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March 17th, 2009
10:33 PM ET

Summers: Pushing AIG may have sparked Lehman-style crisis

Ed Henry interviews Larry Summers, the President's chief economic adviser.

Ed Henry interviews Larry Summers, the President's chief economic adviser.

Ed Henry
CNN Senior White House Correspondent

With outrage mounting over AIG's $165 million in bonuses, the President's chief economic adviser offered a new line of defense for the White House in an exclusive interview with CNN.

Larry Summers suggested that if Treasury Secretary Timothy Geithner had pushed the insurance giant too hard on the bonuses, AIG could have collapsed just like Lehman Brothers and sparked an even bigger crisis.

"Secretary Geithner has used all the legal authorities that are open to him to contain and limit the payment of bonuses," said Summer, chairman of the National Economic Council. "What he did not do, and what would have been irresponsible to do, as outrageous as these payments are, would have been to put at risk the stability of the financial system. To have courted the kind of disaster that followed the decision to let Lehman Brothers simply collapse might have felt good briefly but it would have touched the lives of a huge number of Americans who would have unnecessarily become unemployed or seen destruction of their lifetime savings."

Summers said Geithner was notified about the bonuses last week and tried to stop them but ran up against a legal contract. "Secretary Geithner courageously has gone after these bonuses and will continue to go after these bonuses in a very aggressive way but we can't suspend the rule of law and we can't put the whole economy at risk," said Summers.

Asked whether AIG could get more bailout funds down the road, Summers suggested the door is open to more taxpayer money - despite the bonus controversy.

"It is wrong to govern out of anger," said Summers. "We have to recognize what we are angry about, do something about it. That's why we are focused on a new resolution regime as part of a sweeping overhaul of the financial system ... But we can't let anger stop us from taking the steps that are necessary to maintain the stability of the financial system, keep credit flowing."


Filed under: Economy • Ed Henry • Road to Rescue
soundoff (89 Responses)
  1. Lathen

    Hey, Chris Dodd, you need to be honest . . . enough said.

    March 19, 2009 at 1:33 am |
  2. Michael Bell

    Am I overly suspicious, or doest this bonus deal with AIG no seem like blackmail or hush money? I can concoct no other reason for the payments. Can we get Liddy, and the prior CEO to answer questions in that area?

    March 18, 2009 at 11:38 am |
  3. Michael Bell

    Am I overly suspicious, or does this BONUS DEAL

    March 18, 2009 at 11:35 am |
  4. Michael Bell

    Am I just overly suspicious, or does this BONUS DEAL

    March 18, 2009 at 11:34 am |
  5. Michael Bell

    Am I just overly suspicious, or does this BONUS DEAL

    March 18, 2009 at 11:34 am |
  6. Terry, TX

    "Summers said Geithner was notified about the bonuses last week"....
    then why did Democrat Dodds take out Republican Snowes legislation to prevent this from happening.

    Remember that’s when the bill swelled from 800 pages to 1200 pages…and no one was allowed to read it….because it was a crisis, no time to read it, Obama’s desk by Friday….Pelosi in Italy Monday and Obama on vacation until Tuesday. Anyone who voted NO was called an oppositionist…I wouldn’t of signed it if I couldn’t read it.
    So whose fault is it?

    Now we are outraged…by the same people in the Democratic Run Congress who allowed it… What’s their response…we will sue….how… you wrote the legislation in…case lost. We will tax it all…. unconstitutional…. the government cannot tax any entity 100% or unreasonably in this country. Case lost.

    I know what you can do ..President Obama can show up on Jay Leno….that’s the Presidential thing to do.

    March 18, 2009 at 10:41 am |
  7. Tabi Tabe

    It feels like the entire banking system needs a reset or reboot. It is unbelievable that a corporation goes out looking for aid in times of crisis, gets the help it seeks and then puts it to waste. Yes to waste. I think the CEO of AIG and his team should resign. It shows sign of bad judgment and poor leadership.

    True that some of the people who took the bonus have left; they should have seen that coming. Also these folks at AIG should have known better that the guys who stuck out to assist will not find that funny. What where they thinking? This is taking advantage of US tax payers and telling them that they are stupid. "Well we got you who what are you going to do?" Something like that.

    Enough said about the AIG mess. They better find a way to fix their mess. On the other banks, shame on them! What are they doing with all that money they got? I hope they don't give it to their employees like AIG. Banks are good like that; they will not support job creating entrepreneurial activities in times like this. Instead they will pay out fat bonuses to their employees. They should go back to basic and run like a startup. Furthermore they most know that banks are not isolated from further crisis and them hanging onto cash and not lending might result in depression.

