March 17th, 2009
10:33 PM ET

Summers: Pushing AIG may have sparked Lehman-style crisis

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2009/images/03/17/art.ed.summers.jpg caption="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. Al Leong, San Francisco

    Geitner was strategic and his hands were tied. He did the right thing.

    Two interesting things about insurance:

    1. once you have insurance, you act interestingly, more wrecklessly assuming MORE risk, not less.

    2. we have operated with insurance before insurance is legislated as mandatory. it IS possible to operate without mandated insurance through pools of funds assumed by policy holders and requiring non-insured to pay for damage (auto insurance).

    3. home-owners who rebuild in hurricane zones do so at their own peril, rather than allow the general public to fund doing something with common knowledge (which would look stupid by most people–such as building a house on an eroding cliff or river bank). and expect insurance to further cover damage and risk in the future.

    In these ways, and in others, insurance poses excessive risk-taking behaviour. it is the paradox of insurance.

    March 18, 2009 at 1:21 am |
  2. Lexie

    I am more angry re: the bonuses given than the bailout monies given. It is so unfair that we taxpayers (having a very difficult time financially) have to pay bonuses for what? Let's get the bonus money back and help folks who really need it.

    Lexie from Chattanooga, Tn.

    March 18, 2009 at 1:20 am |
  3. susan

    since tax payers own 80% of aig why don't tax payers get 80% of all future profits?

    March 18, 2009 at 1:19 am |
  4. Lloyd Yudelson

    Re: AIG Bonuses

    Should the media makes public the names of the recipients of the bonuses hopefully it would shame the these recipients into returning the money.

    March 18, 2009 at 1:16 am |
  5. Monte Cardwell

    If CNN kwen and was reporting about the AIG bonuses in January how could the Congress and President not? Do we need to fire them all and every 4yrs have a lottery to put in new congress people? Just like Jury duty. It doesn't seem regular Americans could do much worse!

    March 18, 2009 at 1:16 am |
  6. Gilby-HI

    CNN you are spreading a story that is not true about when Giethner know about the Bonuses.
    Obama Bin Lie'n...again
    This president is taking us into the toilet.

    March 18, 2009 at 1:09 am |
  7. Arun

    Isn't it funny that the spotlight is on $165 million dollars when we should really be discussing where the remaing $169.8 Billion is going... But i suppose that doesnt make for sensational news.

    March 18, 2009 at 1:09 am |
  8. Brett Matlick

    Politicians, Political Pundits and Mouthpieces, Radio Talk Show osts, and even the self proclaimed "Best Political Team on Television" are all talking about the wrong thing. The bonuses given to executives are not the issue. The issue is that we are financing a company that has proven to have catestrophically poor management practices, and we are not requiring basic loan covenants and research of firms which all banks require of firms applying for business loans. The practices of AIG are the problem. If those are not corrected, the funding of a coupld hundred million in bonuses will be the least of our problems.

    Loan covenants are a requirement in commercial loans, and yet our government can't use these simple tools to make proper decisions. We don't need to change laws, we simply need to require firms taking loans to comply with the same types of loan covenants that those same institutions will require of firms applying for loans with the money we give them.

    It goes without saying, that any firm requesting a loan should be required PROVE to the lender (In this case the US Government). That the management team, management practices, policies and procedures are adequate to make sound business decisions, turn the company around and repay the debt.

    Unfortunately, the governement is being run by politicians, political pundants, and lobbyists on both sides of the isle that are more concerned about making "the other party" fail than improving our situation. Therefore, these simple practices were ignored over and over as money was handed over to an inept management team. The behavior of our governement is to blame, and it is not Democrat or Republican. It is ALL of them.

    The behavior of our elected leaders (and I use that term losely) is at the point of no return. It is at best unethical, and I would say in many cases it is treasonous. How can a reasonable person see it any other way when partisan politics leads elected officials to openly hope for and underhandedly act in such a manner as to promote the failure of our government? How is that different than sabotaging a military campaign? We are at war in the middle east, and in an economic battle such that we have never seen. If our politicians continue to act in this manner, they should be at a minimum be impeached, and quite possibly tried for treason, and we all know what the punishment for that is in times of war.

    I am a US citizen first, and I expect my elected officials to be the same. They need to stop pointing fingers, look in the mirror, and do the right thing. They all took an oath to the people of the United states, and/or to their States. Not to a political party.

