President Obama said this afternoon that while the AIG bonuses have been consuming attention and "rightfully so," he wants to fast-track legislation to create a body -- similar to the FDIC for banks -- that would regulate financial firms like AIG so taxpayers won't be left "holding the bag" if the companies go under.
He said he has spoken to Representative Barney Frank, chairman of the House Financial Services Committee, and met with economic team about the need for stricter regulation.
In the impromptu news conference, Obama said again that the bonuses were "outrageous." "They represent what all of us consider an inappropriate use of taxpayer funds," he said on the South Lawn of the White House before leaving for California.
But he said that just as outrageous is the culture of "excess greed, excess compensation, excess risk-taking" that led to the bonuses and the meltdown that is forcing the federal government to "clean up AIG's mess."
"As we work toward getting ourselves out of the recession, I hope that Wall Street and the marketplace doesn't think that we can return to business as usual," he said.
Obama also personally gave a vote of confidence to Treasury Secretary Timothy Geithner, who is under fire for not doing more to blocking the bonuses. Geithner, the president said, is facing the biggest workload in the job since Alexander Hamilton and is "making all the right moves in playing a bad hand."
Asked whether Geithner told the White House about the bonuses in time, Obama replied, "The buck stops with me."
Obama's full remarks are below:
THE PRESIDENT: We're about -- I'm about to go to California, but I wanted to make sure that I had a chance to address all of you before we leave. And we're going to have a town hall meeting there in which we're going to be answering questions from voters about a whole host of issues.
Obviously, the whole issue of AIG and these bonuses that have been paid out have been consuming a lot of attention -- and rightfully so, because they represent what I think all of us consider an inappropriate use of taxpayer funds.
But what I think is also important and just as outrageous is the fact that we find ourselves in a situation where we're having to clean up after AIG's mess. And so I just had a meeting with my economic team, but also spoke with Chairman Barney Frank of the Financial Services Committee about the importance of giving ourselves tools to prevent ourselves from getting in a situation where an AIG can pose such enormous vulnerabilities to the system as a whole.
And what we are working on is a resolution authority that would be similar -- not identical, but similar to the powers that the FDIC currently has over banks. What they're able to do is to at the same time protect creditors, depositors and consumers, while also exercising greater power proactively over institutions like AIG -- which is not a bank, which is an insurance company with a hedge fund on top of it -- would allow us proactively to get out in front, make sure that we are separating out bad assets from good, dealing with contracts that may be inappropriate, and preventing the kinds of systemic risks that we've seen taking place with AIG.
So my economic team is going to be consulting with the Hill. We're going to be moving that on a fast track. This is part of the broader package of financial regulatory steps that we're going to be taking that ensures that going forward in the future we're not going to find ourselves in these kinds of terrible positions again.
One last point that I want to make. People are rightly outraged about these particular bonuses. But just as outrageous is the culture that these bonuses are a symptom of, that have existed for far too long -- a situation where excess greed, excess compensation, excess risk-taking have all made us vulnerable and left us holding the bag. And one of the messages that I want to send is that as we get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don't think that we can return to business as usual. The business models that created a lot of paper wealth but not real wealth in this country and have now resulted in crisis can't be the model for economic growth going forward.
And I've spoken before: We have to move beyond a constant bubble-bust mentality and start establishing a foundation for long-term economic growth. That involves making investments on health care and energy and education. That means increasing our productivity across sectors, and not just relying on the financial sector for all our economic growth. It means that shareholders and boards of directors have to hold executives more accountable for their compensation scales.
The fact that these guys are looking for bonuses, having run down AIG, begs the question of, why were they making that much beforehand, when nobody was criticizing them, everybody thought they knew what they were doing? That kind of culture has to change. And I think that's what the American people are looking for. The financial regulatory package that we're designing, as well as the economic policies that we want to put in place are going to put an end to that culture.
That's what we're striving for. That's what the American people are looking for, and working with Congress, that's what we're hoping to deliver.
All right? Thank you, guys.
Q Mr. President --
THE PRESIDENT: I'll just take -- I'll just take a couple of questions. Go ahead.
Q Can you do anything about the bonuses, Mr. President?
THE PRESIDENT: We are exploring every possible avenue, as is Congress, to see what we can do. But what we need are tools that allow us not to find ourselves in a situation where we only have two options: One is to withhold money from AIG that could potentially lead them into a spiral that could affect the entire financial system, or, on the other hand, having folks get bonuses and at least have the capacity to sue the government and get not only their bonuses but potentially even more out of the legal system.
We've got to have tools that, under our legal authority, allows us to deal with these issues. That's what we're going to be striving for.
Q Mr. President, do you wish that you had found out about these bonuses --
THE PRESIDENT: I'm sorry?
Q Do you wish that you would have found out about these bonuses a lot sooner than Thursday so you could have done something more then?
THE PRESIDENT: Well, look, rather than going into sort of the details of finding it out, ultimately I'm responsible, I'm the President of the United States. We've got a big mess that we're having to clean up. Nobody here drafted those contracts. Nobody here was responsible for supervising AIG and allowing themselves to put the economy at risk by some of the outrageous behavior that they were engaged in.
