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TERRY GROSS, host:

This is FRESH AIR. I'm Terry Gross. So what's going on with AIG, the insurance giant that we've bailed out to the tune of $170 billion? Over the weekend, we found out that some of the executives who ran the unit that got AIG into trouble are going to receive huge bonuses.

Yesterday, under pressure from Congress and taxpayers, AIG released a list of the trading partners that have been the recipients of a good deal of AIG's bailout money.

My guest Gretchen Morgenson has been reporting on and analyzing the AIG story for the New York Times. She's a Pulitzer Prize-winning financial reporter and columnist.

Gretchen Morgenson, welcome back to FRESH AIR. Let's start with the list of companies that bought swaps from AIG. What is this list?

Ms. GRETCHEN MORGENSON (Financial Reporter, New York Times): Well, Terry, as you know, the Congress and taxpayers have been sort of crying out for a list of who actually benefited from the AIG bailout. That began, as you know, last September, at an $85-billion loan and has now grown to $170 billion.

Throughout, it's been apparent that it really, that money was not going directly to AIG. AIG was, in fact, more of a conduit or sort of a middle man and passing on that money, a lot of that money, to its trading partners, companies that it did business with that were its customers that are also known as counter-parties.

And so after months of refusing to publish this list, I think that the pressure has grown so hot on the company and the government that AIG finally did publish it late yesterday.

GROSS: You know, I'll tell you my reaction. My first reaction was what? All the money we're giving to AIG has been funneled to these other banks and financial institutions and, it turns out, pension funds and state and city governments. You know, why is the money passing right through AIG to them?

But then, on the other hand, wasn't that the whole point of the bailout? So that when - if AIG collapsed, all the people who they owed money to wouldn't collapse with them?

Ms. MORGENSON: Right. That is, in fact, what the government told us was behind the bailout, was requiring the bailout back in September of 2008. You remember, it was right after the Lehman Brothers failure, and suddenly AIG pops up on the radar screen as a potential problem.

And so what happened was AIG had made some pretty outrageous bets, had actually written insurance on debt that had been issued, debt that included mortgages, debt that includes corporate loans, other things - and it essentially insured those debt holdings against default.

So people who owned those debts would buy insurance from AIG. Now it's not that the debt has failed. It's not that we have defaults yet, actual huge numbers of defaults. It is that AIG's contracts required that the company pay out collateral if it was downgraded by the rating agencies - if so, if it's own financial soundness began to be questioned, and also if the underlying collateral that is the debt that these banks held began to decline in value, then AIG had to post collateral.

It is essentially those collateral postings that AIG had to do in 2008 that brought it to the brink and then over the edge.

GROSS: But, you know, it's really controversial now whether we should be bailing out the people who bought these credit-default swaps when they knew that it wasn't, like, legit insurance. They knew that it was different from what AIG did in the rest of its mainstream departments. So they knew it was a risk. So should we be bailing them out?

Ms. MORGENSON: Well, it was legitimate insurance - not the kind of insurance that you and I think of, but AIG had been writing this kind of insurance for a while. AIG was, as you know, might remember, a very high quality insurance company.

It had a AA credit rating after 2005, which is among the highest there. You know, AAA is the only one higher. And so it was apparently a solid company, and if it were willing to write this insurance, then you, as the debt-holder, would say wow, I'll take that.

I don't want to be on the hook for a risk that something that I own here in my portfolio is going to decline, especially if AIG is willing to write this insurance for me at a pretty low cost.

That's the really amazing thing, is that it was a very low-cost form of insurance. So AIG was taking a very big risk without really getting much in return.

Now my question, Terry, is why did we have to pay the counter-parties 100 cents on the dollar?

We all understand that, you know, the credit markets have collapsed. We all understand that mortgage securities are worth less than they were during the bubble and the mania. Everyone understands that these securities that were cobbled together by Wall Street and peddled around the world are worth less than they were when they were sold.

My question is the government is the negotiator here. Why didn't it require the counter-parties to take less than full value on the insurance contracts that they had struck with AIG? Why did they pay them out 100 cents on the dollar?

GROSS: What do you think the government would answer in response?

