This is a rush transcript from "On the Record ," February 6, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The U.S. government just blew $78 billion, your $78 billion. Harvard Law professor Elizabeth Warren is the chairwoman of the oversight panel monitoring the $700 billion bailout fund, the TARP. Her latest report is that the Treasury paid $254 billion for assets worth only $176 billion.

Moments ago Elizabeth Warren went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Professor, thank you very much for joining us.

ELIZABETH WARREN, HEAD OF TARP OVERSIGHT: I'm glad to be here.

VAN SUSTEREN: All right, $75 billion, or $78 billion, is that the number?

WARREN: Yes, $78 billion.

VAN SUSTEREN: Not million, billion, "b," "b."

WARREN: "B."

VAN SUSTEREN: That's insane.

WARREN: That's a lot of money.

VAN SUSTEREN: Even a million would be a lot of money.

WARREN: That's a lot of money.

VAN SUSTEREN: Everybody who's watching this thinks that somebody's gone mad. How does this happen that we can overpay for assets to the tune of $78 billion?

WARREN: Well, it can happen if that's how you plan for it to happen.

VAN SUSTEREN: That sounds crooked.

WARREN: No, it's not crooked. It's a different policy.

Let me put it this way -- we asked the Treasury department when they're putting these transactions together, we are doing oversight. So we ask them the question, is taxpayer getting a fair deal?

Watch Greta's interview

For the money you're pumping into these things, we're told that you're taking back stocks and warrants for the future. Are we getting back something that's worth about the same?

So we get a letter back from Secretary Paulson, and he said "Yes, these transactions are taking place at par," which just means for every hundred dollars going in, there's a hundred dollar value in stock. That's a par, right?

VAN SUSTEREN: Right.

WARREN: So he says "at par." That's what the letter says. Sounds like a fair deal, 100 in, 100 back, in terms of value.

VAN SUSTEREN: Can't complain about that one.

WARREN: So we thought about it, and we thought maybe we ought to check, though. So we got an evaluation company, we got a couple of professors, we got somebody who had headed up pensions for New York City.

And they got together and took publicly-traded information, and we do evaluation analysis. This is a lot of work. This is about six weeks of all day long, and nights and weekends. And we had the top experts. They do it three different ways to make sure that there's not something funny in the numbers.

And, basically, here's what they come up with. They say in those first 10 transactions--they do them transaction by transaction--but the first 10, here's what happened on average. For every $100 the Treasury put in, we got $66 back.

Now, you do that enough times, and that adds up to $78 billion.

VAN SUSTEREN: Right. You explain it so well. You're a professor, of course. And it sounds very interesting, and, gee, that's how it happens.

As a taxpayer, I'm scandalized. I can't just recite it like that. You would have to peel me off the ceiling. Why in the world would we ever overpay for something, especially to the tune of $78 billion?

WARREN: Well, this is the part that I'm a little upset about, about this undertaking. And here's the deal - it's that there may have been a good reason to pump an extra $78 billion into these banks.

VAN SUSTEREN: But nobody told us.

WARREN: But that's the deal. You've got to come clean about this.

If what we're going to do here is we're going to subsidize these banks, especially with that kind of money, you're going to have to belly up and tell the American people about it.

VAN SUSTEREN: Why wouldn't they tell us? Why would we overpay for something? Let your imagination run wild. What could possibly justify not being straight with the American people?

WARREN: In my view, nothing justifies not being straight to the American people.

VAN SUSTEREN: And you're a Harvard Law professor. You must be able to have like a pretty good imagination. You come up with stuff. You come up with nothing?

WARREN: I'm sorry , you have to tell the truth. That's the deal.

We're big people. And besides that, it's our money. If you don't tell the truth, then we can never have the public debate. And that is do we think the right thing to do here is to subsidize these banks? Is that where our taxpayer dollars ought to be going?

I think that's a perfectly reasonable debate to have. Maybe Treasury had something else in mind. That's a fair--

VAN SUSTEREN: But you can't even come up with it. I told you to let your imagination run wild. Come up with an excuse.

WARREN: So one of the stories is they wanted to do these deals fast.

VAN SUSTEREN: So that's a license to be either incompetent, at best, or, you won't say it's criminal, but I think when you try to pull a fast one to the American people to the tune of $78 billion, I think there's some fraud involved. But maybe I'm off on that.

But, OK, so you think that speed would be a legitimate reason to pull a fast one.

WARREN: Speed and a fast one seems entirely appropriate.

No, I don't think it's a legitimate reason.

VAN SUSTEREN: Am I going to hear any more excuses?

WARREN: I'm just trying to say we will take on the question of what is the right thing to do with this money. But here's the part that's not right--we can't let a group of really smart people go off in a room and lock the door and make all the decisions about what happens to our economy, and then come back and tell us how big a check to write.

It can't work that way.

VAN SUSTEREN: I don't mind if they're smart if they're honest. I don't care if they go lock themselves in a room if they give the product, but from what you say, this is, at best, incompetent, and at worst, frankly dishonest and perhaps even criminal.

WARREN: Well, he said one thing, and the numbers certainly don't bear him out.

VAN SUSTEREN: If I went out and bought a condominium for $100,000, I would fill out all this paperwork, and I would even have to have appraisals. I would have to have all this if I were borrowing money from the bank.

Was there no sort of appraisal done of these businesses?

WARREN: No.

VAN SUSTEREN: No? Not at all? That's only for $100,000. But we're talking about actually $300 billion.

WARREN: Let me loop this back around, because we've been making this argument from the beginning, from the very first report. This is our third report now. We keep making the same point. This has to be about transparency, this has to be about accountability, and you've got to explain what the strategy is here.

You've got to tell us what the overall plan is. If you're planning to spend $258 billion, $350 billion, $700 billion, you've got to lay out what the idea is behind it and why that gets from this point to this point. We've got to be able to hear that as the American people.

(END VIDEOTAPE)






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