying millions in bonuses, but was talked out of it by legal staff.

They counseled, he said, against suing on the grounds that Connecticut law provides for substantial punitive damages if the suit would fail. AIG's financial products division has a base in Connecticut.

The Fed chief also said action to help AIG was necessary: "Its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income and jobs," Bernanke said.

Geithner said before the House of Representatives panels that he should be granted unprecedented power to take control of a major financial institution and run it.

The broad powers would allow the Treasury secretary to set up a conservatorship or receivership for the ailing company.


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