veteran journalist, syndicated columnist at the San Francisco Chronicle, and editor of the political website, Truthdig. He is the author of several books; his forthcoming one is called The Great American Stickup: Greedy Bankers and the Politicians Who Love Them. His latest article is "Perp Walks Instead of Bonuses."
Appearing on Capitol Hill, AIG CEO Edward Liddy was repeatedly questioned over why the failed insurance giant is paying out over $165 million in bonuses after it received a $170 billion taxpayer bailout. While the Obama administration is expressing outrage, more details have come to light indicating that some officials have known about the bonuses for months. Meanwhile, little attention has been paid to what might be a bigger scandal: AIG’s funneling of tens of billions of dollars in taxpayer bailout money to other banks. We speak to veteran journalist and Truthdig editor Robert Scheer, author of the forthcoming The Great American Stickup: Greedy Bankers and the Politicians Who Love Them. [includes rush transcript]
JUAN GONZALEZ: The CEO of AIG, Edward Liddy, testified on Capitol Hill Wednesday and was repeatedly questioned over why the failed insurance giant is paying out over $165 million in bonuses after it received a $170 billion taxpayer bailout. While President Obama and other officials are expressing outrage over the bonuses, more details have come to light indicating that some officials have known about the bonuses for months.
During an exchange with Congressman Paul Kanjorski of Pennsylvania, Liddy revealed the Federal Reserve had directly approved the AIG bonuses.
EDWARD LIDDY: The decision we made was that we could preserve that unit and continue to wind it down in a very orderly fashion and not expose the taxpayer and the company to the risks that heretofore they’ve been exposed to. I know $165 million is a very large number. It’s a very large number. In the context of $1.6 trillion and the money that’s already been invested in us, we thought that was a good trade.
REP. PAUL KANJORSKI: Am I to understand that you’re saying that Chairman Bernanke or his designated person at the Federal Reserve was under the — was informed that you were going to make these payments and acquiesced in that decision?
EDWARD LIDDY: Yes. Everything we do, we do in partnership with the Federal Reserve. The Federal Reserve is at our board meetings, at our compensation committee meetings, at our various meetings on strategy, and they have the ability to weigh in, either yea or nay, on anything that we decide.
I would just like to make the point that there’s no attempt to do anything under the stealth of darkness or undercover. We wanted to do what was right in these contracts. The contracts called for a payment on March 15th, and we’ve done that. We’ve been talking about this within the board and within the — with our representatives of the Federal Reserve literally for three months.
REP. PAUL KANJORSKI: And with the Secretary of Treasury?
EDWARD LIDDY: No. The way our relationship generally works is we review things with the Federal Reserve, and the Federal Reserve, as they think is appropriate, discusses it with the Secretary of the Treasury or with representatives of Treasury.
AMY GOODMAN: During the hearing, AIG CEO Edward Liddy said he had already asked a few hundred AIG executives and employees to give back at least half the extra pay, but he refused to give details on who was keeping their bonuses. More than seventy AIG employees are receiving bonuses worth a million dollars or more.
This is Congressman Barney Frank of Massachusetts questioning Edward Liddy.
REP. BARNEY FRANK: I ask you to submit the names of the people who’ve received the bonuses, noting that they paid them back or not, and I won’t accept them under a confidentiality, personally. In fact, you submitted some confidential information, and I, frankly, threw it away after reading it, because I was afraid I would inadvertently breach the confidentiality. But I do ask that you submit those names without restriction. And if you feel unable to do that, then I will ask the committee to subpoena them.
EDWARD LIDDY: Congressman, if you’ll let me explain, I very much want to comply with your request. I would hope it doesn’t take a subpoena. If it does, then we will obviously comply with the law.
I’m just really concerned about the safety of our people. So let me just read two things to you. “All the executives and their families should be executed with piano wire around their necks. My greatest hope.” “If the government can’t do this properly, we the people will take it in our own hands and see that justice is done. I’m looking for all the CEOs’ names, kids, where they live, etc.”
You have a legitimate request. I want to protect the well-being of our employees.
REP. BARNEY FRANK: Well, I have to say that that is — if we give into these kind of threats, we would never get information made public about a lot of things. And I would certainly ask that the state and local and federal law enforcement officials give full cooperation, and I would urge that any threat that anybody even comes close to carrying out or even threats, which themselves can violate the law, be prosecuted.
