The Inquiry that Should be Raised

Former Governor of New York Eliot Spitzer has been talking about the AIG scandal and the issue of bonuses. An interview with Air America's Mark Green can be heard here.

While speaking to CNN’s Fareed Zakaria, Spitzer spelled out Wall Street's failure of judgment . He reiterated that the AIG bonuses are not the heart of the current financial problem. He believes that the focus of the problem should be on how AIG used the bailout money and where the money was funneled into.

Spitzer also told Zakaria that recklessness, greed and financial experts' misunderstanding of capitalism got us into the current financial crisis.

When AIG initially received $80 billion -- a decision that was the consequence of a very brief meeting of the president of the New York Fed, the secretary of the Treasury, perhaps Chairman Bernanke and arguably, some reports say, the chairman of Goldman Sachs -- $80 billion, virtually all of it flowed out to counterparties, $12.9 billion to Goldman Sachs.

Why did that happen? What questions were asked? Why did we need to pay 100 cents on the dollar on those transactions, if we had to pay anything? What would have happened to the financial system, had it not been paid?

According to Spitzer the issue of bonuses "touches us viscerally." However, the real issue invloves the money that AIG gave out.

The real money and the real structural issue is the dynamic between AIG and the counterparts. The bonuses we think are 164 billion dollars...These counter party payments are tens and tens of billions of dollars.

Watch 3 parts of the Spitzer interview:

Part I: The "Nature of the Inquiry that Should be Raised"


Part II: Unjust Enrichment


Part III: The Role of Media

Everyone has an Opinion

The Real AIG Scandal according to Eliot Spitzer:

It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

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The AIG Fiasco

Who's to blame?

ThinkProgress editor Faiz Shakir was on MSNBC to discuss the AIG bonus fiasco. Faiz disputed the right wing attempts to blame Treasury Secretary Tim Geithner for the problems, pointing out that AIG’s bonus contracts were arranged under the Bush administration. He added:

If I’m faulting Geithner for anything, it’s that when he first learned of this, he didn’t take it directly to the American public and use the public anger as a negotiating tool with AIG to get them to renege on some of these bonuses.

The President said:

Speaking to reporters outside the White House this afternoon, Obama took full responsibility for the White House's handling of the bonus issue, as Greg Sargent noted. "Asked if he wished he’d known about the bonuses sooner, Obama said, in the course of answering: 'Ultimately, I’m responsible. I’m the President of the United States…The buck stops with me.'"

What did AIG CEO Gordon Edward Liddy say?

Testifying before Congress today, AIG CEO Gordon Edward Liddy said that the Federal Reserve was aware the bonuses would be paid out and “acquiesced in that decision.” In fact, Liddy claimed that Federal Reserve members were present at AIG’s “compensation committee meetings” with the ability to say “yea or nay”.

But look who originally opposed CEO salary caps and now are condemning the bonues.

Several Republicans who opposed Wall Street salary caps and are now flipping their positions to condemn the bonuses paid by AIG, include:

Sen. Minority Leader Mitch McConnell (R-KY)
Sen. Banking Commitee ranking member Richard Shelby (R-AL)
Rep. Peter King (R-NY)
Sen. Kit Bond (R-MO)
Sen. James Inhofe (R-OK)

The next step:

President Barack Obama said he will seek legal authority over the financial system that will give the federal government power to step into contract issues, such as the one that has allowed American International Group Inc. to pay out $165 million in retention bonuses to employees of the tottering insurance giant's financial products group.