This is a rush transcript from "On the Record," October 5, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Well, did we get lied to? Did the government lie to all of us about the bailout of banks last fall? The special inspector who oversees the $700 billion in TARP funds just issued a report. What does it say?

Joining us live is Louis Story, finance reporter for "The New York Times." Did we get lied to?

LOUISE STORY, FINANCE REPORTER, "NEW YORK TIMES": Well, the inspector general is saying we were misled.

VAN SUSTEREN: Is that a polite way of saying "lie?"

STORY: It sounds like lying, it does. What he is saying is that Secretary Paulson, the former secretary of the treasury, told us these nine banks who got the initial bailout were healthy when in fact he knew that many of them were not healthy.

VAN SUSTEREN: He knew it. So when Paulson said they were healthy, he knew they were not healthy.

STORY: He was concerned...

VAN SUSTEREN: That sounds like a lie to me.

STORY: The inspector general did not say "lie."

VAN SUSTEREN: He says "misled." But you know what, a lot of times people they won't say a "lie."

STORY: They are being polite.

VAN SUSTEREN: Yes, they are being polite. But you know what, there are so many people hurting. You heard the conversation we just had with Steve Moore about the unemployment. I'm not particularly soft on the government employees who mislead as opposed to lie. I think, call it like it is.

STORY: So the issue is -- what is interesting is the Federal Reserve reply to the inspector general said they agreed that he should be concerned about whether statements were misleading.

VAN SUSTEREN: So now they are also joining the misleading, the polite ones.

STORY: They are being polite. They are saying it's a concern. But the Treasury Department said you have to take these comments in context and understand that was a stressful time.


VAN SUSTEREN: I'm sorry, but that is so bad. You mean we are supposed to feel sorry for Paulson because he was under a lot of stress and so we dished out all of this money to these bad banks and they misled us about billions of dollars and we should all hold hands and feel sorry for them.

STORY: That's what they're saying.

VAN SUSTEREN: Who said that?

STORY: The Treasury Department now, which is interesting, because of course it is a different administration. I mean, Paulson is not there anymore.

But, of course, the other thing that is interesting to think about this is that the whole paradigm that was set up by naming these nine banks as the healthy banks also decided that they were in the club. They were in the club of survivors. They were in the club of banks that would become too big to fail.

So these healthy banks from back then live today and may live on with an advantage for a long time to come.

VAN SUSTEREN: Are they spending any of this money that they got? Are the banks lending it?

STORY: That's been one of the biggest controversies.

VAN SUSTEREN: So we have gone from "lie" to "controversy." They got this money last fall...

STORY: And Paulson said they are healthy and this money will...

VAN SUSTEREN: They are healthy because we gave them all this money.

STORY: Now they can lend more, and then they didn't lend so much.

VAN SUSTEREN: This is bad. This is horrible.

STORY: But, of course, we never know how much they would have lent without the money. So these hypotheticals are difficult.

VAN SUSTEREN: You mean without the lie or without the money?

STORY: Either one, either one. It's very difficult to know what they would have done.

VAN SUSTEREN: This is so horrible. I mean, this is so -- there are people in this country who cannot get jobs who are dying to get jobs. This is so tragic. I laughed out of horror, not because I think it is funny, but because it is out of horror.

STORY: You know, Paulson is working on a book, on his memoirs, so maybe...

VAN SUSTEREN: How much did he get paid?

STORY: I don't know, but maybe he will explain to us what he meant by "healthy" in his book.

VAN SUSTEREN: Good. We will all spend our money on buying his book.

STORY: Help his health savings.

VAN SUSTEREN: This is -- you know what? It is possibly cruel. If he knew they were not healthy and he "misled." I don't know, whatever.

Louise, as always, nice to see you.

STORY: Nice to see you.

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