Ms. MORGENSON: Well, I've heard several sort of answers around this kind of theme, which is well, look, these were contracts that were struck, and we can't break the contracts. America is a, you know, rule-of-law country, and you know, we all observe contract law. It's extremely important.

And, of course, that is true. But I will say that if you are the United States government, since the taxpayers now own 80 percent, or almost 80 percent of AIG, if it were your money, wouldn't you be a tougher negotiator? And wouldn't you say look, we're holding the cards here.

We're the ones who are going to bail you out. We're going to bail you out, Goldman Sachs, Societe Generale, Deutsche Bank, Barclays, Merrill Lynch. We're here with the taxpayers' money. We have to be very scrupulous with the taxpayers' money.

Unless it's going to drive you into bankruptcy, we're going to require that you take a haircut on this payout.

GROSS: I guess what's making me angry hearing you say this, is that the people who got us into the mess and who've made our homes decrease in value, have made so many people lost their jobs because the economy is in complete collapse, they're getting 100 cents on the dollar back. They're getting their full investment back.

Ms. MORGENSON: Right. That's what annoys a lot of people. And so that's my major question to the government. You know, I understand that it was a crisis moment, mid-September. As I said, Lehman Brothers had just failed. Bear Stearns had failed in March. Fannie Mae and Freddie Mac were essentially taken over by the government over the summer.

You know, it was a crisis time. There's no doubt about it. But it just does sort of add to the dismay that here we have this major "taxpayer investment," quote-unquote - it was a loan to AIG, and yet there's no one kind of negotiating hard on our behalf.

GROSS: Well, a lot of people have been clamoring to find out who are the trading partners that have been getting the money from the bailout. And now we have a list.

The list was just released. So I know you've looked at the list. Why is it important to know who the trading partners are? What have you learned from seeing the names on the list?

Ms. MORGENSON: Well, it's important to know who they are because that's essentially who the taxpayer is paying and who the taxpayer is bailing out. And as you recall, in the crisis moment, there was a concern that AIG, with its tentacles that extend throughout the world, would - a failure of the company would sort of redound in a very negative way and hurt other companies.

And so everyone has been asking, okay, so who is the beneficiary? If AIG's just sort of a conduit of this money, who are the beneficiaries? And, you know, secrecy is never a good policy, particularly for the government, particularly when huge numbers of taxpayer dollars are at stake.

And so there was this sense that the secrecy was designed to sort of hide something. And so now we have the list, and now we know. Well, some of these were very sophisticated institutions who knew precisely what they were doing, and then that goes back to your point of why are these extremely sophisticated institutions receiving 100 cents on the dollar for their deals that they struck with AIG when everyone else is receiving far less?

GROSS: My guest is Gretchen Morgenson, and she's a financial columnist and reporter for the New York Times, and we've been talking about AIG. Let's take a short break here, and then we'll talk some more. This is FRESH AIR.

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GROSS: My guest is Gretchen Morgenson. She's a financial columnist and reporter for the New York Times. And we've been talking about AIG, the insurance giant.

Let me quote Senator Christopher Dodd, who's chair of the Senate Banking Committee. He said: "AIG's trading partners were not innocent victims. They were sophisticated investors who took enormous, irresponsible risks."

Does the list bear out what Senator Dodd said? Because there's also - isn't there like pension funds and municipalities and states on that list of trading partners with AIG, and would you call them sophisticated investors in the same way that you would call the banks who are on that list?

Ms. MORGENSON: Well, the biggest recipients, Terry, were these banks, the very sophisticated entities like Goldman Sachs, which was the largest recipient. It received almost $13 billion in the bailout.

Next in line are a couple of foreign banks, which raises interesting questions, of course. Societe Generale, which is French, received almost $12 billion, and Deutsche Bank, which is German, received $11.8 billion.

So, yes, these are extremely well-known, sophisticated players. Mr. Dodd is right about that. As far as the municipalities and the pension funds, you know, municipalities received, I think, numbers of dollars far lower than these, and so they're not sort of on the top of the list.

They, you know, had invested, I believe, which AIG. And so from that standpoint, they were relying on AIG's high credit rating at the time. They were not participants, as my understanding goes, in these credit-default swaps that were really at the heart of AIG's problems that drove it over the cliff.