JUAN GONZALEZ: Lawmakers grilled AIG’s Edward Liddy about the bonuses, but little attention was paid to what might be a bigger scandal. Earlier this week, AIG revealed it had funneled tens of billions of dollars in taxpayer bailout money to other banks facing huge losses AIG had insured. Goldman Sachs received nearly $13 billion in what has been described as a backdoor bailout. Bank of America, Merrill Lynch, JPMorgan Chase and Morgan Stanley also received billions. So did several foreign banks, including Société Générale of France, Deutsche Bank of Germany, Barclays of Britain and UBS of Switzerland.
AMY GOODMAN: Robert Scheer is with us now, longtime journalist, editor of the political website Truthdig. He’s author of a number of books; his forthcoming one is called The Great American Stickup: Greedy Bankers and the Politicians Who Love Them. His latest article on Truthdig is "Perp Walks Instead of Bonuses." He joins us from San Francisco.
Welcome to Democracy Now!, Robert.
ROBERT SCHEER: Hi, Amy.
AMY GOODMAN: Perp walks?
ROBERT SCHEER: Yes. I mean, first of all, let me say, the bonuses — I think it’s an important glimpse into the cesspool that is Wall Street, but it’s a side show, you know, and I know it’s confusing — millions, billions, trillions. But the real scandal is — the money — AIG is basically a shell game at this point, and they’re passing the money through AIG to the big banks, the former stockbrokers and so forth. Goldman Sachs got the biggest amount, $12.5 billion. The head of AIG was on the board of directors and the head of the audit committee for Goldman Sachs for five years. The Treasury Secretary that put this deal together, Paulson, under Bush was the head, was the CEO of Goldman Sachs. The guy who administered the TARP fund was a vice president at Goldman Sachs. The Democrat who made all of this deregulation possible, Robert Rubin, when he was Secretary of Treasury, and then Lawrence Summers who followed him, Rubin had been the head of Goldman Sachs. And they pushed through the basic deregulation that allowed these banks to become too big to allow to fail.
So while I think it’s a terrific teaching moment to see how excessive the pay is for people who basically brought the world economy to its knees, which are these so-called executives, and I think there is a real phony in that they had to be given these bonuses for retention — Andrew Cuomo, in his letter to Barney Frank, pointed out that the eleven of the top people who got these bonuses have already left the firm, so that really doesn’t hold water. But I think the real scandal here is that we’re supposed to own 80 percent of AIG, and maybe the Fed and the Treasury are in on it, but basically it’s being used as a shell to pass on money to these banks, Goldman Sachs being the leading one, and that should be examined, because I think that is really a criminal waste of our money.
AMY GOODMAN: Robert Scheer, we’re going to break, then come back to you, veteran journalist, syndicated columnist. His latest piece, "Perp Walks Instead of Bonuses." After we speak with Robert Scheer, we’ll be joined by Tariq Ali on the sixth anniversary of the invasion of Iraq and ground zero increasingly Pakistan. Stay with us.
AMY GOODMAN: Our guest in San Francisco, Robert Scheer, veteran journalist, has written a number of books, and his latest article is “Perp Walks Instead of Bonuses.” But, Juan, I wanted to ask you something: in your latest column in the New York Daily News, you were specifically writing about UBS, the Swiss bank, that got, what, $5 billion bailout from AIG?
JUAN GONZALEZ: Right, yeah. I think in the same vein as Bob Scheer is talking about, yes, UBS got $5 billion last fall from AIG. And interestingly, Bob, I’m sure you’re aware, UBS was at that very moment involved in a federal case in Florida, charges that it was — had conspired with Americans who held secret accounts at UBS in Switzerland to evade federal taxes. Just a month ago, it paid — it agreed to pay $780 million in fines to the US government, but is still resisting releasing the names of these 50,000 Americans who were evading taxes with the help of UBS. So now you have UBS getting bailout money, $5 billion, through AIG and then paying the federal government $780 million in fines for tax evasion. It’s astounding that this continues to happen. And I think you’ve correctly pointed out that the big scandal here is the amount of money that AIG is basically being used as a pass-through for all of these other banks.
ROBERT SCHEER: Oh, there’s no question about it. And you should point out that UBS — that one of the officers of UBS is Phil Gramm, who was the Republican head of the Senate Finance Committee who pushed through the deregulation legislation, the Commodity Futures Modernization Act, the Financial Services Modernization Act, which made — allowed this to happen, which made these crimes legal. And, I mean, these people have no shame. This guy is an officer of a foreign company that we American taxpayers are paying for having caused all of this suffering. That is what I find astounding about this.
