Lawmakers on Capitol Hill have responded to growing public outrage with a pledge to recoup million-dollar bonuses paid out by the bailed-out insurance giant AIG. But the hundreds of millions of dollars in bonus money pales to the billions used to bail out AIG a second time. We speak to consumer advocate Ralph Nader and economist Robert Kuttner, co-founder and co-editor of The American Prospect. Kuttner says, "I think [Treasury Secretary Timothy] Geithner is probably gone within sixty days, because he has become a liability to the administration." [includes rush transcript]
This is a rush transcript. Copy may not be in its final form.
AMY GOODMAN: Edward Liddy, the chief executive of the failed insurance giant American International Group, AIG, will testify before a subcommittee of the House Financial Services Committee today, as outrage continues to grow over the nearly $165 million AIG paid as taxpayer-subsidized bonuses this year.
While angry lawmakers proposed legislation that could impose a special surtax on these bonuses to recoup taxpayer money, the Treasury Department said in a letter to congressional leaders late on Tuesday that it will deduct the $165 million from the government’s next infusion of $30 billion of bailout funds.
Meanwhile, New York State Attorney General Andrew Cuomo divulged in a letter to Massachusetts Congress member Barney Frank that AIG paid bonuses to 418 current and former employees. This includes over a million dollars each to seventy-three people from a unit considered most responsible for the toxic derivatives that led to AIG’s downfall. According to the contracts obtained by Cuomo, most of the 2008 bonuses were locked in at 2007 levels last spring, despite AIG’s already declining performance at the time.
Treasury Secretary Timothy Geithner says he knew about the bonus payments only last week. In his letter to congressional leaders, he says he, quote, “registered strong objections” with the AIG chair, Liddy, when he found out about the payments. But reporters at the White House press briefing Tuesday asked why Secretary Geithner and President Obama did not have this information earlier or act sooner, considering the company is 80 percent owned by the government.
This is an exchange between Press Secretary Robert Gibbs and Chip Reid of CBS News.
CHIP REID: I think only about half of the AIG bonuses to this, the Financial Products unit, have been paid at this point. I think there’s still about $200 million due. When the next round of AIG bonuses comes due, will the President say no?
ROBERT GIBBS: Well, again, that’s exactly what Secretary Geithner has talked to the CEOs about moving forward to restructure. I think that’s what I alluded to, that Secretary Geithner had taken all humanly possible steps in order to change that.
CHIP REID: But the federal government owns 80 percent of AIG. Can’t the President simply say, “No, we’re not making those payments”?
ROBERT GIBBS: Again, I’d refer you to a contract lawyer, which I’m not one. But obviously, Chip, if it were as easy as all of that, I can assure you we’d be talking about Russia.
CHIP REID: One follow-up. You mentioned that the President and the American people are outraged. There are some on Capitol Hill who have questioned his outrage. They say, “How can he come out and say he’s outraged, when his economic team had just thoroughly looked into these payments and concluded they had to be made?”
ROBERT GIBBS: I suggest that there’s very little basis for any of those — for any of that thought. I don’t think anybody on Capitol Hill should doubt the genuineness of the outrage.
AMY GOODMAN: That was the press secretary, White House Press Secretary Robert Gibbs. He was questioned for more than an hour yesterday on this issue by the White House press corps.
I’m joined now by two guests. Ralph Nader is with us, the longtime consumer activist, corporate critic, former presidential candidate a number of times. He’s on the phone with us. Also, economist and journalist Robert Kuttner, joining us from Boston, he’s the co-founder and co-editor of The American Prospect, a distinguished senior fellow at the think tank Demos.
We welcome you both to Democracy Now! Robert Kuttner, let us start with you. First of all, explain how these bonuses happened. How did the President, the Treasurer Secretary not know about them? What could have been done to prevent them before?
ROBERT KUTTNER: Well, I think you have to look at the bigger picture. Secretary Geithner is in bed with the wrong people in his entire approach to all of the financial rescues. And in this case, there’s a three-member board comprised of financial industry people who are supposedly overseeing AIG as the agents of the US taxpayer, and we own 80 percent of AIG. This crowd is incredibly indulgent of AIG’s behavior; it’s very clubby. And if you had a different Treasury Secretary with a different mentality, they would have said, going in, “We’re the owners. You can’t do this.”
