"AIG Regulator: We Dropped The Ball, Companies Like AIG Need A Systemic Risk Regulator"
Today, the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises is holding a hearing featuring AIG CEO Edward Liddy. Before getting to the main event and grilling Liddy about AIG’s bonuses, the committee heard from some of the regulators and credit agencies responsible for monitoring AIG’s activities.
Scott Polakoff, Acting Director of the Office of Thrift Supervision, admitted that his agency should have stopped AIG from messing with credit default swaps in 2004. He also advocated for a systemic risk regulator to watch out for (and potentially nationalize) companies like AIG that threaten the entire economy:
At the 2004 assessment, we should have done it. We didn’t do it. There are a lot of people walking around that failed to understand how bad the real estate market was going to get…We do believe this kind of company deserves the oversight of what we’ll call a systemic risk regulator. And that systemic risk regulator has three parts to it — the ability to examine, the ability to provide liquidity if there’s a liquidity crisis, and the ability to place an institution into receivership if that is a necessary outcome.
In an interview with ThinkProgress yesterday, Rep. Barney Frank (D-MA) explained how a risk regulator would work.