    Now that all eyes are on AIG, the banks should use this opportunity to create activities that will but them in good stead with their customers who are also the tax payers and the government of the United States. They should support President Obama's plan to support small business and show goodwill towards those good small businesses that are doing well to keep their doors open. It is a known fact that small business create about 80% of jobs in the United states and are more innovative that large corporations. Please Anderson use your platform to make these institution see the big picture and start moving fast.

    March 18, 2009 at 9:44 am |
  8. StormerF

    congress needs to be taught a lesson,They allowed AIG to make contractual payments,Chris Dodd wrote it into the bill,Obama Should have known about it,so should have Geithner.Thats what you get whenyou sign stuff and do not read it....Congress took their $4,700.00 pay increase with the economy in shambles instead of freezing their pay raise..Maybe this is a smoke screen to hide that fact?...Congresss gave away the money with no strings or oversight,they are to Blame,and Obama let them.

    March 18, 2009 at 8:49 am |
  9. Donni Melninkaitis

    Why is everyone surprised? Big business execs have been taking advantage of the public for decades. The only difference is that because of increased "transparency" due to them receiving funds, we now know about it. These bonuses are what makes greed worthwhile for these people. What I want to know is who knew about the bonuses and when did they know it? And why was the provision to cap salaries and bonuses to execs who work for companies receiving TARP funds and/or stimulus money taken out of the stimulus bill. Who's bright idea was that? WHO TOOK IT OUT? I don't want that person reelected. Kudos to Olympia Snow of Maine for trying to put it in.

    March 18, 2009 at 8:22 am |
  10. Donni Melninkaitis

    Why is everyone surprised? Big business execs have been taking advantage of the public for decades. The only difference is that because of increased "transparency" due to them receiving funds, we now know about it. These bonuses are what makes greed worthwhile for these people. What I want to know if how knew about the bonuses and when did they know it? And why was the provision to cap salaries and bonuses to execs who work for companies receiving TARP funds and/or stimulus money taken out of the stimulus bill. Who's bright idea was that? WHO TOOK IT OUT? I don't want that person reelected. Kudos to Olympia Snow of Maine for trying to put it in.

    March 18, 2009 at 8:21 am |
  11. Michael "C" Lorton, Virginia

    “It is wrong to govern out of anger,” said Summers--and the last time I read it is "morally wrong to steal---legally or illegally-–this is nothing but making excuses for corporate greed and usury--and if I were in controlled-–AIG would have joined Lehman Brothers. Amazing everybody has "excuses,"--but nobody has answers.

    March 18, 2009 at 8:21 am |
  12. Ken Willis

    Summers has shown himself to be just one more apologist for the thieves and pit bosses that run the major financial institutions, one more 'public servant' who sucks up to his real masters. Everyone receiving a bonus at AIG should be fired. They caused this current economic crisis. They have caused more suffering than Madoff, more heartache and pain than a hundred drive-by shootings. They should be in prison, not get rewarded. If AIG can't be allowed to fail, put them under some kind of receivership, and get past the idea that the exec's are to valuable to let go. They must be let go, they are too dishonest to ever be trusted again.

    March 18, 2009 at 7:48 am |
  13. Neo

    "...would have been to put at risk the stability of the financial system"

    how so? Ok let's say they go under. The risk (like any other company's) is to the employEE. however, why are they as a company not securing their future and the futures of their employee's and if the same powers that be allowed the company to go under, aren't they still exposing their employees to risks? Would you feel secure as a employee at this company? I wouldn't. OR couldn't someone just buy out/buy/partner with AIG? So that people could keep their jobs? These things should be done PRIOR to the ultimacy of bailing out a company. What the gov't did was negative reinforcement. Summers should have addressed that.

    ".... but we can’t suspend the rule of law and we can’t put the whole economy at risk,” said Summers.

    The whole economy doesn't work at this company (A) and (B) the rule should only apply to income earned, not to monies received. If you give bonuses based upon the fact that your employees earned the company X amount of EXTRA dollars, then take that EXTRA and divy it out, but to take the gov't extra and divy it out, is not what that policy alluded too. The policy wasn't THE LAW. They are using the Law to support one of their policies. The LAW says that the EMPLOYEE can sue company for not upholding one of THEIR policies. This is not the governments problem which is why Geithner is sanctioning that part. They know this much. Summers is wordplaying this a bit much. The anger is apt.

    March 18, 2009 at 7:27 am |
  14. D. Tjon

    Is is wrong to fine AIG for those bonuses, because it is US taxpayer money. The recipients should be taxed 90% to 100%.

