WASHINGTON – President Barack Obama said Wednesday no one in his administration created the mess at insurance giant AIG, including the much-maligned executive bonuses, but that "the buck stops with me" to fix it.
Standing on the White House lawn as he prepared to go to California, Obama vigorously defended his embattled Treasury secretary, Timothy Geithner. Some have speculated that Geithner's job could be in danger over his handling of the millions of dollars in bonuses that American International Group Inc., is giving its executives — even in the midst of a massive federal bailout.
"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," said Obama, with Geithner standing at his right elbow.
"And, you know, he is doing so with intelligence and diligence. Nobody's working harder than this guy," Obama said.
The president told reporters that Geithner "is making all the right moves in terms of playing a bad hand."
In more pointed terms than before, the president assailed AIG for its business practices that led to the need for an infusion of tens of millions in taxpayer dollars.
"I don't want to quell anger. I think people are right to be angry. I'm angry," the president said. "What I want us to do, though, is channel our anger in a constructive way."
He said he and his economic team have begun discussions with leading congressional players to fast-track legislation creating another regulatory entity to govern the dissolution of large financial institutions such as AIG, which if merely liquidated could reverberate disastrously through the financial system.
The so-called "resolution authority" would have powers similar but not identical to those of the Federal Deposit Insurance Corporation over banks, allowing for the protection of creditors, depositors and consumers without taxpayers left "holding the bag." Obama said this broader authority would allow the government to prevent "the kinds of systemic risks that we've seen taking place" with AIG.
Obama said the new authority would be part of a broader regulatory reform agenda that his administration is preparing to send to Congress in an effort to deal with lax oversight that many blame for creating the current financial crisis, the worst to hit the country in seven decades.
The broad outlines of the overhaul are expected to be unveiled before Obama attends the Group of 20 meeting of major industrial countries and developing nations in London on April 2. European countries have pushed the administration to take a tougher approach to financial regulation, believing it was lax enforcement in the United States that led to the crisis that has now pushed the global economy into recession.
"Nobody here drafted those contracts (providing for the bonuses). 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," Obama said. "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."
Obama also issued a warning about the go-go mentality gleaned from the boom years. He said the problem goes deeper than "outrageous" bonuses.
"Just as outrageous is the culture that these bonuses are a symptom of, that has existed for far too long: excess greed, excess compensation, excess risk-taking," he said. "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 the country and have now resulted in crisis can't be the model for economic growth going forward."
The president also punched back at critics of him and Geithner.
"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," he said. "These are the best and the brightest. They know what they're doing. That's part of the market," he said. "And now, suddenly, they're outraged."
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