But, you know, you bring up an interesting question, which is who is sophisticated, who is not? Well, I certainly know that the banks are sophisticated. They have trading desks that make billions of dollars, you know, with their knowledge and with their experience and expertise.

But pension managers, who we are relying upon for the future retirement income of pensioners all over the country, boy I sure hope they're sophisticated. My, gosh. If not, that's kind of making me a little bit even more nervous than I already am.

GROSS: Now you pointed out that a lot of the money in the AIG bailout is going to foreign banks, who were trading partners with AIG. So you said that raises a lot of questions. What questions does it raise that a lot of the money is going to foreign banks?

Ms. MORGENSON: Well, it's just a, you know, American taxpayer money going to foreign banks. You know, it's sort of - it raises eyebrows, you know? I mean, if it were money that was going to American banks that could possibly then help shore up our banking, help maybe get the banking wheels turning a little bit more - I mean, as you know, there's - it's very difficult to get loans now. And so this sort of - these transfer payments, almost, of dollars, taxpayer dollars, you know, if they were going to American banks, maybe we could make the argument that it would come back into the system. But, you know, it's hard to make that argument with foreign banks.

Now Terry, you have to keep in mind that what these foreign banks bought from AIG was a kind of a, it was a structured investment vehicle that allowed them to have a lower capital cushion on their books, and so it was kind of - it was kind of a way for them to circumvent capital requirements.

So AIG was helping these foreign banks reduce the amount of money that they had to set aside, you know, as capital as required by the regulators. And so that's kind of an interesting aspect of these credit-default swaps, as well.

GROSS: Well, I can't say I really understand the details of what you just said, but what I can glean from it is that AIG helped these foreign banks kind of circumvent the rules.

Ms. MORGENSON: Well, helped them circumvent the regulatory requirements of how much capital they would have to put up now. You know, banks have to put up a certain amount of capital because regulators don't want them to get into trouble if losses, you know, arise.

They have to be able to, you know, cover deposits and that sort of thing. So bank regulators have capital requirements. The bank has to set aside a cushion that they can look to when things go bad.

So, in this case, those capital requirements are based upon the kinds of securities that a bank holds on its balance sheet.

This type of structure that AIG helped these foreign banks with was a way for them to reduce the amount of money that they would have to set aside for these mortgage securities that they had purchased because, you see, they were insured by AIG.

That meant that they were far more attractive and that regulators required the banks to put up less capital against them. That freed up more money for the banks to make loans or to do their other operations.

GROSS: One of the reasons why AIG is in the news right now is that it was recently revealed that they are planning to pay huge bonuses to some of the people who got us into the mess. They're giving $100 million in bonuses to the people in the Financial Products unit, and this is the unit that dealt with the toxic credit default swaps.

AIG argues they're contractually obligated to pay the bonuses. Lawrence Summers says we're a country of law. There are contracts. We can't just abrogate contracts.

What are some - like, what have you learned about why AIG is paying these huge bonuses to the very people who worked with the toxic instruments that got us into this mess in the first place?

Ms. MORGENSON: Well, Terry, my best, I guess, argument or thesis for why this might be happening is that these things are so confounding that we need the creators of them to unwind them. Maybe that's why.

I don't know. I mean, it's very dispiriting to, you know, see the amounts of money being paid out to people who basically, you know, wrecked the store and, you know, created the taxpayer problem that we have now to the tune of $170 billion.

But, you know, this has been an ongoing story. It's - the most amazing thing that I learned over the last couple of months is that in 2008, even as the financial products unit was spiraling and the losses that were created by these deals were increasing and were mounting, they were still paying the head of the unit a consulting fee of $1 million a month. And, you know, this was the guy that really was in charge of the unit.

His name was Joe Cassano. He lived in London. He ran this operation. It was a very small unit of AIG. It was overseen by the Office of Thrift Supervision. They clearly did not understand what they were doing, the risks that they were putting on the books. And so Joe Cassano is paid, after the thing blows up, and the company is sort of hobbling to the edge of the cliff, about to go over, they're still paying him $1 million a month in consulting fees? I mean, it's just mind-boggling.

So this is not the first sort of shocker that we've seen from AIG in the compensation that's paid to the Financial Products group.

GROSS: What alternatives do you think the government might have in dealing with these bonuses? Right now, the government is saying it's legal contracts. We'd like to change it, but we can't do anything about it.