And the rationales that have been put forward are the most appalling thing — number one, the rationale that a contract is a contract. The UAW workers are giving up not just wages in their contracts, but retirees who have contractual guarantees to health insurance and pension benefits. Same thing happened in steel industry. If we go forward with the mortgage restructuring — mortgages are contracts — they’re going to be restructured. The idea that you can’t tell the head of AIG to not pay those bonuses is just preposterous. I mean, you could say to these workers — workers? — executives, “If you want your job, you should voluntarily forfeit these bonuses.” End of conversation.
And I think the political problem here is that Obama has appointed a team that is part of the same club. There’s no distinction between the Geithner plan and the Paulson plan before it, even though these supposedly are very different administrations. Now he’s really behind the curve politically, and the Republicans, of all people — Mitch McConnell and John Boehner — are sounding more populist than the Democrats. So, unless the administration gets out ahead of this, it’s going to be on the wrong side substantively, because there is this popular outrage, and its plan is very likely to fail, and it’s not going to get the cooperation of either party in Congress in solving the larger mess of which AIG is a part. So this is very, very useful as a symbol of the wrongheadedness of the entire approach.
AMY GOODMAN: Ralph Nader, your response to the whole thing?
RALPH NADER: Well, what’s going on, obviously, is that the government has put in $170 billion, and another $30 billion on the way, in a giant financial conglomerate globally that has just put out a PowerPoint presentation in twenty-one pages that shows how it’s not only too big to fail, but it says if it fails, it would cause catastrophe of unforeseen consequences all over the world, in the US economy and global markets.
And now, the government really is not in control of AIG. They have several corporate trustees in charge, but they don’t really know what’s going on. And the very idea that these complex derivatives in the trillions of dollars out of AIG’s Financial Products office, where the bonuses were especially concentrated, are too complex to unravel without keeping the culprits in their job illustrates the powerlessness, the indentured powerlessness, of the US government.
I mean, what’s important, Amy, to point out here is that there are very few deterrent policies and preventive policies coming out of the Obama administration. They have very, very few resources for prosecutors and investigators in the Justice Department, number one. Number two, they are not talking about shifting power to the taxpayers and the investors, who would have stopped all the shenanigans if they were at least organized. And above all, they’re not talking how to pay for this by a Wall Street derivative transaction tax, which would raise about $500 billion with a one-tenth of one percent sales tax on $500 trillion or so of derivative transactions last year alone. I mean, people in state after state, as we speak, are going into stores and buying things they need and paying five, six, seven percent sales tax, but today someone can buy $100 billion or $100 million of Exxon derivatives in Wall Street and pay not a dime in sales tax.
So, I want people to read this remarkable document by AIG called "AIG: Is the Risk Systemic?" In other words, “We are too big to fail. We can collapse the global economy.” That is up on the website wallstreetwatch.org, wallstreetwatch.org. And if you want to see a taxpayer movement get underway, go to wallstreetwatch.org and join our email list. How many times yesterday did all these politicians talk about taxpayers, taxpayers at risk, taxpayers having to pay, and they won’t give taxpayers any facilities to organize in a political force to take this public fury that they keep talking about and move it from a burst of revulsion by tens of millions of people into a political force in Washington?
AMY GOODMAN: We’re going to break and then come back to Robert Kuttner and Ralph Nader. Robert Kuttner, co-founder and co-editor of The American Prospect magazine, he’s with Demos. Ralph Nader, longtime consumer advocate and many time presidential candidate. We’ll be back in a minute.
AMY GOODMAN: Our guests, Robert Kuttner, co-founder and co-editor of The American Prospect — he’s with Demos — and Ralph Nader, longtime consumer advocate and presidential candidate.
There was the Wyden-Snowe amendment that was killed that would have killed the AIG bills. This is the Democratic senator from Ohio and the Republican Senator Olympia Snowe from Maine. They had proposed an amendment to the stimulus package that would have barred bailout fund recipients from paying huge executive bonuses and taken back the ones paid last year.
Back — from AP: “The $838 billion measure includes an amendment penalizing companies that paid bonuses greater than $100,000 to executives after receiving government rescue funds last year. The amendment would require the companies to repay within four months any portion of the bonus above $100,000 or face an excise tax of 35 percent on the portion of the bonus above $100,000.” While it did pass the US Senate, ultimately it was killed in conference, and no one would say who killed it. Robert Kuttner?
