Bonus Baloney: Bailed-Out AIG Paying Out $100M More in Bonuses

This is a rush transcript from "On the Record," February 3, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Here we go again. Bailed-out insurance giant AIG plans to dish out $100 million dollars in bonuses to its executives. What do we know? Joining us live is Adriel Bettelheim, White House correspondent for Adriel, so it sounds like AIG's bonuses are going out again?

ADRIEL BETTELHEIM, CQPOLITICS.COM: We remember last spring they dished out $168 million in bonuses, and the public outcry, and the president said people should be upset, and he's been railing against Wall Street excesses for some time.

This is the latest in a series of bonuses that AIG has been contractually obligated to pay folks in this financial products unit. And these are the folks who traded derivatives that some people blame for the whole collapse in 2008.

VAN SUSTEREN: Let's get this straight. The ones who are getting bonuses, the unit in AIG that is going to get these huge bonuses, which is going to set everybody on fire, if we look behind it, this is the very unit that created the risky transactions that created the problems for AIG?

BETTELHEIM: They were doing risky trades that sort of were hedges against AIG's core business. This is how big financial houses work. But it doesn't look good when you rail against excesses, and this type of trading helped and contributed to the collapse, and now all of a sudden the government, with a stake in AIG has to oversee these bonus payments.

It just doesn't look very good.

VAN SUSTEREN: So our stake in it, our loan is $180 billion to AIG?

BETTELHEIM: Yes. That's about how much in bailout money the company has received.

VAN SUSTEREN: Has any come back?

BETTELHEIM: They have said they are going to repay it over two years, but they have to sell some businesses and do other things to generate the cash for the treasury.

VAN SUSTEREN: So the answer is no?


VAN SUSTEREN: They still got our dough or they still have the ability to get it down to -- to get the dough.

BETTELHEIM: They are working on getting it back.

VAN SUSTEREN: Yet the very unit that created the risk to the organization causing the $180 billion bailout that the taxpayers had to do are the ones now eligible for this bonus?

BETTELHEIM: That's correct.

VAN SUSTEREN: That's terrible. That's horrible. You listen to that and it sounds nuts.

BETTELHEIM: It does. But the rationale is that once they are in these heavy financial positions trading these sophisticated instruments, they have to unwind the positions or these remaining assets could be worth nothing.

So the rationale is you keep the fire burning, you keep the traders employed, you retain them by giving these bonuses. This is how Wall Street works.

VAN SUSTEREN: The thing that really bothers me is the whole idea of the retention of the brain trust, we pay them so we don't lose them.

For the life of me I can't understand that. Wouldn't we be lucky to lose the people who failed? These people presumably put us at risk, put the company at risk, requiring us to bail them out, and now we are worried we are going to lose them. Wouldn't we be better off with new blood and let the new blood lose it?

BETTELHEIM: I personally don't know what it takes to trade these derivatives and swaps and all these things.

VAN SUSTEREN: They didn't do a good job. They failed.

BETTELHEIM: They could find work for the Russians or Kuwaitis working in some of these sovereign funds, perhaps. But I'm not sure they all failed, actually but it is an unregulated, high risk business, and that's the underside.

VAN SUSTEREN: But this is the division of AIG that caused the problem. If that is true, then they didn't succeed.

BETTELHEIM: Well, AIG is many things. It's a legit insurer that does a lot of things. And this was the hedge risk part of it, just like with a lot of banks, like with a lot of these securities firms, there are these components that protect against downside risk, except when everything collapsed it exacerbated the problems.

VAN SUSTEREN: Can we set the blame completely on this, or 90 percent on this division?

BETTELHEIM: Certainly they were the ones trading the derivatives that a lot people blame for the collapse.

VAN SUSTEREN: How does President Obama, how does the Obama administration feel about the new round of bonuses?

BETTELHEIM: They are not thrilled. And they have a new bank tax. They are trying to tax themselves out of problem. They are proposing to levee a new fee on big banks and insurance firms that have over $50 billion in assets.

And Tim Geithner the treasury secretary says the $9 billion that they will get a year from that will offset the money in bailout funds they won't get back from the bonuses.

VAN SUSTEREN: Adriel, thank you.

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