    March 18, 2009 at 12:54 am |
  9. Don, WA

    So the end justifies the means – it's criminal. And don't for one second think that the public does'nt realize that gov't lawyers giving AIG our money "forgot" to add a clause on bonuses. And if they did – get new lawyers in the gov't. "Stupid is as stupid does."

    March 18, 2009 at 12:54 am |
  10. Joe Gracy

    I can't believe that this bonus issue is suddenly coming out now! Didn't the government take inventory of all of AIG's potential or current liabilities before sending them all that money? I certainly don't approve of any bonuses being given out to employees at AIG; however, if the U.S. government was essentially "acquiring" AIG, this should have been part of the due diligence process that any other company would have gone through in reviewing the assets/liabilities of a company they were thinking of acquiring. And if the U.S. government didn't know how to go through a proper due diligence process, they should have hired someone from the private sector to do it for them & save us as the taxpayers for having to fund all these bonuses. Personally, I think the government too-quickly bailed out AIG and now we're reaping the consequences.

    March 18, 2009 at 12:50 am |
  11. Edsion

    How about every one putting a dollar per week to help withen there area which should help with jump start the loacl economy.

    March 18, 2009 at 12:13 am |
  12. Obama IS America at blogspot dot com

    Also, what does 'anger' have to do with anything? What a stupid answer! What do executive bonuses, which are just cash infusions into their personal bank accounts, have to do with credit flow?? They are keeping millions of dollars of 'credit' for themselves!!!

    This makes no sense. It smells of a scam.

    March 18, 2009 at 12:10 am |
  13. Obama IS America at blogspot dot com

    This is ridiculous. Stopping bonuses to executives will not cause a financial meltdown. In fact, it will leave an extra $170 million, or whatever they are getting in bonuses, available for the company to use or for it to give back to taxpayers. Saying that stopping the bonuses will cause a financial meltdown is a bunch of (insert profanity here). In fact, corporate greed is what started this mess in the first place, so how would stopping it do anything but some good for the system?

    Additionally, this is probably the first and only time that government officials are so openly and conveniently saying that the law is holding them back from doing something. The law should have held President Bush back from doing a lot of the things he did, but he did them anyway. If the government can pass a bunch of bailouts and give taxpayer money to businesses in the first place, invade other countries, start wars, put the country on emergency alert, drill in wildlife refuges, pass the patriot act, torture people in guantanamo prison and other places, and do a million and one other things without the approval of the American people who fund all of these adventures through their hard work, then the president can write an order or someone in government can do something to cancel giving hundreds of millions of taxpayer dollars to executives.

    March 18, 2009 at 12:08 am |
  14. Gail Dawson

    I think too much time is being spent on this. I think Geithner should let it go and let the Congress handle it by taxing the bonuses at 35% as one of the Senators recommended.

    March 17, 2009 at 11:52 pm |
  15. Brent

    What is up with Tim Geithner? I watch CSPAN and CNN, and everything I have observed forces my friends and I to come to the conclusion that this guy has done more damage than good. He is a horrible communicator, and with the recent revelation that he knew about the AIG bonuses but did not inform The President, The Finance Committee, or the American People is truly disturbing. I thought President Obama promised to undo the “Old Washingtononian Politics”. Apparently not! With the economy the way it is, this guy needs to start doing his job or resign immediately. I am sick and tired of this! I know that AIG needs to be held accountable, but we already know they can’t be trusted! Now we have to question our government (Treasury Secretary)? I truly hope Congress holds this man accountable for his actions!

    March 17, 2009 at 11:46 pm |
  16. Lena

    How did AIG become "too big to fail'? Is this a case where mergers and acquisitions have removed all of the competition so that a single company ownes so much of a market share that the entire nation becomes hostage to their well-being? That's why we have anti-trust laws. (Yes, Microsoft managed to wiggle out from under those laws. Can you imagine what would happen to our high-tech country if Microsoft suddenly failed!) Diversity is strength. With Lehman Brothers gone, has AIG become a single point failure? If so, we should break it up now and restructure into smaller, healthier companies while we are the major stockholder. Nobody should be "too big to fail"!

    March 17, 2009 at 11:45 pm |
  17. Rick from Santa Clara, CA

    Anderson, tell us more about powerful people in Congress who knew about the AIG bonus program before the bailout money was approved and whether they had recieved contributions from AIG employees.

