World financial crisis

FBI launches investigation into failed financial giants

Article published on the 2008-09-24 Latest update 2008-09-24 15:23 TU

The former Lehman's Brothers building in New York has been bought by Barclay's Capital.
(Photo: Reuters)

The US Federal Bureau of Investigation (FBI) has launched an investigation into allegations of fraud committed by Wall Street executives at the centre of the world financial crisis. This comes after White House representatives faced tough questioning by Senators over their proposed bailout package.

Investigators will be concentrating on executives at the investment bank Lehman Brothers, mortgage companies Freddie Mac and Fanny Mae and insurer AIG, all of which have recently collapsed.

The announcement promises to further complicate the Bush administration’s efforts to pass its 700-billion-dollar (476-billion-euro) economic rescue package intended to buy up bad investments.

On Tuesday, Treasury Secretary Henry Paulson Jr and Federal Reserve Board Chair Ben Bernanke faced five hours of aggressive questioning from sceptical members of the Senate Banking Committee. The session continues on Wednesday.

Republicans and Democrats alike say the plan gives Paulson too much power to decide how taxpayers' money is spent, lacks concrete measures to help home-owners, and fails to give taxpayers a stake in the banks which receive emergency funding.

“What they have sent us – this is not acceptable,” said Senator Christopher Dodd, chair of the committee.

Of particular concern is the opacity of the proposed plan, which stipulates that decisions over how the money is spent are “non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency”.

Bernanke argued that failing to pass the bailout plan would push the United States into a recession, increasing unemployment and pushing more houses into foreclosure.

Democrat House Speaker Nancy Pelosi wanted to see a final version of the plan with a provision included that would cap the salaries of executives of firms who receive money in the plan.

US President George W Bush is eager to pass the legislation to calm increasingly volatile international markets. “I can assure you that my administration and our Congress are working together to quickly pass legislation approving this strategy,” Bush told world leaders at the UN.

Meanwhile, billionaire financeer Warren Buffett announced a five-billion- dollar (3.4-billion-euro) investment in the recently converted Goldman Sachs holding company.

Sachs announced on Sunday that it was abandoning the private investment bank statute, which has made it billions over the last decades, and becoming a holding company, a move that would shelter it from the worst market forces.