CBS "FACE THE NATION"
HOST: HARRY SMITH
GUESTS: REP. BARNEY FRANK (D-MA); SENATOR CHARLES GRASSLEY (R-IA); AUSTAN GOOLSBEE, WHITE HOUSE COUNCIL OF ECONOMIC ADVISERS
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MR. SMITH: Today on "Face the Nation," an uproar over AIG bonuses erupted last week all over the country. Will Congress force executives to return the money?
The House voted Thursday to tax bonuses at financial firms after it was revealed that employees of embattled insurance giant AIG received millions in bonuses after the company got bailout funds. Will the Senate go along? How will Congress react to the new Treasury plan to buy up so-called toxic assets from troubled banks? We'll ask House Banking Committee Chairman Barney Frank and Senator Charles Grassley, ranking member of the Finance Committee.
Then we'll talk with Austan Goolsbee, one of President Obama's top economic advisers. John Dickerson of Slate Magazine and Jackie Calmes of The New York Times will be here for context and analysis. But first, the fight over executive bonuses on "Face the Nation."
MR. SMITH: Welcome again to the broadcast. Bob is off today.
Joining us now from Cedar Falls, Iowa, Senator Charles Grassley; and with us here, Congressman Barney Frank.
Congressman Frank, I'm going to start with you. You helped push this tax idea through to tax these bonuses on AIG. Do you have any sense you have any support from the White House on this?
REP. FRANK: I believe so. But I should say, Harry, that the committee that I chair does not have jurisdiction over taxes, and I've been busy with other aspects of it. I voted for the bill. I was not a major advocate. I will say that there were a number of groups we ought to take. I have actually been engaged with the executive branch, trying to push them to do what I think is the best way to deal with this, which is to assert our rights, the United States government, as the owner of that company. We own about 80 percent of the company. People are worried about taxation being used in this way. People are worried about interfering with contracts. I think one of the things we ought to be doing is suing as a shareholder saying, look, these are people who were paid bonuses that they weren't entitled to. If you look at their actual performance, I think there was an element, frankly, with some, not all of them, of almost extortion where they said, we know what you need to know, and we'll quit if you don't bribe us. So I would like to do that.
Also, it's important for us -- and I've been trying to do this, frankly, since 2006 -- to address the whole question of executive compensation and the perverse incentives you get from the way it's structured.
MR. SMITH: We'll talk about that in a second because that's part of President Obama's idea that will apparently be unveiled later this week, putting government controls of that.
I want to talk to Senator Grassley. You go home every week. What is the sense you get from folks out in Iowa about what's going on with these bonuses to folks at AIG?
SEN. GRASSLEY: Outrage on the part of Iowans. They just don't understand how people that make $20 million a year can drive a corporation into the ground, go suck off the taxpayers for bailouts and then give out millions of dollars of bonuses. We believe people ought to be compensated right, but there's a whole different ethic when you have the taxpayers bail you out. There ought to be respect for middle-class taxpayers. There ought to be respect for the fact that you made a mistake. We ought to hear some apology. We ought to hear remorse. We ought to hear contrition. I haven't heard any of that, not only with AIG but any other corporation that got bailed out. We've got small business being helped by banks here, we've put billions of dollars into Wall Street, and they loan money, $8 billion, to Dubai. You know, the people of the Midwest just don't understand how you can run a business that way and expect the taxpayers to keep you going.
MR. SMITH: Senator, is the best way to get this money back with a tax? Or is there some better way?
SEN. GRASSLEY: Well, right now, I have to do what I can do. And it looks to me like Congress's best leverage is taxes. It's like other things need to be done to make sure that people that are on the dole from the taxpayers can't do these sort of things in the first place. But in the meantime, tax. And that's what we're going to do. I hope Leader Reid will schedule it. I'm a little cynical about whether he wants to schedule it for the reason they put another bill up coming Monday that's not quite as significant as getting back $168 million of taxpayer's money to the federal Treasury.
MR. SMITH: And which may actually turn out to be more like 200 million (dollars) if the attorney general of Connecticut is correct. Listen to this, though. This is part of the blowback now from the financial community. Kenneth Lewis, who is the CEO of Bank of America, says, the clampdown on bonuses will have the potential to damage the ability of the government to engineer the economic recovery. Folks in this world say, the people inside who are getting these bonuses, are the only ones who can untangle this mess. Do you believe that to be true, Congressman?
REP. FRANK: No, not at all. And I think we do want to distinguish between bonuses. Some of the people at AIG, apparently, they weren't all getting $1 million dollars. At the working level, selling insurance, not the ones who caused the problem, some of them apparently were getting bonuses in lieu of salary. They shouldn't be forced to work for nothing. On the other hand, you have some people who were not in the insurance part but in this razzle-dazzle financial part that caused the problems. I reject the argument that they're the only ones who know it. And I want to distinguish -- a bonus that is paid if you do well, as long as you also forfeit money if you do badly, a legitimate two-way bonus which is unknown in most of these areas, I wouldn't object to.