    March 17, 2009 at 11:43 pm |
  18. John Quarles

    Who removed the limits on executive compensation in the stimulus bill during the house/senate conference...the taxpayer should know.

    March 17, 2009 at 11:40 pm |
  19. leon schopp

    If the company is essentially bankrupt, how can they justify giving people bonuses. It's madness! I think if the govrenment did let them go under it wouldn't be as bad as they are claiming. Other smaller insurance carriers would pick up a majority of AIG's contracts. It would be like ripping tape off your mouth, sure it hurts at first but then after a bit, you hardly remember it.

    March 17, 2009 at 11:39 pm |
  20. William A. Jeffries

    AIG may be too big to fail, but insuring oil platforms is not
    the same as insuring cars or houses. The company should be broken up with each division operating as a seperate entity to survive on its own merit. That way, the big gorilla is not in a position to buy every politician and eat the American dream out from under every American. Individual divisions can be bought out by thriving entities and will continue to survive under a new roof.

    illiam A. Jeffries

    March 17, 2009 at 11:39 pm |
  21. David Rondeau

    AIG Bonuses – Stop worrying about the $165M or $1B which is the actual bonuses paid and let's dig into the 100 billion paid by AIG with tax payor money to German and French banks, to Bank of America to Goldman Sacks that ex treasure secertary Paulson used to work for; this is the story where did the 100B go and why to foreign interests, Paulson's ex-employer, etc. Stop getting side tracked with the small change go after the real money.

    March 17, 2009 at 11:32 pm |
  22. Robyn

    I am an outraged tax payer. In my opinion, this was fraud or misrepresentation. AIG took taxpayers money to bail out the company. Instead, they lined their pockets.

    March 17, 2009 at 11:30 pm |
  23. Val

    Please, please, set the record straight. AIG is being made out to be misspending taxpayers money by these bonuses they paid out. The fact is: These bonuses are in honour of their contracts. They fully disclosed this long before they even were promised a bailout (CNN reported this on January 28). Sec. Geithner knew this, and the Democratic leaders knew this. They rushed this bailout bill through before anyone could read it. The bill even allegedly acknowledged the bonues and that was ok'd.
    And now, Geithner says he will do everything in his power to reverse this!? He had his chance before the bill was voted on!!!!!!!!! He failed to disclose this because Pelosi and Reid wanted this bill to pass at ALL COST! The fault does not lie with AIG, but with our irresponsible Democratic party.
    And axcessively taxing certain individuals is an abomination to our constitution!

    March 17, 2009 at 11:30 pm |
  24. Jim Williams

    As part of the next AIG bail out, the American people should get a majority of the board seats. We own 80% of them so we should be involved in the operational decisions they make. I dont hear anyone talking about this.

    March 17, 2009 at 11:29 pm |
  25. marty

    If you are employed and due compensation, wether it be an hourly wage or bonus, I believe you as an employee have the right to collect what you are due. If the government is allowed to restrict or resend this compensation I have a huge problem with that, and so should you!

    March 17, 2009 at 11:27 pm |
  26. Julia

    So his is telling us that 73 greedy people, who shouldn't receive a bonus since they've failed miserably, would be the cause of the companies most catastrophic failure and hence the nations failure? I would hardly think that is likely. All 73 should be refusing to even receive the bonuses and be lucky they haven't been personally sued yet. This day and age, where there is a will there is a way...pain and suffering. All 73 should be giving it back to those they robbed it from in the first place. It is amazing to me that they have no consience and that Summers has sunk so low as to defend them, as well as himself. The american public is not buying his line of baloney. As far as I'm concerned, the whole AIG leadership should be in jail like their Enron bretheren.

    March 17, 2009 at 11:24 pm |
  27. Steve Anderson

    Congress and the press are doing an excellent job of following the AIG saga. However, the same lawmakers who are informing citizens they can and will abrogate contracts and tax people at up to 100% rates to save taxpayers money will tell us that $8 billion dollars of pork in a bill they don't have time to read is perfectly OK and should be overlooked. as insignificant . Who will claw back congressional waste of taxpayer dollars? They need to hold themselves to the same standards.

    March 17, 2009 at 11:24 pm |
  28. G Crawford

    Recent the bailout completely. Force AIG into receivership, we should never be blackmailed into doing nothing. Fire All Top Executives. The IRS shold audit every one of them. Place new legislation in place that would make their Crimes a Capital offence.

