Obama Wants New Rules For Wall Street Now

President Obama said today he hopes it "doesn't take too long to convince Congress" to give his administration unprecedented new powers to take over and stabilize ailing nonbank institutions such as bailed-out insurance giant American International Group.

The president sounded as if he were in a hurry to win the expanded authority just hours after Secretary Timothy Geithner outlined the request to Congress.

"We will do what is necessary to stabilize the financial system and, with the help of Congress, develop tools that we need to make our economy more resilient and our financial system more stable and more just," Geithner said.

Video of Treasury Secretary Tim Geithner on Capitol Hill for a testimony about AIG.Play

If AIG had been allowed to fail, Geithner said, the impact on the financial system would have been "catastrophic."

Obama said the new regulatory powers were essential to avoid a fiscal crisis again in the future, arguing that the federal government needed a "more comprehensive view than the one we've been taking so far."

He spoke with reporters in the Oval Office alongside Australian Prime Minister Kevin Rudd. Both men will meet again next week at the Group of 20 meeting of the world's major economies in London for a summit on the global financial crisis.

That crisis was exacerbated by the threatened collapse of AIG.

Geithner told Congress today that it was with "extreme reluctance" that the government authorized $85 billion in credit to AIG -- part of what would eventually become more than $170 million in authorized government aid to the company -- because "we did not have the authority to unwind AIG."

Geithner, along with Federal Reserve Chairman Ben Bernanke and William C. Dudley, the president and chief executive officer of Federal Reserve Bank of New York, testified in hearing on AIG held today by the House Financial Services Committee.

Geithner said that the Obama administration is proposing "resolution authority" that would allow the government to address financial distress at non-bank firms much like the Federal Deposit Insurance Corp. does with banks.

"AIG highlights the urgent need for new resolution procedures for systemically important nonbank financial firms," Bernanke said today. "If a federal agency had had such tools on Sept. 16, they could have been used to put AIG into conservatorship or receivership, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties, as appropriate."

"That outcome would have been far preferable to the situation we find ourselves in now," Bernanke added.

The legislation would allow the government to make loans to an institution, buy its assets and renegotiate contracts, including contracts with employees. Both AIG and government officials have said that the contracts with employees of the AIG Financial Products unit -- the AIG unit widely blamed for the company's downfall -- prevented the cancellation of millions of dollars in controversial retention bonuses.

One member of Congress warned Geithner and Bernanke that patience was wearing thin with companies like AIG.

"I assume that you recognize there's not an awful lot of sympathy up here to necessarily provide additional funds -- not going on the merits of whether the funds are necessary," said Rep. Paul Kanjorski, D-Pa. "I, for one, am absolutely convinced that, for orderly process, we need additional funding, and probably will commit the second suicidal act, as we did back in September and October, and vote in favor of that funding. But it's not going to be an easy lift on behalf of the Congress."

Federal Reserve Chairman Ben Bernanke wanted to sue American International Group to stop the bonuses but he said that he ultimately decided against a lawsuit after learning of the costly legal consequences that could ensue -- namely, the "perverse effect of doubling or tripling the financial benefits" to AIG's Financial Products unit.

Geithner Asks Congress for Broad Authority

Geithner, who's been engulfed in a firestorm of criticism over the AIG bonus controversy, said that he shared the "anger and frustration of the American people," not just about the bonuses "but that our system permitted a scale of risk-taking that has caused grave damage to the fortunes of all Americans."

He said that the Treasury would deduct the amount of the AIG bonuses from the government's aid to the insurance giant.

Today's hearing is the House Financial Services Committee's second hearing on the government's $170 billion bailout of AIG.

At the first hearing, held last week, several lawmakers hammered AIG CEO Edward Liddy over the controversial retention bonuses handed out to hundreds of AIG employees.

Many in Congress will be more kind toward Geithner, but he still faces questions about why he did not stop the bonuses.

"After making one mistake after another, after failing to lead and losing the confidence of the nation, Secretary Geithner will arrive on Capitol Hill as the loneliest man in Washington," said Rep. Connie Mack, R-Fla., who is not on the House Financial Services Committee.

"He'd be much better served by announcing his resignation than by trying to defend the indefensible," Mack told ABC News.

Though President Obama has expressed unwavering support for Geithner, some Democrats have voiced concerns in the fallout from the bonus scandal.

"While he exercised extremely poor judgment about the AIG bonuses and must lead the effort to recoup those bonuses, I remain supportive of the secretary for now." said Sen. Mary Landrieu, D-La.

"There is definitely cause for concern about why Geithner waited until the last minute to talk to Liddy about these bonuses. It's his job to know about these things," said another congressional Democrat who asked to remain anonymous.

But the lawmaker still expressed confidence in Geithner.