    March 18, 2009 at 6:50 am |
  15. VEVERLY LORD

    AC. I filed my 2008 tax return 2 months ago. I owed the Government 700 dollars so they took the money from my return, however they refuse to send the balance of my return . According to them I now have to wait approximately 4 months before I get my return .I'm unemployed so I was counting on that money . Oh" I now see why I have to wait .The government diverted my return to A.I.G. now I have to wait and see If they get the money back before I get my tax return im not counting on it. They have a bunch of baby Madoff running around out there at our expense.

    March 18, 2009 at 5:37 am |
  16. Roger

    Are you kidding me! I don't believe the clown(s) in Washinton would think of suing AIG. Ket;s spend mega millions on a lawsuit that would , no quesyion, be defended using bailout money. A real win/win for the taxpayers.

    March 18, 2009 at 5:33 am |
  17. Moe

    Nancy Pelosi can you please give Vice President Joe Biden a call. He has some TOP SECRET information on PUBLIC TRANSPORTATION he would like to share with you. Hint: Southwest has some great deals from D.C.

    March 18, 2009 at 4:38 am |
  18. J.V.Hodgson

    C'mon Larry the law/contracts ,bailout rules are being abused by anyone so called entitled to a "Bonus" especially or a semantic choice of words re retention bonuses, this latter, especially, is money they failed to earn/ warrant a based on the huge losses the companies incurred!?
    I have been in business as a CEO for years and always had the overriding principle in bonuses however labeled meant that No profit meant no bonus to anyone, unless in a specific division there was both Sales or revenue growth and corresponding increase in profitability, when the criteria was if the bonus amount was greater than the profit gain then only x% of the profit gain could be used for Bonus, with a recovery clause on overpaid bonus in subsequent years if Investments fell based on mark to market rules, in each division.
    Banks/Insurance companies are going to force government to pass laws Banks and insurance companies neither need or should have to abide by.
    YOU MUST ( BANKS AND INSURANCE CO'S HEDGE FUNDS) HOWEVER DRAFT MORE REALISTIC FUNDAMENTALLY REALISTIC SALARY SCALES, and make bonus what it should be the reward for long term over perfomance.
    I,personally lived my whole life on the assumption bonus was just that and could, could not, enhance my life and families lifestyle, but I never had to live off bonus zero or millions of $.
    I could and did pay my lifestyle way without bonus.
    I am now reasonably well off/ retired, not a multi millionairre by far but no one can complain about the health of the companies who paid me or my executives bonuses.
    They will survive because we ( corporately) had reasonable rules that prevented short term wooden dollar gains to a few and damage to the many.
    These bonus plans are morally at least, and potentially legally flawed.
    Take the bonuses off them and let them fight it out in court. For 2007. 2008 and 2009 the so called profits did not exist!!
    Regards,
    'Hodgson.

    March 18, 2009 at 3:57 am |
  19. Moe

    Is There a Conspiracy Here?

    This whole process seems to have been a chance for the government to take over the banking industry. Because of AIG’s insurance division which is solvent (but untouchable by law) and by far it’s largest division there never was any systemic risk to our country in shutting down (or restructuring) the rest of it’s companies. The billions that were given to AIG in the first tarp monies were done for one of two reasons: 1 The government saw a opportunity to take over the banking industry of this country. 2: Our elected officials aren't nearly as smart as the people at AIG and/or they were just too lazy to do their jobs.

    Moe

    March 18, 2009 at 3:54 am |
  20. David

    Who cares about 165 mil for executives- what about the $65 billion giving to foreign companies by AIG… AKA uncle sam? What a smoke screen

    March 18, 2009 at 2:59 am |
  21. Frankie

    I don't guess I understand, the company I work for is required to reopen our contract to get a "loan" not a bailout.But the federal government owns 80% of AIG and they can't renegotiate bonus contracts. Somebody please explain to me how this is fair to the middle class.

    March 18, 2009 at 2:31 am |
  22. Laurie

    I am a Canadian about to renew my homeowners ins. You can be sure I will not be dealing with any AIG policys,. time for everyone around the world to boycott AIG. They say bonuses are needed to retain these brilliant minds, but 11 of the employees who received bonus pay dont even work for AIG anymore, Sounds fishy to me, SOUNDS LIKE HUSH MONEY, I cant help but wonder what else they are hiding, and what those former employee's could tell us. I think it is time for the people to gather, and protest out front of AIG headoffice, Back your new president.
    protest , protest, protest.

    March 18, 2009 at 2:27 am |
  23. RRowlands

    I know this is a simplistic idea but given the financial crisis and the lack of confidence in whatever package is put together to solve the financial problems faced by so many. How about this:-

    Take the amount of 'bonuses' paid to AIG ($165M approx) and simply divide it amongst the population of the USA (304M approx) giving you roughtly 500,000 per person. No strings, no tax, just mail it to every known address associated with a SSN (or some other simple method of distribution to keep the administration costs down).

