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Rep. Frank has questions ready for AIG

House Financial Services Committee Chairman Barney Frank (D-Mass.) speaks during a news conference on Capitol Hill in Washington, D.C.

TEXT OF INTERVIEW

Kai Ryssdal: Massachusetts Democrat Barney Frank chairs the House Financial Services Committee. As it happens, AIG CEO Ed Liddy is going to be the guest of one of his subcommittees at a hearing tomorrow in Washington. Congressman, welcome to the program.

BARNEY FRANK: Thank you.

Ryssdal: What's your latest take, sir, on what ought to be done about these AIG bonuses?

FRANK: I want to explore what rights we might have as the effective owner of the company. That is, it's one thing for us as a regulator to say that those things shouldn't have been done. It would be another for the owner, which is the federal government de facto now, and should be de jure, to say well, you know, you didn't deserve a bonus, your work was pretty lousy. We're going to look at this. And two, Mr. Liddy will be testifying before the subcommittee, the committee I chair tomorrow, we're going to be pressing him to tell us who these people are, and it's possible that the publicity might lead some of them to feel, as I would hope they would, maybe embarrassed about what they're doing.

Ryssdal: What specifically do you want to hear from Mr. Liddy, the CEO of AIG tomorrow?

FRANK: We would like him to say that he is going to do everything possible to try get the money back. And that he would retract half of what he said. His argument has been first, Well, I can't get the money back because there are binding contracts. But then he also gives a policy reason, which suggests that he is not really eager to get it all back. He says these are bonuses that were necessary to retain these people. But I'm very skeptical that they're the people that have to be retained in the first place. Clearly, a lot of mistakes were made at AIG. Secondly, it's kinda hard to argue that they couldn't replace them. We're in a market now, which is an employer's market in the financial services area. A lot of decent people have lost their jobs, some incompetent people, but some very competent people because of the general financial situation. So the notion that they couldn't find other people to replace these people, if they quit because they didn't get a retention bonus, makes me very skeptical.

Ryssdal: We've owned this company, the taxpayer's have, for months now. And still this is happening. Why is this still happening?

FRANK: Because people had not expected there to be this degree of irresponsibility. Look, it begins with the Federal Reserve coming to Congress in September of last year and not asking us and not consulting us but simply announcing to us that under a statute that was passed in 1932 that they had the power to make these loans -- I hope they turn out to be loans to AIG -- and they were going to do it, without any conditions whatsoever. We had hoped that there would be some common sense in all this, and we have since passed legislation because they got some money from the rescue plan, that would affect what they can do going forward. But this is a real disappointment that they had already done this and didn't tell anybody.

Ryssdal: How confident are you that given the recent turn of events, despite being assured by the Obama administration and the Bush administration that taxpayers are going to get their money back, that we're actually going to be made whole out of this?

FRANK: Oh, I am not optimistic with regard to AIG. I am in some other areas. I think we've already seen signs that some of the TARP money is being paid back. And I think most of what the Federal Reserve has done is well collateralized. I think the answer is nobody knows. But to some extent, it's nonoperational. Because you want to act to do your best to maximize that return. And, you know, I hope maybe I'm more pessimistic than I should be. I'm not as optimistic as some who say we're going to get it all back.

Ryssdal: Barney Frank, chairman of the House Financial Services Committee. Congressman, thanks for your time.

FRANK: Bye.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.
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I admire Barney Frank, but it seems to me that he is fudging the issue of what rights the government has as 80% owner of AIG. I haven't read the corporate bylaws, but don't we have the right to call a stockholders meeting and rewrite AIG's rules, at least going forward? See how many talented, honest people we could get to work there for, say, $300K a year? (Yoo hoo! Got my hand up! Over here!)

Moreover, the really big question to ask Congressman Frank is not what to do about these past bonuses, but what to do about the entire structure of the derivatives and credit-swap market. These products did not exist 25 years ago and do not need to exist today (in the sense of producing any real goods or services). They are simply structures by which banks claimed to eliminate the risk inherent in any investment, and instead shifted it to "too big to fail" companies like AIG. There are certain hazards that have never been commercially insurable, and the risk of nonperforming loans should be one of them. You want the loan to be paid off, make sure the loan originator can't slice, dice and sell the risk that it won't.

I heard Congressman Frank's comment: "I want to explore what rights we might have as the effective owner of the company." The congressman then goes on to list the Federal Government as rightful owner. But I ask, "Who is rightful owner of that government if not We, The People?" Could you imagine if it were possible to put these issues to an actual vote -- where any tax paying citizen would go down to the local poling center and take back control of this beloved country? Each voter's share could be equivalent to tax burden. Now THAT is Change I could support!

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