ROBERT KUTTNER: You know, the basic problem here is that Wall Street, despite having been totally disgraced by events, still has an enormous amount of power in the Obama administration, as much as in the Bush administration before it. If you look at the fine details of the latest Geithner scheme for trying to rescue the banks, it gives a tremendous amount of power to the least regulated, least transparent financial institutions in the whole system: private equity and hedge funds. It tries to bribe them to make another round of speculative bets on underwater assets. This is exactly backwards.
And I’m going to make a couple of predictions here. I think Geithner is probably gone within sixty days, because he has become a liability to the administration. And I think the real question is whether Obama and his political advisers are going to have the wit to realize that they hired the wrong team. There’s a whole other cast of people who are every bit as technically competent and brilliant as Larry Summers or Tim Geithner who believe that you need a Reconstruction Finance Corporation that would take control of these entities and put auditors who work for the US government inside them and sort out what’s really going on on their balance sheets, break them into manageable pieces, figure out how much of the loss the taxpayer takes, how much of the loss the bondholder takes, and get the financial system up and running again.
And what’s really interesting is that the people who have espoused this view run the gamut from Paul Krugman and Joe Stiglitz and Nouriel Roubini — that’s predictable, although Roubini is not particularly a progressive, he’s just very knowledgeable — but then you’ve got Republican conservatives, you’ve got the American Enterprise Institute. Alex Pollock, their expert on this, testified the other day that the TARP is completely flawed as a strategy for fixing this; you need a Reconstruction Finance Corporation. The conservative president of the Federal Reserve Bank of Kansas City, Thomas Hoenig, gave a terrific speech on why an RFC is the only way to go. A guy named Rodgin Cohen, who was a lawyer for the very Wall Street investment banks that are negotiating with Geithner, whose name was briefly floated as Deputy Treasury Secretary, he’s in favor of an RFC.
So I think you’re going to see this view crystallizing, that TARP is a completely flawed approach. And don’t forget that the money that is being used to bail out AIG is TARP money. The whole approach of letting the same culprits who created this mess keep their jobs and throw money at them and use speculators to bet on the distressed securities is just catastrophic. And the only good thing about the AIG mess is it’s shedding a spotlight on the fact that this is a political failure, and maybe now some people will start understanding that it’s a substantive failure, as well.
AMY GOODMAN: Ralph Nader, what about this issue of saying, “Contracts cannot be broken; these were contracts”? First of all, we haven’t seen these contracts and actually what they say. But what about, for example, the UAW? When GM is in trouble, they say the UAW has to break their contract and come up with a new one.
RALPH NADER: Well, first of all, you’re right. These contracts should immediately be disclosed. You know, if the government owns 80 percent of AIG, why doesn’t the government control AIG? It has refused to control — go on the board of directors. It’s refused to exercise their shareholder rights as owners. They can get these contracts.
And second, contracts that reflect unjust enrichment or fraudulent conveyance can be set aside. I mean, that’s established US law. And Andrew Cuomo, Attorney General of New York, has alluded to that.
Thirdly, what’s going on here is the collapse of a model of corporate capitalism that has destabilized the world and damaged workers, peasants, people, pension funds, people’s savings all over the world. And the Congress is not looking, as Bob said, at the bigger picture. For example, there are 8,000 credit unions in this country. They’re financial organizations, not for profit. Not one of them has failed. None of the assets, which total a trillion dollars in these credit unions all over the country, where 85 million Americans do business — 85 million Americans — none of the assets have been depleted. Instead of looking at the model of the credit union as a financial institution or other models, all they’re doing is throwing hundreds of billions of dollars down rat holes with ill-conceived, rapid, weekend bailouts of outfits like Citigroup and Bank of America and urging more and more mergers, more and more concentration of power in fewer corporate hands, not even using the words "antitrust." This is really an anarcho sprawl of people in Washington who are overwhelmed, overworked —-
AMY GOODMAN: Ralph Nader, we’re going to have to leave it there.
RALPH NADER: —- and don’t know what’s going on.
AMY GOODMAN: I want to thank you both for being with us, Ralph Nader and Robert Kuttner, with The American Prospect and with Demos organization, with Demos in New York.