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f the federal government had not intervened to bail out American International Group (AIG) Inc., the company's collapse could have caused a second Great Depression, Federal Reserve Chairman Ben Bernanke testified to Congress today.
"At best, the consequences of AIG's failure would have been a significant intensification of an already severe financial crisis and a further worsening of global economic conditions," Bernanke told the House Financial Services Committee. "Conceivably, its failure could have resulted in a 1930s-style global financial and economic meltdown, with catastrophic implications for production, income, and jobs."
Bernanke and Treasury Secretary Timothy Geithner jointly testified before the committee today.
Bernanke said that he wanted to file a lawsuit to stop the AIG bonuses when he heard about them, but was counseled not to do that by Fed lawyers.
Geithner outlined efforts to get back the AIG bonuses that have not been voluntarily returned.
Under pressure from New York Attorney General Andrew Cuomo, the recipients of 15 of the 20 largest AIG bonuses have agreed to return the money.
Geither said that the amount of the outstanding bonuses will be deducted from the $30 billion recently promised to AIG. The Treasury also is working with the U.S. Justice Department to assess the legal options for recovering the bonuses. Geithner wants AIG to repay to Treasury out of its own operating budget any remaining bonus money.