    Not only will this deflate the outrage but will provide a huge boost to the economy. People could pay off their debts, buy all the empty houses, book all the holidays, purchase all the gadgets they want.

    I know simplistic but it seems complicated is what put us in the situation that we are in now.

    March 18, 2009 at 2:24 am |
  24. heu from las vegas, nv

    In regards to the bonuses: people who receive bonuses should earn it because they've led the company to profit and not because they've achieved a request for "bail-out" money. I am a struggling taxpayer who works hard trying to make ends meet and to hear that the tax money I have to pay every paycheck is being given to people who do not deserve them is a BIG joke. It is unbelievable that President Obama restricts bail-out money to be spent in Las Vegas, which is wrong because we live in a tourism-driven city but that's another story and yet assistance is granted to such company to spend frivolously.

    March 18, 2009 at 2:23 am |
  25. Martin Altizer

    Pee on taxing or "ill"legal bonuses. Just publish the names of all these chuncks of fecal scum, and do what can about a posse of good men and and women who are pissed off enough to be willing to send some of these ass-wipes down to dance with the devil. Most of these jerks had their little theft-rolls before their "no-recall" bonuses become public. One, two, or maybe three will see a bunch of thede theives crawling through donkey dung to return their ill-gotten gains. I have enough respect for human life to not wish to se such actions taken, but my country called on me in the RVN to do such duties. Have some of our A-teams jump on this band-wagon. Many of us get screwed by the VA for a fraction of what AIG and their ilk steal from our gov't. . A death of trash or two may cause voluntary returns of the 'bonuses;.
    E-mail me if I might be assistance.

    Rev. Martin B. Altizer

    March 18, 2009 at 2:20 am |
  26. Ben Makit

    I don't know why is every one complianing about AIG? if you owned a company, aren't supposed to revieved the company polices and how many people work there? why didn't Congress asked AIG if there were anything they should know and how many people work there and how much do they make? I sorry that Obama is one of the thief just like all Senators. the Taxes payers owned more than 80% of AIG so they should know how many employees are there and how much they getting paid.............
    this problem is not about AIg but the thievies Congress

    March 18, 2009 at 2:19 am |
  27. Drew

    How these are called "bonuses" is beyond me. I am not a college graduate, but I was under the impression bonuses were handed out to those who did an exceptional job over a certain amount of time. What these AIG people have done does not even the minimum requirements of their jobs. What these are is really balloon salary payments because they are expected and are written into their contracts. They should be plenty motivated to do their job with their base salary and work harder to get their bonus. That's how it used to be. But I guess bankrupting hundreds of thousands of people all across the globe warrants a "bonus" nowadays.

    March 18, 2009 at 2:18 am |
  28. Heather,ca

    Great interiew Ed! Though I really do think that someone from the Bush administration made an arrangement that included the man running AIG now. We know that these contracts for retention bonuses did not exist till after the bailout. The founder of AIG even said so. Something did happen and the question who authorized it and when. Sounds like a great investigative reporting story for you. If Obama or any of them wanted it stopped it would be. Perhaps it cant be because of a deal that was made.

    March 18, 2009 at 1:59 am |
  29. Indrajit

    Doesn't the US, which is supposed to have an advanced and independent judicial system compared to other countries have laws that prevent a company from entering into onerous contracts (such as the AIG Bonus contracts), especially when the company is in financial trouble (as AIG is) and, if there are any such contracts, that permit those contracts to be set aside or avoided?

    Also, can't a company, if it feels that a contract has been promoted or approved or entered into on the company's behalf by the very individuals who will benefit personally from those contracts, have those contracts voided?

    March 18, 2009 at 1:56 am |
  30. KIm

    We've had it with this corporation and maybe they should check out chapter 11 and may God be with you, but Americans have had enough ! Send the money on the bonus back and maybe they'll cut you another break !

    March 18, 2009 at 1:54 am |
  31. Austin,Texas

    I am totally for criminal proceedings, against all who mislead hardworking americans that invest with their life savings in trust of companies, banks, government agencies that protect them.

    The heads of these companies, banks, government agencies are spending Billions of Dollars on, lavish houses, cars, clothes, jewerly, vacations,offices,health care, oh do forget their retirement plans, etc...

    While the hardworking people are wondering if they can afford just a everyday item.

    The hardworking people find it difficult just to get a small loan where as our Tax Dollars are being given away in the Billions, its not heartbreaking any more – its just plain disgusting.