    March 17, 2009 at 11:23 pm |
  29. Jay

    What a load of crap! If a company knows that it will not be allowed to fail, then it will never try to be better. We have to give them the option to fail just like Lehman so they can learn their lesson and not be so arrogant! USA is becoming worst than a communist country as in communist country this kind of behavior can never be tolorated.

    March 17, 2009 at 11:22 pm |
  30. Gary

    I agree with Summers: we can't govern out of anger. That only produces more mistakes.

    Bush reacted to 9-11 out of sheer anger with no grounding in intelligent thought or fact. So we got Cowboy diplomacy and ultimately into the mess in Iraq.

    Let's move through this with ration and reason. Let's put an end to this corporate greed among executives who run all the big companies, but let's do so with a clear head.

    Bush played on our fears and anger; let's not make the same mistake. Also, I must say that the media is just trying to fuel the fire, so shame on the media. Report, but in a rational way...don't just keep trying to build the anger to create another story.

    March 17, 2009 at 11:21 pm |
  31. George (in Philadelphia)

    I am so disappointed in President Obama. His team looks confused and ill-focused. He cannot be using old hands, who have been part of the financial problem, to solve this crisis. His treasury Secretary should go. He is useless!

    Many of my friends are beginning to regret voting for Obama. He needs to salvage this issue not before he is consigned to a four-year, failed presidency.

    So sad to witness such inaction and indecisiveness. So sad to feel I wasted my vote for someone so ineffectual!

    (In Philadelphia)

    March 17, 2009 at 11:21 pm |
  32. Paul

    I keep hearing over and over how important AIG is, but it seems to me that the more power we give something, the more power it actually has.

    I think the whole thing is pretty cut and dry, actually. Let the government and taxpayers create a new company and transfer the accounts. I suppose it can be as hard as we want to make it out to be.

    But our other option doesnt seem to be working or hasnt this far. Do we honestly expect the shisters at AIG to somehow get a concious with a few laws put in place.

    Let them file chapter 11.

    Lets build a new company and hire some people who actually will do what theyre paid to do.

    Tucson, AZ

    March 17, 2009 at 11:20 pm |
  33. ed

    Instead of being outraged with AIG, why not hit them where it hurts?
    Take your insurance policis to another company.

    March 17, 2009 at 11:17 pm |
  34. antonio beltran

    Everyone says AIG cannot fail because they insure too many markets. The entire airline industry failed in the 90's and filed chap. 13 bankruptcy which allowed them to continue to function but let a judge legally break all the contracts and reorganize them into a profitable business. why is this not addressed in the media?

    March 17, 2009 at 11:17 pm |
  35. John Quarles

    Sorry for the bad editing in the last comment...trying to control my anger. So here is my comment again....

    How about doing your loyal audience and the taxpayers a real service, find out who the scum bag congressman or senator was during the House and Senate conference on the stimulus bill that removed the limits on executive compensation for companies that received tax payer funding. That person or persons needs to be exposed for the hypocrite they really are, please.

    March 17, 2009 at 11:16 pm |
  36. Ken Jewell

    Why doesn't the president issue an Executive Order recalling the AIG bonuses?

    March 17, 2009 at 11:16 pm |
  37. Moore, NC

    First it was his taxes, now we find out Geithner knew about AIG bonuses last week. c'mon. he's killing the Obama administraion. Timmy G. you work for us now not AIG!!!!!!!!

    March 17, 2009 at 11:14 pm |

    Economic RECOVERY... SAVE money... OK!
    The topic is EXTREMELY important.
    THE MYTH of the (so called) "HIV".
    The USA are wasting MILLIONS AND MILLIONS on something INEXISTANT. I am not crazy.
    I am talking about the necessary recovery of our country (and the world). Apart from two american Nobel Prize winners (Walter Gilbert and Kary Mullis), the main SCIENTIFICAL AUTHORITY who UNVEILS THE BIGGEST lie of our times, is the pioneer on discovering a marine virus ('EsV'). I mean, the German Doctor of Natural Science, Biologist, Molecular Biologist and... Virologist, Dr. STEFAN LANKA.

    Luc Montagnier recognized that he never had isolated any 'HIV' viru$$$. (1997; interview by Djamel Tahi; Paris, France).
    We must ask OURSELVES two main things:
    1) Why so vehemently defend something for which there are not only no proofs but also no necessity... and which has pushed millions of people into fear of a retroviral plague transmitted through sex and blood?
    2) Why do "HIV"-virologists never subject their "retroviruses" to the same generally accepted standard techniques of molecular biology as all other virologists and biologists do?

