Obama aide: No fixed rules on too big to fail

By Caren Bohan

LAS VEGAS (Reuters) - There are no hard and fast rules to determine which financial firms are "too big to fail," a senior adviser to Democratic White House hopeful Barack Obama said on Wednesday.

Jason Furman, a top economic aide to Obama, told Reuters that taxpayer-funded bailouts are always a last resort, but decisions must be made on a case-by-case basis and take into account whether the failure of a firm would cause significant harm to the financial system and the economy.

"Every situation is unique. It's impossible to develop hard and fast rules, but you want to do the most you possibly can to protect taxpayers while ensuring that the economy remains strong," Furman said in a telephone interview.

Following the Fed's $85 billion rescue of insurer American International Group, Obama issued a statement that neither criticized nor explicitly endorsed the decision.

"While we do not know all the details of this arrangement, the Fed must ensure that the plan protects the families that count on insurance," Obama said. "It must not bail out the shareholders or management of AIG."

Obama, an Illinois senator, was critical of some details of the Fed's rescue in March of investment bank Bear Stearns, but did not disagree with the decision to provide a credit line to encourage the firm's sale to J.P. Morgan Chase.

He also generally agreed with the government takeover of mortgage giants Fannie Mae and Freddie Mac this month, saying their collapse would have resulted in too big a blow to the financial system. In the case of Lehman Brothers, Obama did not favor a bailout.

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