NU Online News Service, April 14, 3:47 p.m. EDT
President Barack Obama said the bailout of American International Group was necessary to prevent an economic meltdown of the financial system but added he shared the exasperation many feel over the move.
"Because [AIG] chose to insure billions of dollars of risky assets, essentially creating a hedge fund on top of an insurance company, its failure could threaten the entire financial system and freeze lending even more," said the president. "And that's why, as frustrating as it is–and I promise you, nobody is more frustrated than me with AIG, I promise–we had to provide support for AIG, because the entire system, as fragile as it is, could be profoundly endangered if AIG went into a liquidation bankruptcy."
The president went on to say in his speech today at Georgetown University that the lesson from AIG and the bank failures is that new government legal authority is needed to allow the government to step in and control the liquidation of companies that pose systemic risk much like bankruptcy courts do today.
"This way we can restructure these businesses in an orderly way that doesn't induce panic in the financial system," he said.
That authority would also allow the government to restructure bonus contracts in a way so it does not look like the government is changing compensation packages on a whim, said the president.
On the general economy, he said while there are some glimmers of improvement in the economy, hard times still remain ahead. He predicted more job losses, more stock market fluctuations and more home foreclosures.
This year, he said, "will continue to be a difficult year for America's economy," adding that the administration still aims to "clear the wreckage" from the recession and move forward.
He said the next step is to lay out regulations that ensure another crisis like this "never happens again."
"We cannot go back to the bubble and burst economy," he said, or the "recklessness of the few" disrupting the entire economy.
"We can't rebuild this economy on the same pile of sand. We must build it on a rock," he continued.
The president said besides better regulation, the economy must be transformed with new rules for Wall Street, a 21st century educational system, renewable energy initiatives, investments to bring down the cost of health care and fiscal discipline, once the economic crisis is over, that will cut the federal deficit.
While others have said the administration should wait to move on these initiatives, President Obama said action needs to be taken now because long-term reform cannot be sacrificed for short-term gain.
"We have to make choices with an eye toward the future," he said, adding that if the investments are not made now, the country cannot expect to grow in the future.
"If we don't lay this new foundation now, it won't be too long before we are back to where we are today," the president said.
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