March 02, 2009

In the history of financial crises, one lesson stands out: It’s important to match the scale of the remedy to the scale of the problem – and to do so quickly.That doesn’t mean every corporate bailout is a good idea. But what’s needed is a forceful approach, whether the costs fall on investors or taxpayers. Governments that try to cut corners or take a wait-and-see approach often end up making recessions deeper and taxpayer costs higher, say financial historians.

The Obama administration is well aware of that trap, yet many economists see a high risk that the United States will go down that path in 2009.Some signs that efforts to date haven’t been adequate to the task Insurance giant AIG, now largely government-owned and supported, is expected to report the largest quarterly loss in corporate history Monday – plus a newly restructured bailout that will amount to the third rescue of a company that has already tapped $150 in federal funding.