    We need to act yesterday ,

    Who are these professional crooks who are stealing our American Dream.

    Where are our Leaders to Expose These Evil People for what they really are, nothing but common theives.

    March 18, 2009 at 1:54 am |
  32. Kevin (HoodMedia)

    coope you have the best show i've ever seen but you have these experts I think with your ground breaking attitude you can be the first to include regular people to give their opinions on these important topics that affect regular people.

    March 18, 2009 at 1:53 am |
  33. Nikki

    Anderson, these bail outs are just a premeditated scandal that was started in 2001. Aaron Russo reported that Nelson Rockefeller new about 9/11 and stated that it was to create a panic to the American people. If the American people thought that there were terrorists that threatened national security, the bankers could go behind the scenes and start taking control of the American people's funds. They would do this by creating a panic to the banks which would nationalize them, then they would get rid of cash and checks (which Bank of America is working now with Visa to do), and then have everyone implanted with a chip to track the flow of their funds as well as any suspicious terrorist activities. Nelson Rockefeller basically stated that the American people are "serfs" to the bankers and if people were implanted with chips, they could easily shut off people's credit, funds, health care, etc. 9/11/2001 was the fall of the World Trade Center to create the panic and to discard the data of Enron and Worldcom scandals. 9/11/2008 was the fall of Lehman Brothers bank and the beginning of this new monetary system masterminded by the bankers. Why won't anyone talk about this scandal? I know that $165 million is a lot of money, but we are bailing out AIG giving hundreds of billions to them and big banks so later they can take control over our bank accounts and turn us into a socialist or even communistic society? I talked to the CEO's office of Bank of America and they said that cash and checks will be eliminated and everyone will be forced to use online bill pay and all deposits will be electronic. These banks are pushing this legislation behind our backs and could you imagine not being able to get cash from your friend for say a yard sale? It has to go into the bank and say the government could then tax you on every single incoming deposit or question you about it at the end of the year? We could slowly be going to the way that Finland does their tax returns where all your assets are online and they tell you what tax you owe.

    March 18, 2009 at 1:32 am |
  34. Stuart Cohen

    I feel that the American public is entitled to know the names of the individuals who received those AIG million dollar bonuses. Many thousands of AIG stockholders lost hundreds of millions of dollars who scrimped and saved for a lifetime...at least they deserve to know who
    the recipients are. After all, maybe we can shame them into willfully returning the money. If you were one of those bonus babies would you want your neighbors and friends to see your name published in the local newspapers or see your picture on CNN? I DON'T THINK SO!

    Stu Cohen
    Ft. Lauderdale, FL

    March 18, 2009 at 1:31 am |
  35. Alexander Martin

    The economy kept all of the Madoff Schemes a float. Now that that we face hard times they will all be revealed. Thats why AIG should be taken over by the government instead of handing out a stimulus check. AIG is just another ponzi scheme.

    March 18, 2009 at 1:25 am |
  36. jeepdriver

    A.I.G. execs should be brought to justice in the way of treason charges (they are effectivly bringing down the country, this is even affecting national security) , extortion, (They are demanding money or they will make it worse). Stupidity (yeah they're dumb to think they could get away with it). All it takes is an act of congress. Show them who's in charge of the country. Replace them with competent people, Make it known that they will be publicly exposed for what they are. Have tax experts go over everything connected to them, (make it clear that these experts will dig deep). This will discourage other execs from trying the same. (can you imagine what will happen if they get away with this.

    March 18, 2009 at 1:25 am |
  37. Patrick

    Considering that many of the same AIG executives now receiving bonuses effectively led the company headlong into bankruptcy, why not simply refuse to pay the bonuses on the basis of non-performance?

    March 18, 2009 at 1:21 am |
  38. Don Seymour

    I am sure you hear this a lot, but the average American is so enraged about this AIG scandal that it is about to spark a revolution in this country. I mean, think about it, millions of Americans who are unemployed and homeless and have lost everything. While some of the architects of our current financial crisis at AIG are being paid millions of dollars in bonuses with taxpayer money given to AIG by our federal government. It would not surprise anyone to see riots against AIG offices resulting in property damage, and maybe even the loss of life. I am not trying to scare anyone, or make any threats, but it could definitely happen.

    March 18, 2009 at 1:21 am |
  39. richard wisdom

    They should fire everyone working there and hire cheaper help I am sure some new money managers could not do any worse than those who are
    now running A.I G. I as a tax payer did not agree to pay any bonuses to the management of A.I.G so sue me??? Clean house hire new HELP A.I G still continues and life goes on problem solved !

    March 18, 2009 at 1:21 am |
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