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.
(Source: White House)