Fed Chairman Ben Bernanke told the Senate Budget Committee he was “angry” at A.I.G. for exploiting a loophole in the regulatory system in order to run what was essentially a hedge fund tied to an insurance company.
The New York Times says:
“A.I.G. exploited a huge gap in the regulatory system,” Mr. Bernanke said. “There was no oversight of the financial products division. This was a hedge fund, basically, that was attached to a large and stable insurance company.” And this quasi-hedge fund, Mr. Bernanke went on, to nobody’s surprise, made irresponsible bets and took huge losses.
“We had no choice but to try to stabilize the system because of the implications that the failure would have had for the broad economic system,” Mr. Bernanke said.