Ms. MORGENSON: Well, that - I don't understand that argument, Terry, honestly. I mean, let's contrast the argument of the contractual aspect of this being sort of locking us in here.

You know, the Obama administration has, as you know, pushed for a way for judges in bankruptcy courts to abrogate the contracts that have been struck with home borrowers who are in trouble.

I mean, clearly, those are contracts that our government has said can be abrogated. And, you know, there are pros and cons of that concept. I'm not saying it's good or bad, but there is an example of how the government says we can abrogate contracts.

And yet here, they're saying that we can't? I mean, I don't understand, you know, how one situation, you know, requires us to maintain these contracts and another allows us to change them.

GROSS: Gretchen Morgenson will be back in the second half of the show. She's a financial reporter and columnist for the New York Times. I'm Terry Gross, and this is FRESH AIR.

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GROSS: This is FRESH AIR. I'm Terry Gross, back with Gretchen Morgenson. She's a Pulitzer Prize-winning financial reporter and columnist for the New York Times. We're talking about the bailout of insurance giant AIG and where the money went. AIG is the recipient of more bailout money than any other financial institution: $170 billion, over $30 billion of that went to paying off obligations to trading partners that did business with AIG's financial products unit, which wrote and sold credit default swaps that turned toxic. Let's look at how AIG got into this mess and got us into this mess in the first place. AIG had been known for regular insurance, insuring homes, insuring against floods things like that. But they had a division in London, the financial products division, and this financial products division cooked up what?

Ms. MORGENSON: Well, they were looking for any kinds of deals that they could do where they would be able to capitalize or profit from AIG's very high credit rating. Now when a company has a high credit rating, like AAA or AA, that means that their cost of capital is far lower than a company that has a lower credit rating. That's because investors trust them to be sound, to be financially, you know, solid. And so AIG had a very high credit rating. So what they would do is they would take that high credit rating, which had a low cost capital attached to it, and then make these kinds of bets.

And so it was quite lucrative for them. Although, certainly not as lucrative, as it should have been given the losses, that we now have seen the company generate. And so what they did was they would go out to foreign banks that held a lot of collateralized debt obligations - those are those pools of loans maybe mortgages, maybe consumer loans, maybe corporate loans - pooled together and then sold to investors in slices or tranches based on their credit quality. So AIG would say to a bank that had a lot of those holdings, look, we'll insure against the default of the securities inside these pools for a fee. And many banks took them up on it.

GROSS: And these are the credit default swaps…

Ms. MORGENSON: Correct.

GROSS: …the same as a credit default swaps, aka toxic.

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MORGENSON: Well in this case they were insurance, just like an insurance policy you buy on your home to protect against fire damage or flood. This was an insurance that was bought by people who had held this debt, entities who held this debt, to protect against possible default. Now you know the frustrating thing is that defaults have not occurred to the very great degree that the losses that AIG would suggest. These losses have only been generated because AIG's credit rating was cut and so therefore it had to post collateral to these counterparties.

GROSS: Well now, stop and explain what that means - post and collateral.

Ms. MORGENSON: Okay. When AIG wrote these credits default swaps or when it wrote this insurance, because it was so highly rated, a company so financially sound, they did not have to put up any kind of a collateral, any kind of cash reserve to assure the other person on the other side of the trade that they would be money good on their insurance, okay? Now when you buy insurance, you know, that the insurance company is solid because we have state regulators that oversee insurance companies, require them to put up a number of reserves for the future payouts on policies that they may have to make, okay?

So you can feel comfortable we have ratings that, you know, tell us how sound these insurance companies are. Here in this case, AIG was at the top of the heap. It was the highest rated insurance company. So its counterparties -Deutsche Bank, Barclays, ABS, BNP Paribas - they did not require it to put aside any reserve for future potential losses, okay? Now if the company AIG's credit rating were to be cut by the credit rating agencies or if the underlying securities in the pools were to decline in value - we're not talking about a default yet, they've just declined in value - then AIG would have to post collateral.

So you see there was no cost to AIG of writing this insurance at the outset. They did not have to set aside any reserve for these credit default swaps that they wrote. Suddenly, when their credit rating was cut and when the underlying securities fell in value, they had to start coughing up money and it was billions. And they didn't have it. And that's why the taxpayer had to step in.

