WASHINGTON - PRESIDENT Barack Obama forcefully defended his handling of the bailout of AIG on Wednesday, expressing 'complete confidence' in his Treasury secretary amid a growing storm over bonuses paid to executives of the insurance giant.

'We are exploring every possible avenue, as is Congress, to see what we can do,' Mr Obama told reporters when asked about US$165 million (S$252 million) in bonuses paid out to American International Group executives who brought the company to the brink of collapse.

'But what we need are tools that allow us not to find ourselves in the situation where we only have two options,' Mr Obama added, saying the government faced a choice between rescuing AIG or putting at risk the larger financial system.

The retention bonuses have ignited a firestorm in Congress, however, threatening to engulf Mr Obama's other economic recovery initiatives and posing the biggest political challenge yet for the new president.

For a second straight day, Mr Obama was forced to defend his Treasury Secretary Timothy Geithner, the target of criticism for not preventing the payout of bonuses at AIG.

'I have complete confidence in Tim Geithner and my entire economic team,' Mr Obama said. 'Nobody's working harder than this guy. He is making all the right moves in terms of playing a bad hand.'

Mr Obama said his team would be consulting with Congress about legislation to create a 'resolution authority' similar to the Federal Deposit Insurance Corporation to separate 'bad assets from good' in financial institutions weakened by the crisis.

'We're going to be moving that on a fast track. This is part of the broader package of financial regulatory steps that we're going to be taking that ensures that going forward in the future we're not going to find ourselves in these kinds of terrible positions again. People are rightly outraged about these particular bonuses,' Mr Obama said.

'But, just as outrageous is the culture that these bonuses are a symptom of that have existed for far too long, a situation where excess greed, excess compensation, excess risk taking, have all made us vulnerable and left us holding the bag,' he said.

Mr Obama vowed that 'as we get out of this crisis, as we work towards getting ourselves out of recession, I hope that Wall Street and the marketplace don't think that we can return to business as usual.' -- AFP

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