First of all, I think that the whole argument that they’re too big to fail is utter nonsense. That’s why we have bankruptcy courts. If you can’t pay your bill, you go through bankruptcy court, there’s a resolution of it. There’s absolutely no reason why AIG couldn’t have gone the way of Lehman. It didn’t go the way of Lehman because the head of Goldman Sachs was in on the meeting with Timothy Geithner, who was then head of the New York Federal Reserve, when they decided to save AIG hours after Lehman was allowed to go down the tubes. Why? Because Goldman Sachs had $20 billion insured by AIG. And the CEO of Goldman Sachs was in on that meeting — the only CEO. This is one of the great financial scandals of American history. I don’t know why that’s not being investigated. I think Timothy Geithner should be asked a lot of tough questions. I think he should be asked to resign, frankly, by the President, because he’s up to his eyeballs in this.
JUAN GONZALEZ: Bob, one of the other points that Liddy made in the congressional hearings yesterday was that the reason they had to pay these retention bonuses is because the derivatives deals that the bankers at — that the insurers at AIG were involved in were so complex that if these people left, it would be very difficult to be able to unravel them. And part of the problem — isn’t it? — that these derivative deals, precisely because they are so opaque and so complex and nobody knows what they are, create enormous risk for not only the banks involved, but obviously, it turns out, for the taxpayers in general. Wouldn’t some kind of way to actually publicize what the deals that were paid off were be one way of being — getting to the bottom of how this crisis occurred?
ROBERT SCHEER: Of course. But first of all, you don’t have to have the cooperation of criminals, you know, or potential criminals, if that’s — Bernie Madoff, you know, is going to cooperate, and other top officers of his operation. The argument that somehow we have to give these people millions of dollars in order to get them to unravel a crime is utter nonsense.
The other thing is, there was nothing really very complex about the insurance deal. It was a scam. What was happening is that we were doing these credit swaps, which grew because of deregulation. They packaged all these things together that shouldn’t have been packaged together. And the way to sell them for a high price was to get a respected insurance company, AIG, which had been a traditional regulated insurance business — “Let’s use the AAA rating. Let’s use their great reputation.” These shysters in London, who are getting most of these bonuses, were the ones who came up with this scam. “And we’ll put the sticker of approval of AIG insurance,” even though it’s not backed by any money, even though they’re allowed to leverage up the gazoos, again because of deregulation. But that’s really what AIG had to do with it. You have this toxic bundle of securities that you’re trying to sell. You say, “Oh, don’t worry about it. We’ve got AIG backing it.” And in back of their mind is, the government won’t let AIG go down the tubes.
And I don’t have any compunction at all about saying let Goldman Sachs, let Citi, let Bank of America go down the tubes, because that’s what bankruptcy court is about. And you can take the different pieces, you can save the depositors, you can save the homeowners. They’ve not been wanting to do that anyway. We should have started the whole resolution of this crisis by saying, “Let’s have a freeze on foreclosures. Let’s save the people who are being thrown out of their homes.” That’s the way to put stability. There’s $75 billion for the whole mortgage program to save all of these tens of millions of people who are at risk, and yet we have a number twice — more than twice as much going to AIG to help out these bankers.
So I think there’s tough questions to be asked. I know the Obama administration is only less than two months old, but Timothy Geithner was head of the Federal Reserve in New York. He should not have been given the Treasury Secretary position. And he is the one that really should be on the spot at this time.
AMY GOODMAN: And Larry Summers, Bob Scheer?
ROBERT SCHEER: Oh, Larry Summers should not be in government at all. Larry Summers was the guy who pushed through — he was, as was Timothy Geithner, Robert Rubin’s protégé, but he took over at Treasury after Rubin, and he’s the one who pushed through and got Clinton to sign the Financial Services Modernization Act and the Commodity Futures Modernization Act.
The language of the Commodity Futures Modernization Act — you can download it from Truthdig or other places on the internet — says very clearly in Titles III and IV that none of these new derivatives, which is the toxic stuff now, would be subject to any preexisting regulation or government agency. That’s the specific language of Title III and IV, which Lawrence Summers pushed through, along with Phil Gramm, who’s now an officer of UBS. That’s what opened the gates for this corruption. That’s what has caused people to lose the value of their 401(k)s and to lose their home.
So, yes, Summers shouldn’t — Summers should be being questioned. He shouldn’t be in the government. And I think Timothy Geithner, it’s time for him to leave, as well.
