AIG Mess: Did Treasury Department, Federal Reserve Know About Bonuses Back in November?

This is a rush transcript from "On the Record ," March 20, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: How about this simple message to our government? Quit lying! We just want the straight story. All week long, we've heard incomplete and conflicting stories to this AIG-gate. Here are the questions. Who knew about the AIG bonuses and when? Well, let's start with the Treasury Department and a document that only FOX Business has.

Joining us live is Rich Edson, reporter for FOX Business Network. What happened? What is the straight story?

RICH EDSON, FOX BUSINESS: Well, Greta, you take a look at these e- mails, and this is a pretty significant e-mail chain that shows back on November 5th that there were Treasury officials that really knew about this, that AIG was going to be paid bonuses, and some who even fought to get these bonuses and have them not paid.

Let's take a look at some of these e-mails here. These are all from -- one e-mail from an outside attorney working on the AIG case to a Bush Treasury official. First of all, a November 5th e-mail -- "We indicated that UST" -- the United States Treasury -- "wants to put in place a limitation on annual bonuses that assure the executives and employees will not be enriched out of TARP funds."

But the e-mail indicates AIG officials pushed back a bit on the proposal. Let's take a look at this next e-mail. For the AIG employees, the attorney wrote, "They" -- AIG executives -- "were slack- jawed at the idea of imposing the restriction throughout the entire population, especially worldwide."

To the next one. "They again raised the size of the applicable group and kept coming back to 700 as a meaningful and possibly workable group for limitations." Now, a key argument in AIG's defense of its bonus practices has been that they're needed to recruit and retain employees. Well, quote, "We also indicated that all parties understand that the restrictions must be designed so that the businesses can operate in a reasonable way, including in terms of recruitment and retention of employees."

So those e-mails clearly show that despite these negotiations, government officials, bonuses still got (INAUDIBLE)

VAN SUSTEREN: OK, several things. That whole idea that in order to retain them, of course, it leaves the American people rather cold. Why do you want to retain people who are failing at the job? This is primary the division that's getting the bonuses that has messed up so incredibly. So why we have to pay to retain them, who wants them, that's another issue.

But let me ask you this, is that November 5th -- is that when the series of discussions -- was that before a bailout or after?

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EDSON: That is after it was announced and they were negotiating the terms. The Treasury Department and AIG and all the officials were negotiating how exactly they would transfer those payments and the specifics of what strings would be attached. Obviously, this was brought up...


EDSON: ... as per those e-mails, before the money went through. Obviously, this was brought up, and the bonuses still went out.

VAN SUSTEREN: All right. So the Treasury Department never told Congress or Congress never asked or that was never part of the discussion with Congress, as far as we know.

EDSON: As far as we know, that has not been part of the discussion. But again...

VAN SUSTEREN: Why -- and I guess the question (INAUDIBLE) throw it out to you (INAUDIBLE) why didn't someone bother to tell anybody? (INAUDIBLE) All right, did -- now, Secretary of Treasury Geithner wasn't secretary of Treasury at the time. Is there any way to know whether or not -- because he says he just learned about it last week. Is there any way that he -- that we -- do we have any indication he knew about it last November?

EDSON: Well, we knew he was at the New York Fed, which was dealing with a lot of this. They were negotiating plenty of this with Secretary Paulson under the Bush administration, and of course, Mr. Geithner was at the New York Fed at the time. But we do have e-mails from a number of his deputies that show that they were aware of this.

VAN SUSTEREN: All right. Now, the people who were negotiating this, essentially in the room in November, are they still at the Treasury Department?

EDSON: They very well could be. Of course, the Treasury Department does tend to overturn a lot of the political appointees. Some of the folks tend to go. There are huge gaps right now and people who have not been appointed yet. We still have to identify if they're still there.

VAN SUSTEREN: But we don't know if these were civil servants or whether these were political appointees, who are likely to have left. Political appointees are more likely to leave. The career ones are more likely to stay.

EDSON: Yes, we're not sure about that.

VAN SUSTEREN: All right, is there -- you know, so in this discussion, it sounds like there's this almost little cabal of people, a few Treasury officials, a few AIG, and they managed to work it out and basically leave the rest of us out, meaning the rest of us is Congress either was too stupid not to ask or didn't ask. The Federal Reserve seemed to be either too stupid or didn't ask. But basically, they had - - they negotiated this and left us out.

EDSON: Now, much of it -- and you see it was obviously a concern for many of the people, but at some point, somebody brought it up. It was an issue. It was discussed, and nothing ever became of it. The bonuses still get paid.

VAN SUSTEREN: Don't you love the way they sort of divvy other people's money? I mean, that there was no even, like -- you know, nobody else gets consulted? It's -- the whole -- I mean, it's disturbing, isn't it?


VAN SUSTEREN: Yes, it's, like -- now, I guess we'll have to find from Secretary Geithner. He says he only learned last week, and I guess we accept that. But the other issue is that it's one thing you don't learn, but should you have asked? Should you have known? And I -- I still -- I blame Congress more than anybody on this. But anyway, Rich, thank you.

EDSON: Thanks, Greta.

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