Economy Wrap-Up: AIG Bonuses, Toxic Asset Plan Waves of anger continue to flow from Capitol Hill across America because of the $165 million in bonuses given to AIG executives. Meanwhile, the Treasury Department could release its plan to deal with banks' toxic assets as soon as Monday.
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Economy Wrap-Up: AIG Bonuses, Toxic Asset Plan

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Economy Wrap-Up: AIG Bonuses, Toxic Asset Plan

Economy Wrap-Up: AIG Bonuses, Toxic Asset Plan

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From NPR News, this is ALL THINGS CONSIDERED. I'm Jacki Lyden. Rage, turmoil, emergency game plans. No, we're not talking about the NCAA basketball tournament. We'll get to that in a few minutes. We're talking about this week in the nation's economy. The big story, of course: waves of public and political anger at the $165 million in bonuses paid to executives of the American International Group, AIG.

And as soon as Monday, the Treasury Department is expected to unveil its long-awaited effort to deal with toxic assets held by the nation's banks.

Joining us now to discuss the business news from this eventful week is NPR's Tom Gjelten. Hi there, Tom.


LYDEN: So, let's start with those AIG bonuses. The U.S. House moved to impose heavy taxes on them last week, as we know. Where is that likely to go?

GJELTEN: Not clear, Jacki. It's possible the next move will be to extend those taxes to executives of any financial institution that's gotten bailout help from the government, and that could actually complicate this government plan to revive the banks. That's the big question.

Here's why. The government plan to fix the banking sector, the one that'll be announced next week, is essentially a public-private partnership. The government subsidizes the effort, but private investors will also have to put up money.

The idea is to get some competition into the picture. Private investors will, in theory, compete to buy these assets. So, a market price will get fixed for them. But if you get Congress imposing new taxes on executives at any bank that takes bailout money, that's a whole new factor.

Let's say these private investors get lucky, make huge profits as a result of this plan. What they're asking is, will Congress then turn around and try and tax those profits, get some money back for taxpayers? Because if the investors fear that's a possibility, it could discourage them from even taking part in this program.

LYDEN: Mm-hmm, a controversial move. And Tom, here's another one. The government's boldest action this week had to be the Federal Reserve decision to spend up to a trillion dollars buying up U.S. Treasury bonds and other securities. Any indication what impact that move could have on top of the other things we've seen?

GJELTEN: Well, we already know it's driven the market interest rates on those securities down, and when you have the government getting in the game as the biggest player, that's going to happen.

The hope is that that will also drive down mortgage rates and borrowing rates generally and therefore, boost spending by consumers and businesses, at least in the short term.

In this way, it's essentially another type of stimulus. The government's stimulating spending. You know, the government can do that by doing the spending itself. That's what we saw with the program passed by Congress. This way, you don't need Congress.

Essentially, the Federal Reserve here just created a whole bunch of money out of thin air, electronically, and then used it to buy up these bonds.

LYDEN: But when you create money like that, isn't there always a risk of inflation?

GJELTEN: Always a risk, Jacki. That's definitely a threat. The idea, I think, is that once the economy gets rolling again, somehow, the government can dump those securities or shrink the money supply again, take money out of circulation. That would hold inflation down. But whether the government can pull that off is another question.

I think, basically, the idea is we're just not going to worry about that right now. We'll cross that bridge when we come to it.

LYDEN: NPR's Tom Gjelten. Thanks very much for joining us from Florida.

GJELTEN: Thank you, Jacki.

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