"US admits missing AIG's level of risk" by Reuters | March 6, 2009
WASHINGTON - US regulators failed to spot how much risk insurer AIG was piling on, and by the time they understood, they had no choice but to pour in tens of billions of public dollars, officials said yesterday.
At a Senate Banking Committee hearing on what went wrong at New York City-based American International Group, lawmakers expressed outrage that taxpayers were kept in the dark about exactly where rescue money went as the government stepped in repeatedly to prevent its disorderly collapse.
The fact that a "multitude of regulators" missed the warning signs at AIG highlighted the need to establish a systemic risk regulator to monitor firms that are large and complex enough to destabilize the financial system, said Scott Polakoff, acting director of the Office of Thrift Supervision.
AIG's financial products division, although a small part of the global insurance giant's worldwide operations, racked up such heavy losses that it threatened the entire company's survival, eventually forcing the Treasury Department and Federal Reserve to launch a series of costly bailouts.
"No one was minding the whole company and looking at how things interacted, and whether the whole company would, under some circumstances, put the financial system at risk," said Federal Reserve vice chairman Donald Kohn. --more--"