Paulson, said had federal policy makers not acted to save AIG, a failure of the financial system could have ensued, and pushed the U.S. unemployment rate to a Great Depression-esque 25%, marketwatch.com reported Wednesday.
Paulson also stood fully behind his decisions during the financial crisis's acute stage, calling them "appropriate."
"We could not have anticipated the magnitude of AIG's problems; and we had no way of letting it fail without disastrous collateral consequences," Paulson said, Dow Jones reported Wednesday. "We had to intervene, and I am thankful that we did."
Fiscal/Economic Analysis: Congress is currently chaffing because a portion of the public, perhaps as much as 40% of the electorate, was and remains adamantly opposed to the bailout, and a majority, perhaps as high as 70%, believes the bail-out enabled saved institutions to pay bonuses to executives/top professionals; i.e. that U.S. taxpayers are paying for bonuses at bailed-out institutions.
Further, while current U.S. Treasury Secretary Timothy Geithner's lack of knowledge of the 100% bailout remains an open question -- to-date there hasn't been incontrovertible evidence that he did know -- and Geithner says he did not, both the public and the Congress has lost sight of the larger issue.
Namely, that during the acute stage of the financial crisis there were NO pleasant options, only a choice between 'offensive, but less damaging' and 'offensive and catastrophic.'
Subsidizing some of the very executives who helped create the financial crisis in the first place is highly objectionable. But there was no other choice, given the way the U.S. banking system was structured at that time. That's because AIG, legally an insurance company, but in practice, the largest hedge fund in the world, was and remains massively interconnected with the global financial system. A failure of AIG would have resulted in a series of cascading defaults, and most certainly a U.S. unemployment rate far worse than the current 10% rate.
Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.