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.
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.