AMY GOODMAN: We’re talking to Robert Scheer. His latest piece, "Perp Walks Instead of Bonuses." The Wyden-Snowe amendment that got taken out in conference committee — Ron Wyden, the Democrat from Oregon, and Olympia Snowe, the Republican from Maine, wanted to put a cap on any bonuses, at something like $100,000, and they would be taxed 35 percent on anything over that. Now Christopher Dodd is saying that he was responsible for taking that out, but at the behest of the Obama administration. I mean, all of this money, the taxpayer bailout money, could certainly have been conditioned, couldn’t it have?
ROBERT SCHEER: Oh, and it should have. The whole problem again is Obama has followed the advise of Timothy Geithner and Lawrence Summers, and these people who, you know, are saying, basically, “You must trust the banks. You must trust AIG. You must trust the people behind AIG.” And, you know, that’s not governance. That’s not due diligence. That’s not what we’re asking.
If we own 80 percent of that company, it is outrageous to say that we have to trust them. And, you know, that — as I say, I think Lawrence Summers and Timothy Geithner should be asked to leave. Barack Obama should start with a clean slate. He should bring in people who have unquestioned integrity on this. And they should be asking the tough questions.
JUAN GONZALEZ: And, Bob Scheer, obviously the issue of — that’s been raised repeatedly of the need to respect contracts and not breaking of contracts, obviously labor unions — several of the congressmen in the hearing yesterday made the point that the auto unions are being asked to break their contracts, in essence, in order to be able to save General Motors, but here, in this situation, Mr. Liddy, who, by the way, was a former director of Goldman Sachs, is saying that these contracts were in place before he came in at AIG, and they can’t be violated.
ROBERT SCHEER: Yeah, well, I couldn’t agree more. You know, I worked for the Los Angeles Times in one capacity or another for almost thirty years, and a few months ago we were told that we no longer have retiree medical. Period. Goodbye. It’s gone. You know, I had been paying for it for years. Suddenly I don’t have retiree medical. They broke that contract, that agreement, because they’re in bankruptcy now, the Tribune Company. Workers all over the country are experiencing that.
These contracts, by the way, were drawn up a year ago, and what is ugly about them is they were guaranteed 100 percent of their 2007 bonus, even though the people running AIG at that time knew darn well that they were going to have a disastrous year, losing hundreds of billions of dollars. Yet they wrote in a 100 percent guarantee.
What we’re seeing is how this financial market works: they take care of each other. They feather their nests. And the amount of money they take is obscene. Obscene. You know, hundreds of millions of dollars — for failing! You know, the head of AIG, when he was on the board of directors, according to Forbes, was paid $650,000 for being a director of that company, a company that was engaged in these toxic investments. So these guys — this whole notion of a bonus as something you get for doing well is — they don’t respect that. They reward people for failing. That’s the key to the system, evidently.
AMY GOODMAN: Robert Scheer, finally, the journalist’s role in all of this? Every week, it seems, we’re talking about the folding of another newspaper. We just saw the closing of the Seattle Post-Intelligencer Now it will just be online. Tucson Citizen, the bankruptcy of the Philadelphia papers, the Daily News and the Philadelphia Inquirer, the Minneapolis Star Tribune, San Francisco Chronicle in big trouble, even the New York Times, also the Washington Post. What about the role of not only the newspapers, but also the networks in this?
ROBERT SCHEER: Well, you know, the good old days were not so good for mainstream journalism, and certainly not when it came to covering business stories. At your traditional newspaper, you had, you know, maybe fifty — a big newspaper like the Los Angeles Times
, New York Times, fifty, a hundred, people covering business. Maybe you had one consumer writer, one labor writer, one writer covering these things from the interests of ordinary people. Much of the reporting was done by press releases.
I covered the Financial Services Modernization Act, Commodity Futures Modernization Act, when I was working as their columnist at the Los Angeles Times. I saw very few mainstream reporters there. There was no critical reporting of those stories. They basically went along with what the lobbyists want. Bank of America and the other banks spent $300 million that year getting the legislation — their license to steal, in effect — and it was not covered. The Telecommunications Act was not covered.
So, yes, I hate to see journalists, good journalists, losing their jobs. I wonder who’s going to pay for the reporting and do the really good reporting that has been done in many areas? But business reporting has been a scandal. Why? Because the same people who own the newspapers benefit from the tax breaks, benefit from the loopholes. They’re on the other side. I mean, General Electric, which is in trouble, after all, owns NBC. So these are not pristine owners. There are some exceptions of some families that have tried to do a good job, but in the main, the people running media in America, who own it, benefit and want the kind of deregulation of the whole business community that has brought us to our knees.