    Please, search on Google the name: STEFAN LANKA.
    Try to contact DR. STEFAN LANKA.
    He'll be extremely helpful!

    Thank you very much!

    March 17, 2009 at 11:13 pm |
  39. julio

    good to see support for new orleans

    March 17, 2009 at 11:12 pm |
  40. Greg

    How did AIG ever get to the point that it is "too big to fail?" This company should have been broken up into several companies when it was initially bailed out, to ensure there is competition among the market.

    March 17, 2009 at 11:11 pm |
  41. mike mccague

    We need to send the IRS after these people, post their names on the internet for all to see, and seize all their assets and then throw them in jail for creating this mess. And then subject AIG to corporate death. Stop throwing good money after bad!

    March 17, 2009 at 11:09 pm |
  42. Rick

    Let the AIG folks keep the money. Compared to what the Congress & the president have spent it's pennies. And besides we should be more upset at Barney Frank, Christopher Todd, Nancy Pelosi and Harry Reid for giving themselves a raise every year without our approval and they are the ones who are failing. Immigration-wide open borders: education-more like uneducation compared to China, Japan, Russia and India; social security-congress is too whimpy to take action and fix it. Maybe they should give back their raises for the last ten years.

    March 17, 2009 at 11:08 pm |
  43. sarah

    He is right. So is Timothy Geithner. The cable news wont go into detail abt how complicated all these things are...and Sec.G is getting all the blame.

    Its not fair to him and its not fair to the adminstration. You can tell they are working out a comprehensive detailed analytical plan.

    unfortunately thats something washington insiders and the msm are not use to. thanks to the bush years. Everyone wants a quick fix. This has been years and years in the making.

    March 17, 2009 at 11:07 pm |
  44. James W Clinton

    Bonuses are not the problem. Pay them or don't pay them the American people will still be held hostage by one company to big to fail? Isn't time that we break this company up? Congress is playing politics with these bonuses. Where was Congress before we got into this mess? Where were the regulations to stop a company like AIG from having a strangle hold on the US and World ecomony?

    March 17, 2009 at 11:07 pm |
  45. Annie Kate

    I really don't understand why AIG is so important to the financial system, but accepting that it is I can see where Geithner would have trouble getting the bonuses back. However, if I was one of the execs at AIG getting a bonus I would sure keep it on the down low or give it back – as long as there would be no taxes on it that I would have to pay on money I no longer had because it went back to the company. For these execs to accept the bonuses just goes to show how greedy and unconcerned the execs are with the rest of the country and how badly their fellow citizens are hurting.

    March 17, 2009 at 11:05 pm |
  46. Wardell katrina survivor

    It seems as though Mr. Summers is suggesting, that the whole financial system, depends on AIG, I'm not angry , FIRE THEM ALL, these are not the only minds capable of solving this problem, and maybe the president should consider getting rid of HIM also, if WE own 80% of the company, than WE should dictate the terms, under which things go foward, if they don't like it, fine, then let them go find another job. I'll bet I can find ,a group of HARVARD, STANDFORD, PRINCETON, TULANE, GEORGETOWN, MITand other grads, that could do a much better job, for LESS. FIRE THEM ALL, NOWWW!!!!!!!

    March 17, 2009 at 11:00 pm |
  47. Manimaran

    As you are talking about community service, Gandhi's words come to my mind. Which is "The best way to find yourself is to lose yourself in the service of others.

    March 17, 2009 at 10:52 pm |
  48. Stan

    In regards to the Katrina problem, why are they so slow in putting these people back in the new homes being built? What do they have planed with the $4 Billion dollars, that they will recieve from the Stimulas package?

    March 17, 2009 at 10:42 pm |
  49. Stan

    Inregards to Aig, If these bonus people are threating on sueing why don't we just void the contracts like our Government has done in the past. If that can't be done the give them $500,000 and the rest in stocks within Aig. If the were on the apprentice, Donald Trump would of fired all of them for poor performances!!

    March 17, 2009 at 10:38 pm |
  50. Laurie Taylor-Williams

    Again poor David Gergen having to sit on a panel with those two idiots! Come on Anderson, get some smart folks back on on your panel ... I expect as much from you.

    March 17, 2009 at 10:36 pm |
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