GROSS: How did they calculate risk when they were putting these complex instruments together?

Ms. MORGENSON: Well, I really don't know the answer to that. I have asked for and never received interviews with the people who ran this entity. Joe Cassano, of course, is not returning my call. He's probably pretty lawyered up. But you know the fact is they certainly didn't assess the risks. Probably they felt that, you know, along with a lot of other people that house prices would not decline. That house prices would continue to climb. That there would be no defaults in these underlying securities. That the merry go round would keep going. We all know that it stopped, the music stopped. Many people were left without a chair and you know it was a surprise to many people.

But when you are the world's largest insurance company and you're taking on -essentially, they wrote about $450 billion worth of this insurance - you should have a pretty good idea of what the potential risks are, you know, do a worst case scenario, worst case analysis. They obviously did not.

GROSS: So, one of the reasons why the financial products unit of AIG was able to write the credit default swaps was that they were capitalizing on AIG's, what, AAA rating?

Ms. MORGENSON: It had been AAA but it was reduced to AA, I believe in 2005.

GROSS: But by then the financial products unit had already sold a lot of the swaps.

Ms. MORGENSON: Well, it had sold quite a few but it continued to sell many many in 2005 all the way up to 2007. Still having a AA credit rating was still very high, very solid and felt to be a very good risk for someone because of the belief - now we know ill founded belief - in the credit rating agencies ability to see problems before they're crashing down on our heads.

GROSS: Is the fact that AIG maintained a AA rating in spite of all the credit default swaps that were being written a sign of what went wrong with the rating system?

Ms. MORGENSON: Absolutely, positively yes. This again is a circumstance where the rating agencies were really drinking the Kool-Aid. They were really buying in to this notion, based on a very deeply flawed financial models, that house prices don't go down, house prices only go up. I mean in their models they did not even have an ability for a house price to go down.

So they were just buying into this idea that this would be a perpetually rising asset class. And so if it's a perpetually rising asset class the mortgagees underlying this real estate would always be valuable, it would never have the defaults or the delinquencies that we're now seeing. And so it was a big part of the problem and certainly led to this enormous amount of insurance that AIG wrote, now to it's woe.

GROSS: What do you think needs to change with the way financial institutions are rated?

Ms. MORGENSON: I think that the rating agencies need to be held accountable. They have historically claimed that their opinions - their ratings are opinions just like a newspapers opinions are therefore protected by the first amendment. And they have been able to reject - or judges have rejected law suits alleging incompetence by the rating agencies with this idea that they are simply generating opinions, they're therefore protected by the first amendment. I mean, I think that that's something that really needs to be deeply questioned.

These are absolutely, hugely - were anyway - profitable enterprises. These entities made enormous amounts of money rating securities that had pools of mortgages, made up pools of mortgages. They made far more with those securities rating them than they did with rating single issues of debt from, say, GE or AT&T. So I think that the entire system of rating agencies must be overhauled. There must be more oversight of these entities. They are so enormously powerful and they must be held to account when we have ratings failures as we have had in this disaster.

GROSS: My guest is Gretchen Morgenson, she is a financial reporter and columnist for the New York Times. We'll talk more after a break. This is FRESH AIR.

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GROSS: My guest is Gretchen Morgenson, she's a financial reporter and columnist for the New York Times. We're talking about the bailout of AIG. So what are the odds that AIG is going to come back to the US government and say we're not able to stand on our feet yet. If you don't give us even more money it's going to cause a global financial melt down.

Ms. MORGENSON: Well you see that is the problem. Here we are at a place where we have given over $170 billion in cash and or promises to AIG, okay? Now we learn that much of that money, if not most of it, went to other parties. And so I think that the, you know, American people were probably thinking, hmm, gee, 170 billion that should be enough to let this company get on it's feet, right? Okay, so now we learn that really most of it didn't go to the companies so hmm, it's going to need more money to help it get on it's feet perhaps.

Keep in mind, Terry, that at the end of last year the company recently put out it's 10-K which is it's annual financial report. They still had about 300 billion in credit default swaps outstanding on this collateralized debt obligations. Now if the economy continues to work lower - or should I say if it doesn't respond and rise again and start to generate jobs and start to generate positive GDP growth - you know, those credit default swaps are vulnerable to further collateral postings, it seems to me.

