House Speaker Nancy Pelosi Wednesday evening unleashed a stinging attack on the Federal Reserve's decision to rescue the giant insurance firm American International Group Inc.
The Federal Reserve is purchasing an 80 percent stake in AIG and will lend $85 billion to AIG to avert its collapse.
Pelosi did not find fault with Federal Reserve chairman Ben Bernanke for the action he took Tuesday night, nor did she suggest she would have preferred some alternative action.
Pelosi did not answer what she would have done had she been in Bernanke’s shoes.
But she was scathing in her criticism of Bernanke’s rationale.
She said Bernanke had told congressional leaders that action to save AIG had come partly at the behest of central bankers in Europe.
“Their economies depended on our bailing out AIG,” she said. “Why aren’t these foreign institutions participating in this bailout? Where is this money coming from?”
Pelosi sees a 'rip-off'
She denounced AIG as “a ripoff situation” and unleashed a scathing attack on Wall Street financiers.
“All these sophisticated financial instruments that these ‘geniuses’ on Wall Street have come up with brought instability to our economy,” she said with disdain.
She denounced what she called “crony capitalism” — a phrase also used by Democratic presidential candidate Sen. Barack Obama in his statement on the AIG rescue.
She said a House committee will explore the question, “what is the role of the fraud and mismanagement?” in the AIG debacle.
While assailing the AIG rescue, she defended her plan to propose a $25 billion loan package for U.S. automakers.
"Clear from your mind any notion of bailout" for the auto industry, she told reporters.
Standing next to Pelosi, Financial Services Committee chairman Barney Frank, D-Mass., suggested that it is dangerous for any person to have as much power as Bernanke used Tuesday night in taking over AIG.
Too much power for Bernanke?
He called Bernanke “a responsible and thoughtful person — I have no quarrel with his personality — but no one in a democracy, unelected, should have $800 billion to dispense as he sees fit.”
Frank, who took part in a meeting Tuesday night between Bernanke and congressional leaders, said he asked the chairman if the Federal Reserve had $85 billion to invest in AIG.
Bernanke's reply, according to Frank: “We have $800 billion.”
When a financial firm in distress threatens the economy, “we may have to have some intervention,” Frank said Wednesday, “but it shouldn’t be a unilateral decision by the chairman of the Federal Reserve -- backed up by the secretary of the Treasury -- spending $800 billion.”
Pelosi linked AIG bailout directly to the November election and slammed Republican presidential candidate John McCain, not for the AIG bailout, but for his economic beliefs which, she charged, had led to the Wall Street crisis.
“The public has an important choice to make in this November election,” she said.
Speaking Wednesday morning, Senate Majority Leader Harry Reid was not quite as harsh as Pelosi, but said members of Congress as well as Bernanke were struggling with the unprecedented situation.
“This is a new era, a new area…this is all new for everybody,” he told reporters Wednesday morning.
“We are trying to be supportive of what took place last night,” Reid said of the AIG rescue.
Bernanke and Treasury Secretary Henry Paulson are “new in town and they are trying to do the best they can,” added Reid.
'We didn't agree to this'
Relaxing outside the House chamber late Tuesday night, Frank kept repeating with a mixture of amazement and amused irony, “$85 billion for AIG, $85 billion.”
One Democratic member, hard-pressed to keep up with the latest financial news, said, “Lehman?” Frank said, “No, AIG.”
And Rep. John Murtha, D-Pa., military appropriations czar, said to Frank jokingly, “Now you’re talking about my kind of money.”
“We didn’t agree to this,” Frank noted to reporters. “We weren’t asked. We were told.”
A reporter asked Frank if the government purchase of AIG was similar to what socialists wanted in the 1930s — government ownership of America’s major corporations.
“It’s not as intellectually consistent as that,” Frank said, adding that the takeover was done by an administration that professes faith in free markets.
Bad economy good for Democrats?
Despite struggling to undertstand the implications of the Fed takeover of AIG, some Democrats believe the sour economy will lift their party's candidates to victory on Nov. 4.
While not all voters understand the nuances of “credit default swaps” and the collapse of Lehman Brothers, all are aware of the rising cost of gasoline.
"We don’t have the solution to everything. We don’t know exactly what to do about Wall Street and about banks, but we have within our grasp a bill (on energy) that could actually send a positive signal and I sure hope we don’t blow the opportunity," said Sen. Mary Landrieu, a Democrat from the energy-producing state of Louisiana,
And, she added, “If Congress leaves here without an energy bill, it will be one of the worst examples of partisan posturing that I’ve seen in my 12 years here.”
On Tuesday night, the House, on a vote of 236 to 189, passed a bill that might lower energy prices — in theory — by allowing more offshore drilling, although Republican critics say the bill wouldn’t curb environmentalists’ lawsuits that prevent drilling.
The House bill faces an uncertain future in the Senate.