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Sens. Dodd, Gregg: No More Bailouts On The Horizon

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Sens. Dodd, Gregg: No More Bailouts On The Horizon

Economy

Sens. Dodd, Gregg: No More Bailouts On The Horizon

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RENEE MONTAGNE, host:

This is Morning Edition from NPR News. I'm Renee Montagne.

STEVE INSKEEP, host:

And I'm Steve Inskeep. Good morning. Here is how the government is bailing out the giant insurance firm AIG. David Wessel of The Wall Street Journal tells us the U.S. is loaning money, but also taking control of the company.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): They're lending the company $85 billion, they fired the CEO, the company will be sold off in pieces, or that's the plan, and the government has the right to take 80 percent of the company as a result.

INSKEEP: It was a turnaround for federal officials who'd said they would not do that just the day before. We're going to get some response this morning from a top lawmaker to begin with. Senator Judd Gregg of New Hampshire is a Republican. He's the top Republican on the Budget Committee, and he's on the line. Good morning, welcome to the program.

Senator JUDD GREGG (Republican, New Hampshire; Member, Senate Budget Committee): Good morning, Steve. How are you doing?

INSKEEP: I understand you're one of the lawmakers who was briefed on this last night as Treasury and Federal Reserve officials were closing the deal. How did they justify this bailout?

Senator GREGG: Well it's really one of those situations where you have no choice. If you allowed AIG to go insolvent and to basically create a meltdown of the company, it would create a worldwide meltdown in a variety of areas, but specifically in financial institutions across our country. And the practical effect of that would be overwhelming to the economy and would cost us a heck of a lot more than this proposal that's on the table. And, in fact, the proposal that's on the table may end up making money for the Fed because as they sell the parts off, they're also going to be getting a fairly significant return. And it does wipe out the shareholder position, wipes out the senior debt position. So as a practical matter, what essentially it amounts to is an orderly wind-down of this company.

INSKEEP: Senator, you sound tired. Did this keep you up all night?

Senator GREGG: We were up pretty late. This was a - this is a pretty complex and dire situation, and it took a lot of attention. And certainly you've got to respect the efforts of Secretary Paulson and Chairman Bernanke on this.

INSKEEP: Well, now, it sounds like you support this as far as you can. But I do want to ask about one part of this. The government is saying the interests of taxpayers are protected by key terms of this loan. The explanation being, sure the government is loaning up to $85 billion, but the government is getting a huge stake in the company. Still, I have to wonder, if this was not such a risky loan, wouldn't the private sector be doing it?

Senator GREGG: Oh, no, that's a very legitimate point. There's no question that the reason the private sector couldn't do this was because they don't have the strength of the federal government behind them. The reason this works is because there is confidence when the federal government steps in that there's the full faith and credit of the American taxpayer behind the effort. And it's a lot like the Freddie Mac, Fannie Mae situation. This is one of those situations where the entity involved was simply too big to allow it to go down in a dramatic way.

If it went down in a dramatic way it would take a lot of other entities with it, and it would end up costing American taxpayers a lot more money. And more importantly than that, the disruption to our national economy would be very significant, and a lot of people would lose their jobs.

INSKEEP: Senator Gregg, stay with us. We're going to bring another voice into the conversation. He's Democratic Senator Chris Dodd of Connecticut, who's on the line. Good morning to you.

Senator CHRIS DODD (Democrat, Connecticut; Chairman, Senate Banking Committee): Good morning.

INSKEEP: We have explained the basics, but I want to know from you, Senator Dodd, are you persuaded this was the right thing to do?

Senator DODD: Well, it's sad and tragic in many ways, and I think - and I don't need to dwell on all of this - but probably unavoidable, but - or avoidable, rather, early on. But we are where we are. And my inclination is to be reluctantly supportive of this because the alternative, as I just heard Judd Gregg say, I think I heard him say that the alternative of doing nothing would be even more disastrous. So while this is not a pleasant moment, the last six months beginning with March 16 and Bear Stearns through yesterday, September 16, have been sad days in this country. And the question is we can talk about forever how we got here, but the more important question is what do we do from here, what is the taxpayer exposure, is this the beginning of the end, and are we going to address the underlying issue? Judd Gregg...

INSKEEP: Well, let me ask about that. Because aren't there going to be perhaps more companies, as soon as today, tomorrow, next week, asking for bailouts?

Senator DODD: Well, that was the question we raised yesterday. But let me just say that my neighbor and friend from New Hampshire, that Judd Gregg was one of the early people that understood, quite candidly, I say this honestly to you, that understood that the root cause of all of this, more than anything else, was the housing crisis. We had to get to the bottom of the foreclosure issue. And that still is the issue and one that was raised yesterday. Ben Bernanke's been eloquent on the subject matter. So, if we can aggressively address the foreclosure problem, then I think we can be talking about the beginning of the end and don't have to look to more of these things. If we don't do that, then I run the - we run the risk of watching other shoes fall.

INSKEEP: Senator Gregg, are you expecting more...

Senator GREGG: There are - shoes are different, you know. And first off, let me congratulate Chris Dodd, also, for his leadership and Dick Shelby's leadership in putting together the package that addressed the Fannie Mae, Freddie Mac issue, which...

INSKEEP: We've just got a few seconds, Senator Gregg, but please let us know about the different shoes.

Senator GREGG: I don't see any shoes out there that meet the standards of Freddie Mac, Fannie Mae, or AIG.

Senator DODD: I agree with that.

INSKEEP: Meaning there won't be another huge, huge bailout of this kind. You don't see one on the horizon?

Senator GREGG: I don't see any entities out there that appear to be in trouble that meet this type of standard. That they would melt down the entire system if they went under.

INSKEEP: Senator Gregg, thanks very much.

Senator GREGG: Some banks, regional banks or others, but nothing the size of AIG or Lehman Brothers or Merrill Lynch.

INSKEEP: Gentlemen, thanks to you both.

Senator GREGG: Thank you.

INSKEEP: Judd Gregg is a Republican senator from New Hampshire. Chris Dodd is a Democrat from Connecticut. They're both senior members of the Senate. They were both briefed last night on the federal government's plan to loan money to and effectively take over American Insurance Group.

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