So we are not out of the woods by any means. It's very much I think related to the performance of the economy going forward. But AIG still has a lot of this insurance outstanding and if the underlying debt continues to decline in value then further amounts of money may be needed.

GROSS: Now AIG had this - or has this - financial products unit in London that's responsible for the more toxic things that got them into trouble but AIG is the biggest insurance company in the world. And a lot of it's insurance is traditional insurance…

Ms. MORGENSON: Yes.

GROSS: …on - on homes, on - on fires, on floods. Are the people who hold that insurance from AIG in any kind of jeopardy? Does AIG have the money to backup that insurance?

Ms. MORGENSON: Well, that is something that the state regulators have been watching, I would hope, very closely. We do have, in this country, a method of dealing with insurance companies that fail. Each state has an insurance pool that this is a pool of money that all participants - anyone who does, anyone who writes insurance in the state must contribute to and it's, sort of, you know, almost like the FDIC Fund. And so there are backstops there already in place for potential failures. I do not think that AIG is a candidate for immediate failure here at all. I think, however, that some of their insurance companies that were involved in some sort of questionable investing practices -only questionable because they were borrowing in the short-term markets and lending in the long-term markets which is a problem and has brought down banks, you know, for years and years. AIG's insurance companies, I think, are solid -that's what the New York State Superintendent has been saying all along -Superintendent of Insurance has been saying that. So I have not found any evidence to the contrary and I'm taking his words for it. I should think he would know and I hope it's correct.

GROSS: We tax payers now own 80 percent of AIG. What does that mean?

Ms. MORGENSON: Well, it means that we, as taxpayers, have given them money. In exchange, we have received preferred holdings that we hope will be worth something or worth more than we paid for them down the line. The company is trying to restructure, it's trying to sell businesses that it has that - so that it can pay back that loan. And you know, at the end of the day, it is hoped that the American taxpayer will be made whole on the amount of money that it has loaned to AIG. In the meantime, we own it and that's why people want to know about such things as the bonuses paid to the executives and the group that blew the company up. And that's why people want to know about the counterparties to these credit default swap arrangements.

GROSS: Okay we own it, but AIG isn't nationalized. So what's the difference between us owning it and it being nationalized?

Ms. MORGENSON: Well, you know, nationalization is one of these words that, you know, we've heard a lot about, is being bandied about a lot, as we take over, you know, sizeable banks or as we put in hundreds of billions into sizeable banks and in companies like AIG. But nationalization in the, sort of, strict terminology is really when the government decides to takeover an enterprise and run that enterprise. We do not want the government to run AIG. What we want is for the company to be able to sell its assets, be able to restructure itself and to payback the taxpayer. And that's the difference between nationalization and what I think this is, which we hope is a temporary sort bridge to an asset sale or restructuring where we taxpayers can get our money back.

GROSS: Now what's happening now in that London unit of AIG, the financial products unit, that wrote all of the toxic credit default swaps. Are they writing swaps, are they just trying to unwind the problems that have been created? What are they doing?

Ms. MORGENSON: The financial products unit of AIG, now, is simply trying to unwind its positions, I think. It is not writing any new insurance arrangements. I mean, obviously, everyone knows that it is the ground zero for the company's problems. It really is in what we call run off or wind up mode. It is not doing any new business. They are just trying to figure out what's what, who their counterparties are, what is owed, what the potential to be paid out would be and, you know, close up the doors.

GROSS: Now that we've seen the damage that unregulated credit default swaps can cause. What does it look like the future of swaps will be? Do you think they will continue, but regulated? Will they cease to exist? Will they continue unregulated?

