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Fallout: The Financial Crisis

Could bailouts hurt Obama?

Janet Babin Mar 16, 2009
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Fallout: The Financial Crisis

Could bailouts hurt Obama?

Janet Babin Mar 16, 2009
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TEXT OF STORY

Steve Chiotakis: I’ll bet Fed Chairman Ben Bernanke gets asked this question a lot:
When’s the financial fallout gonna let up? He’s probably heard it at the diner while having breakfast. Maybe at the health club, between stairmaster and elliptical trainer. And he was asked last night on CBS’s 60 Minutes. The answer? Later this year, early next. And that’s contingent on a lot of things.

Ben Bernanke: It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system’s in crisis. Now, we’ve seen some progress in financial markets, absolutely. But until we get that stabilized and working normally, we’re not going to see recovery.

In the interview, Bernanke said of all the things the Fed has done to help stabilize the economy, the one thing that’s given him — in his words — the most angst was the bailout of American International Group. He said the company gambled with questionable bets and put the entire financial system at risk.

Then there’s the news that AIG paid tens of millions of dollars in bonuses to company executives with bailout money.
And that’s infuriated others. Among them, Congressman Barney Frank, chairman of the House Financial Services Committee.

Barney Frank: These people may have a right to their bonuses, they don’t have a right to their jobs forever. The federal government now is the 80 percent owner, one of the things we can do to make sure this doesn’t happen again, we have people who are so irresponsible . . . and by the way, it does appear to me we’re rewarding incompetence. Forget about the legal matter here for a second, these bonuses are going to people who screwed this thing up enormously.

Congressman Frank on The Today Show. Now all this emotion could have a negative implication on the Obama administration’s plans to get things moving. From North Carolina Public Radio, here’s Marketplace’s Janet Babin.


Janet Babin: Even Obama administration officials registered outrage over bonuses and other moves at AIG. The company received $170 billion in federal rescue money.

Duke University professor James Cox fears problems the president inherited are now being seen as problems he created:

James Cox: I think it’s inevitable the Obama administration gets tainted. The question is just how much it gets tainted.

Cox says the president can limit the damage by continuing to be a clear spokesman of what the problems are and how he’s fixing them. If the administration can’t quell the naysayers, it can lead to bigger economic problems down the road.

Len Blum’s, managing director at Westwood Capital:

Len Blum: If the public outcry is severe enough, it’s going to make it difficult for Obama to get subsequent bailouts passed.

And Blum thinks there’s a very good chance we’ll need another bailout before the crisis ends.

I’m Janet Babin for Marketplace.

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