AMY GOODMAN: I wanted to bring into this discussion Tariq Ali. We actually called you here, Tariq, to talk about Pakistan and Iraq, to talk about Afghanistan, but you had a very interesting piece called "Capitalism’s Deadly Logic: Reimagining Socialism." Even when you say that now, when we see all that — what capitalism has wrought, people go nuts over, for example, socialized healthcare. What do you mean by “reimagining socialism”?
TARIQ ALI: Well, I think, given the scale of the crisis in the United States, you need very firm, carefully thought-out structural reforms to the system, what Robert Scheer has been talking about. In order to do this, you have to break down certain prejudices. For instance, if people think that free healthcare for every citizen of the United States is socialism, well, let them think it. I mean, what’s the big deal? I think the overwhelming majority of people in the United States, especially the poor segments, want free healthcare. Billions are being spent on bailing out these fat cats, as we’ve heard. Why can’t this money be spent to create a nationalized health service for the United States of America? The fact that a tiny little island, which has been under siege for the last forty, fifty years, Cuba, can have a national health service with cheap medicines, free for the poor, but the United States can’t, it’s quite shocking. So I’m just saying that we have to completely rethink the way in which these societies function.
Look, lots of people on the right called the New Deal socialist. It was essentially a form of social democracy. Pretty good measures were put through. And it was the deregulations pushed through by the Clinton administration which ended elements of the New Deal program. What we are saying now is, bailing out, spending money, helping Wall Street or its equivalents in the city of London, is not going to do the trick. Some serious thought is needed. This doesn’t mean that the capitalist system is totally on the verge of collapse, but, by God, it needs heavy surgery. And if you have a president not capable of doing that in times of crisis, he will not be reelected. I think the economy is going to determine the fate of the Obama administration, not foreign policy.
JUAN GONZALEZ: I think you make the point in one of your latest articles that those who think that capitalism is in collapse underestimate the resiliency of the system itself to rectify its excesses and then to usher in a new age of exploitation. Can you talk about that?
TARIQ ALI: Well, I think, you know, since the nineteenth century, there have been dozens of business cycles very similar to the one we are seeing now, not exactly the same, not analogous, but not that dissimilar: recessions, depressions, massive state intervention, recovery of economy, handing over of that economy back to the rich, recessions, depressions. So, one has to break the cycle.
And I think the cycle can only be broken by teaching. This whole notion that the market knows all, that the market is the best — I mean, people are suffering in the United States and elsewhere in the world because of that particular dogma. And I think we need to say very clearly, no, the market does not know. There’s nothing mystical about it. The market consists of human beings, and these human beings are the people who make the decisions, and they’ve made wrong decisions now for the last twenty-five years.
And the one part of the world where this particular consensus was challenged, South America, they’re doing reasonably well. More and more radical governments are being elected in South America. The latest example is El Salvador. Why? Because they challenged the Washington Consensus ten, fifteen years ago and said this system is not working for us.
Now we know it’s not working for the United States, either. I mean, I’ve just been in the Midwest. I mean, walking through Detroit and Flynt is like walking through ghost towns. I mean, you know, you can compare parts of Detroit to anywhere in the third world: you know, burnt mansions, boarded-up buildings, a dead downtown, just casinos in the center of the town. It’s quite shocking, actually, and upsetting to see this.
AMY GOODMAN: And the difference between how developing countries were forced to deal with their economic crises versus how the West is dealing with theirs?
TARIQ ALI: Well, look, I mean, what happened, when the Washington Consensus wrecked South America over the last twenty-five years, you had giant social movements. That’s the big difference with the United States. In Bolivia, in Ecuador, in Venezuela, in Argentina, in Paraguay, you had giant social movements from below, in many cases fighting the IMF, fighting the privatization proposals. And these social movements produced politicians, political leaders and political parties, which then linked to the movements and said, “Right, we’re going to change the system.”
AMY GOODMAN: Well, we’re going to come back to our discussion with you. I want to thank Robert Scheer, veteran journalist. “Perp Walks Instead of Bonuses,” his latest piece, also writing a new book on this issue. Thanks so much for being with us from San Francisco.
ROBERT SCHEER: Thank you.
AMY GOODMAN: Tariq Ali will stay with us. We’ll be back in a minute.