WASHINGTON -- Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke both sat in the hot seat, Monday, as Congress grilled them on AIG's executive bonuses paid with taxpayer dollars from a federal bailout.
Wall Street watched closely, with the Dow Jones losing about 116 points after Monday's big gain. Now, the government wants to expand more authority to regulate financial firms.
Government Oversight of Financial Industry
Geithner and Bernanke worked to convince lawmakers to sign off on broad, sweeping changes that would give the government more oversight over financial firms.
The Obama administration says they are needed to make sure failures at big firms like AIG and Bear Stearns don't happen again.
But the new authority must first be approved by lawmakers in Congress, which is a tough audience, especially after AIG accepted more than $180 billion of taxpayer funds - and used some of that money to pay executives over $200 million in bonuses.
At least 15 AIG execs have returned the money. But they did so only after public outrage drove the House to pass a measure to tax up to 90 percent of their bonus pay.
It does not look like the Senate is going to pass that tax. The White House doesn't seem to support it either.
"Obviously, you don't want the government prescribing detailed sets of requirements for those compensation practices," Geithner said. "On the other hand, you need to have a better set of broad standards in place that can help complement risk-management requirements."
New Treasury Plan Has Bipartisan Support
The new treasury plan to get toxic assets off of banks' balance sheets is getting support from Wall Street and from some key Republicans.
"I think it is a genuine effort to try to stabilize the financial industry and it's part of an overall plan and lets hope it works," said Sen. Judd Gregg R-NH.
The White House also faces another challenge, trying to win public support for the administration's rescue plan at time when public approval for banks and financial firms is low.
"There can be a tension between Wall Street and Main Street, but I think the President was clear that we're all in this boat together," said White House Press Secretary Robert Gibbs.
Today's discussions about reforms don't end here. Geithner is scheduled to testify on Capitol Hill again later this week and President Obama will assure foreign leaders his administration is on top of economic reforms at next week's summit for the group of 20 industrial and developing nations.
The government has bailed out the American International Group four times, spending more than $180 billion altogether.