"We cannot lose sight of the bigger picture here. Geithner inherited a terrible mess from the Bush administration and I am completely confident in his ability to get our nation's economy back on track."

Rep. Michael Capuano, D-Mass., suggested that it's too early to judge Geithner's performance.

Asked by ABC News last week whether he supports Geithner's staying in place, Capuano replied, "At the moment, yeah. I mean, I have questions like anybody else, but let's be serious. He's still new on the job.

"He hasn't been able to get anybody else appointed or actually confirmed by the Senate. So, I think it's a little too early to pass that judgment," Capuano said. "I actually think it would become a distraction to worry about that right now. The guy is well qualified. Let's give him a chance to work or not work out."

Wall Street Surged on Geithner Plan

Geithner's reputation, however, might be on the verge of a comeback, at least on Wall Street. The Dow Jones industrial average soared nearly 500 points on Monday after Geithner released details on the Public-Private Investment Program. Today, the Dow gave back a portion of those gains, dropping about 100 points before rebounding to close to yesterday's close by the mid-afternoon.

The program will rely heavily on private investors, such as hedge funds and private-equity firms, to buy up $500 billion to $1 trillion worth of assets, with the government providing incentives, such as low interest loans and sharing in both the risk and possible profits.

AIG: What Geithner Knew

Questions remain about how early Geithner knew about the AIG retention payments.

Rep. Darrell Issa, R-Calif., the ranking member on the House Oversight Committee, called for the Treasury chief to step down amid the fallout from the AIG scandal.

"Secretary Geithner either didn't know about the bonuses and was grossly negligent, or he did know and failed to bring this to the president's attention," Issa said. "Either way, the end result has been a significant waste of taxpayer dollars, and he should take immediate responsibility and resign."

Geithner has said that he hadn't learned about the "full scale" of the bonuses until March 10. He said in an interview with CNN last week that he took "full responsibility" for not knowing about the bonuses sooner, but also noted that he approached Liddy the very next day to tell him the payments were "unacceptable."

"On Tuesday I was informed about the full scale and scope of these specific bonus problems," Geithner said. "And again, as soon as I did -- but you know, it's my responsibility, I was in a position where I didn't know about those sooner. I take full responsibility for that."

Some analysts don't believe that Geithner didn't know about the payments earlier, citing the fact that before he took over at Treasury, he headed the New York Federal Reserve, which is involved in the oversight of AIG.

"Geithner almost certainly knew of the bonuses ever since the initial takeover on Sept. 15. He just didn't think they were important," said Dean Baker, co-director of the Center for Economic & Policy Research.

Lawmaker Confronted Geithner Earlier on AIG

On March 3, Rep. Joseph Crowley, D-N.Y., confronted Geithner about the bonuses.

"Just last month, AIG paid 343 employees of AIG FP -- their Financial Products division that created the financial hole that AIG is in, and in turn, a multibillion-dollar bill for American taxpayers -- $56 million in bonuses and are slated to pay an additional $162 million in bonuses to 393 participants in the coming weeks," Crowley said during a hearing of the House Ways and Means Committee, a week before Geithner said he was aware of the full scale of the problem.

"I would like to work with you in structuring tough, common sense compensation limits at AIG and this new government loan, which would include voiding these bonuses to AIG FP employees as well as claw back $56 million in bonuses already paid to AIG FP employees," Crowley said.

In responding, Geithner seemed to focus on Crowley's concerns about future compensation limits rather than "clawing back" AIG bonuses.

"I just want to point out that compensation practice across the financial services industry ... just got out of whack with basic fundamentals, and people were paid for risks that weren't captured in compensation," he said at the time. "And part of what we do to make sure this kind of crisis doesn't happen in the future is to change those basic incentives, and there's going to be a role for government in doing that."

A Treasury Department spokesman reiterated that Geithner was not aware of the "full extent" of the retention payments until March 10.

"There has been information in the public arena about AIG's retention bonuses for many months, including information about particular bonuses to employees of the financial products division," said Treasury spokesman Isaac Baker. "However, although Congressman Crowley raised the issue of the bonuses three weeks ago, Secretary Geithner was not aware of the timing or full extent of the contractual retention payments or the other bonus programs until his staff brought them to his attention on March 10."

Once briefed, the spokesman said, Geithner consulted with the Federal Reserve and called Liddy to insist that the bonuses be renegotiated.

"At the president's direction, he is exploring all legal means to recoup the retention bonuses and ensure that taxpayers are compensated for any payments not recovered," he said. "Knowing about these 2008 retention payments any earlier wouldn't have changed the outcome, given the legal restraints, but Secretary Geithner is already working with AIG to restructure the 2009 payments going forward."

With reports from ABC News' Jonathan Karl.