Ms. MORGENSON: Well, according to the last, sort of, figures I have, there is about $30 trillion worth of credit default insurance out there. It's far, far lower than it was, but not long ago, it was 60-something. So they - people have been - companies have been working to, sort of, pare this down. But they still exist and they will still exist. It is something that people - companies - like to have, to use, to hedge their debt holdings. You know, there is talk now of a clearing house for these swaps to be traded on so which you can have a little bit more transparency about who the counterparties are and whether the insurance is written on this name or that name. But you know, to be clear, I think we need an exchange. We do not benefit that much by a clearing house because it's still too opaque, because it is still too untransparent. An exchange allows you to see what the contracts - how many are trading, it requires the posting of collateral, it requires that financial soundness level be kept. The clearing house does not do much of that. And so to me, the clearing house is a halfway measure that has been dictated by the dealers, the big huge firms, who don't want the government to be involved. So still we are dealing with this lack of regulation in the credit default swap market that I think will continue to be a problem.

GROSS: My guest is Gretchen Morgenson. She's a financial reporter and columnist for The New York Times. We'll talk more after our break. This is FRESH AIR.

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GROSS: My guest is Gretchen Morgenson. She is a financial columnist and financial reporter for The New York Times. And we've been talking about AIG, the insurance giant. Now Gretchen, today is the anniversary of something that I think few people will be celebrating. It's the one-year anniversary of the collapse of Bear Stearns, which signaled the start of a larger financial economic collapse. Do you remember back to a year ago today, and how you got the news and what your response was?

Ms. MORGENSON: Well, I remember it was a Sunday night, actually, and I was at home. And I got a call from one of my sources that Bear Stearns was going to be sold to J.P. Morgan for $2.00 a share and - I mean I was just stunned. I went and told my husband and, you know, we were both just agog. Because the stock has been, you know, huge. I mean it was like over a $100 - I don't even know -maybe a 150, 180, something like that. And it was going to be sold for $2.00? I mean this was staggering.

But what we didn't know at the time was that this was the beginning of the bailouts, or the arranged marriages, whatever you want to call that one - that really started the, as you say, the ball rolling on this period of, you know, such economic turmoil and so many billions of dollars of taxpayer money on the hook. It was the arrangement that the Federal Reserve Bank of New York struck with J.P. Morgan to takeover $29 billion of assets that have been on Bear Stearns' balance sheet. And the Fed's assumption of those assets, the Fed taking them over, was the only way that J.P. Morgan agreed to do the deal.

So the taxpayer got on the hook right then and there for $29 billion of assets, including mortgages. And subsequently, of course, those have lost value. So we are in a loss position on that 29 billion, so far. But the Fed has said that they're willing to hold them for the long term and they'll see what happens and hopes that it won't always be in a loss position and maybe, who knows, we might even make some money. But it was really the first of the taxpayer bailouts and, you know, it just then spiraled ever higher.

GROSS: You have a lot of sources who are insiders in the financial world and are very well placed and know a lot. What kind of feedback are you getting about how some of your sources think the financial bailout is going?

Ms. MORGENSON: Well, I think everyone is very angry about the lack of transparency. We don't know where the TARP money - how it's being used. Until now, we didn't know what the AIG bailout was going toward. There's just been this, kind of, reneging on this idea of transparency that I think people find very upsetting. Since we own these institutions or since we are funding them, it seems that the taxpayers should have a right to know. Now there is the argument that if you put out a list of troubled banks, or whatever, that'll run on the banks. But I think that we have had such difficult - so many difficult months, years now, there're so many billions of dollars out the door, I just think that the American taxpayer deserves an explanation.

And we have yet to receive it. We don't get a coherent description of what the next steps are going to be. I just think the - the communication from the government has been pretty lacking and that really leads to a lack of confidence, Terry. I'm not saying that we want spin-meisters in there, you know, during a terrific, wonderful job of spinning something that never comes true. But I think we need to have people who are able to transmit in a coherent, concise and cogent manner what this government is doing about this problem and how they intend to, you know, exit these companies once they're on their feet again. We have absolutely no indication of what the exit strategy is going to be at AIG, at Citigroup, at all of - at these troubled institutions. That brings up the question of nationalization, as you pointed out. We want exit strategies because we want this to be temporary. We do not want the government running these institutions forever and ever.

GROSS: Well, Gretchen Morgenson thank you so much for coming back to FRESH AIR. It's always a pleasure to talk with you and hear your explanations, thank you.

Ms. MORGENSON: Thank you Terry, I'm delighted to be here.

GROSS: Gretchen Morgenson is a financial reporter and columnist to The New York Times. You can download Podcasts of our show in our Web site, freshair.npr.org.

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