We are responsible, though. The buck stops with me. And my goal is to make sure that we never put ourselves in this kind of position again.
Q -- there's going to be a new round of AIG bonuses coming out for executives. How are you going to quell America's anger with the new round of bonuses that are coming out?
THE PRESIDENT: Well, I don't want to quell anger. I think people are right to be angry. I'm angry. What I want us to do, though, is channel our anger in a constructive way. And the most important thing we can do right now is stabilize the financial system, get flowing -- credit flowing again to businesses and consumers, and make sure that we change how these businesses operate so that they don't put us in a situation in which, when things go bad, the taxpayers have to foot the bill, and when things go good, folks are getting not just $6-million bonuses, but $30- or $40-million bonuses.
Now, keep in mind -- I think it's very important to remind ourselves that there are a whole bunch of folks now who are feigning outrage about these bonuses that a year ago, or two years ago, or three years ago, said, well, we should never meddle in these compensation plans; these are the best and the brightest; they know what they're doing; that's part of the market -- and now, suddenly they're outraged.
The point that I've been trying to make consistently has been that we believe in the free market, we believe in capitalism, we believe in people getting rich, but we believe in people getting rich based on performance and what they add in terms of value and the products and services that they create. And it's appropriate for us to have some regulatory mechanisms in place to ensure that we never have a situation where the government has to step in, or you've got taxpayers who are having to foot the bill for other people's mistakes.
That requires some regulatory framework. And my hope is that one of the lessons we learn here is, is that putting smart regulations in place -- oversight, transparency, accountability -- those things are not anti-market, they're pro-market. When, last year, Barney Frank and I worked to allow shareholders to at least cast a non-binding vote on compensation packages, there were some people who attacked us saying government has no business doing that. Well, look, all we're trying to say is you've got to be accountable to somebody. And it's that measure of accountability that I think is part of what has made America strong, and we have to get back to those kinds of values.
All right? I'm going to make this -- two more questions. Go ahead.
Q Mr. President, you received --
THE PRESIDENT: I'm sorry, I can't hear you.
Q -- you received $100,000 from AIG during the campaign. How do you feel about those contributions today? Do you plan to do anything about it? And at least one member of Congress has now called for your Secretary of the Treasury to resign. Your thoughts.
THE PRESIDENT: Well, I have complete confidence in Tim Geithner and my entire economic team. Understand, as I said before, Tim Geithner didn't draft these contracts with AIG. There has never been a Secretary of the Treasury, except maybe Alexander Hamilton, right after the Revolutionary War, who's had to deal with the multiplicity of issues that Secretary Geithner is having to deal with -- all at the same time.
And he is doing so with intelligence and diligence. Nobody is working harder than this guy. He is making all the right moves in terms of playing a bad hand. And what we need to be doing is making sure that we are providing him the support that he needs in order to work through all these problems so that we're able to deal with them more effectively in the future.
All right, last -- go ahead.
Q Was it a mistake to prop up AIG -- and explain why it was not a mistake.
THE PRESIDENT: Right. Well, look, this can get pretty technical, but I'll try to -- but I'll try to simplify it. Last year, when the Federal Reserve decided to step in -- again, that wasn't a decision that we made, but I actually think it was the right decision -- AIG had insured a whole bunch of losses for a whole bunch of banks that had made bad bets on subprime loans and mortgages that had been packaged and bundled up and made into securities.
These were massive insurance policies. Unfortunately, because of a lack of regulation, they were able to issue far more insurance policies than they could pay out on these various instruments that these banks had issued. And had AIG been allowed to simply liquidate and go bankrupt, all those banks who were counter-parties with AIG would have experienced such big losses that it would have threatened the entire financial system.
I want to repeat something that I said before the joint session: My interest is not protecting banks. My interest is protecting the American people; the people's 401(k)s; ordinary folks who have a credit line with a bank for their small business; people whose pension funds are invested in some of these financial institutions. The prospect of all of that unraveling would have been unacceptable -- an unacceptable risk.
Now, what we're trying to do is get ourselves in a position where we make sure that going forward we're not held hostage to all these bad decisions that were made by these huge institutions in the past, and that we create a system where they can't make all these bad bets, they can't issue these insurance policies one on top of the other without having the assets to back them up.
That's the kind of regulatory reform that we need. That's what these folks are going to be talking to the folks on the Hill about. And I am confident that we can strike the right balance that allows our financial system to stabilize, allows people to innovate in the financial markets, but don't allow them to put everybody else's savings, everybody else's well-being, other people's jobs, other people's homes at risk. And that's the task that lies before us and I'm confident with can get it done.
All right. Thanks, guys.
About Political Intelligence
Glen Johnson is Politics Editor at boston.com and lead blogger for "Political Intelligence." He moved to Massachusetts in the fourth grade, and has covered local, state, and national politics for over 25 years. E-mail him at firstname.lastname@example.org. Follow him on Twitter @globeglen.