Obama Aide Goolsbee Weighs In On AIG Austan Goolsbee, chief economist on the President's Economic Recovery Advisory Board, offers his view of the AIG bailout and the fresh controversy over bonuses.

Obama Aide Goolsbee Weighs In On AIG

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MELISSA BLOCK, host:

Now, to White House. For the Obama administration's view of the AIG bailout and the controversy over the $165 million in bonuses it's paying its employees, we turn to Austan Goolsbee. He's chief economist on the president's Economic Recovery Advisory Board and a member of the Council of Economic Advisors. Welcome back to the program.

Mr. AUSTAN GOOLSBEE (Chief Economist, Economic Recovery Advisory Board; Council of Economic Advisors): Thank you for having me, Melissa.

BLOCK: President Obama today talked about using avenues of leverage on AIG because the government has what is now an 80 percent ownership stake. What might those avenues of leverage be?

Mr. GOOLSBEE: Well, I'm not a lawyer, so I don't know exactly what the means are, but the president was understandably extremely upset, and Secretary Geithner was extremely upset. And as everyone knows, the president isn't going to break the law, but there are many avenues of pressure that one can apply. And if you look at this in the sad - when the sad history of our recent financial troubles is written, the chapter on AIG is going to be one of the most disturbing chapters, I mean, where an insurance company essentially straps a hedge fund on its back and evades all regulation. And so the president is committed to going through and figuring out who put this in the contracts, when did they put them in the contracts, what pressure does the government have to bear to get them to give back the money, to prevent this from happening again, and he's going to pursue that to the full extent he is able.

BLOCK: The chairman of AIG, the new chairman, Edward Liddy, who took over in September, wrote in his letter to Secretary Geithner that AIG's hands, he says, are tied. These are legally binding obligations of AIG. These bonuses, this retention pay can't be undone.

Mr. GOOLSBEE: Those are the words of a man who knows there are people upset at him and wanting to come after people for what they have done. The fact that the chairman of AIG said we gave ourselves big bonuses and there's no way we can give the money back, I certainly hope we don't just take that at face value. I mean, I think the president called on Secretary Geithner to go out and send people to look at the situation and figure out what is or is not allowed.

And we need to know who is it that put these clauses into the contracts and when did they put them in the contracts? Because if this is a thing that was the response of somebody to the government putting in the money initially, that this was, in some sense, a big game, I think there ought to be some repercussions. And certainly the president is pressing Secretary Geithner that there be repercussions for those executives that approved those contracts.

BLOCK: And we should clarify, here. I believe that the chairman we're talking about, Edward Liddy, is not taking a bonus, and I believe has voluntarily reduced his salary, along with other executives, to a dollar for 2009.

Mr. GOOLSBEE: Well, given how AIG's done for the last year, it sounds to me like that might be one dollar overpayment.

BLOCK: I want to ask you about another point that Chairman Liddy raised in his letter, which is that the retention pay given to key traders and risk managers, he says is critical to our goal of repayment. He says you have to hang onto to what he calls the best and the brightest at AIG. What do you make of that argument?

Mr. GOOLSBEE: Well, I was watching TV and I saw somebody say, if these were the best and the brightest, maybe we need the worst and the dumbest. But the thing is, this is exactly the kind of thing that the lawyers and the people looking at this situation need to figure out, is who is being paid and what are they being paid?

It strikes me as highly implausible after the year that AIG has had, that they should be eligible for a whole bunch of performance bonuses, based on how well they did, because they didn't do very well. So we're going to have to see what's in the contracts.

BLOCK: Austan Goolsbee, thanks very much.

Mr. GOOLSBEE: Very nice to talk to you again, Melissa.

BLOCK: Austan Goolsbee is a member of the Council of Economic Advisors. He's also chief economist on the president's Economic Recovery Advisory Board.

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