But retention bonuses are, to a great extent, extortion. It is people saying, as you suggest in the question, Harry, I've got the combination to the safe, and if you don't bribe me, I'm going to leave, and you'll never be able to open the safe. I think it is wrong. And let's point out, a lot of very talented people have lost their job to this financial crisis. It's not that they wouldn't be able to hire good people to do this. So I really resent the extortion element of this, and I think that's one of the things that we have to deal with, not just with AIG but going forward to restrict that.
MR. SMITH: Tim Geithner, the Treasury secretary, has come under a lot of pressure in the last week or two because of these bonuses. He clearly knew about this all the way back to the beginning of March. Senator Grassley, is Tim Geithner up to the job?
SEN. GRASSLEY: Well, right now, if you're asking me, should he resign, I don't think anybody after two months has been tested enough that I would say he should resign. I think he ought to be given some time. But on the other hand, I think the reality of it is that we were told a long time ago that Geithner had to be secretary of Treasury because he was the smartest one to handle the job, he had to be on the job right now. He screwed up twice with AIG when he was president of the Federal Reserve, once now since he's been secretary of the Treasury. I think it raises questions about whether he's got his eye on the ball or not. But I think it's corporate America we've got to settle on.
REP. FRANK: I really have to respond, Harry. I know some of my Republican colleagues believe in creationism in which the world started in 4,004 years ago. But I don't think any of them really want us to believe that it started on January 20th, 2009. Let's remember that the decision to give AIG a big loan came from the Bush administration's top officials without any congressional input. Yes, Tim Geithner was the president of the New York Federal Reserve.
He (wasn't in charge ?), and he inherited a difficult situation. So trying to put the blame on Tim Geithner -- Chuck wasn't doing that. I don't mean to say that. But people who do forget that this is a Bush administration creation that he inherited.
MR. SMITH: Well, President Obama is going to give his longest interview today to "60 Minutes" and Steve Kroft tonight, and in that interview he defends Tim Geithner and says, even if he offered his resignation, he wouldn't accept it. Listen to this.
PRES. OBAMA: (From videotape.) Tim Geithner is as sharp and as skilled a public servant as we have, who has on his plate an unprecedented set of problems and is under enormous scrutiny and pressure and has been able to handle that scrutiny with grace and good humor.
MR. SMITH: All right. Let's talk about the toxic asset cleanup plan that's going to come out this week. Senator Grassley, some of it has been leaked out already. I don't have a lot of time left. From what you've seen of it, what do you think?
SEN. GRASSLEY: Well, I think that what we have to do is build confidence. And I think maybe the president's trying to take on too much. You know, he wants to emulate Franklin Roosevelt. Franklin Roosevelt called for a cut in government salaries and spent the first 100 days trying to build confidence. And I'm not sure that this is going to build confidence until we see how it works. It sure didn't work when Secretary Paulson tried to do it. It's the thing that should have been done starting October the 1st, and I hope that they follow through with it, and I hope it works.
REP. FRANK: Well, it's very different from what Secretary Paulson did. What Tim Geithner is proposing -- and I think he's doing a very good job given the problems he inherited -- he's, I think, got a very good plan here. And let's not forget, one of the things he did was to put forward, unlike the Bush administration, an excellent plan to try and reduce foreclosures. And it's the rush of foreclosures that have been the major problem. He came up with a plan to reduce foreclosures and to offer significant help to people not facing foreclosure in the middle class. So if you look at what Tim Geithner has done in two months, I appreciate the senator saying it's way too early for people to be critical.
MR. SMITH: Congressman, thank you so much.
Senator, thank you so much as well.
Do appreciate it, gentlemen.
We're going to be back with the White House perspective in one minute.
MR. SMITH: With us now, Austan Goolsbee, a member of the White House Council of Economic Advisers.
MR. GOOLSBEE: Good morning.
MR. SMITH: What's the White House reaction to this tax on AIG? And does the White House have any intention of either backing it up and/or how is the White House going to get this money back?
MR. GOOLSBEE: Well, the president has been pretty forthright in his, a, anger at what happened with AIG. And the simplest thing is for these guys to give the money back. The president's also been clear, we don't want to govern out of anger. He's going to look at what comes out of the House, what comes out of the Senate, see what ideas we have. At the least, there is public pressure and there should be public pressure on those people at AIG, who aren't being paid for performance but are being paid for having lost $170 billion, to give the money.
MR. SMITH: Does the White House have an understanding of what people beyond the Potomac, beyond the Beltway feel is going on here? There's like a fire hydrant of cash flowing into Wall Street, and the folks at home feel like, well, there's nobody at the switch.
MR. GOOLSBEE: Well, yes, the White House and the president, above all, understands that. As he says, it's one thing to be a gambler and to gamble with your own money. But here, they're gambling with the retirement accounts of our parents and the college funds of our children, you know, and things like that. So he absolutely understands that, and that's the place that he comes from is, let's get out of this bubble. Go talk to somebody in Chicago or Iowa or wherever, they're extremely upset, and they have good reason to be upset. These companies would not exist if it weren't for the U.S. government. Now, that makes them different from some of the other institutions which I'm sure we'll talk about with the financial rescue. But we can't let our anger over mistakes that happened last year block the fact that we've got to save the economy. We have to fix this problem.
MR. SMITH: Let's talk about the toxic asset bailout which is going to be unveiled this week. Just in bare bones, what can you tell me about it?
MR. GOOLSBEE: The announcement itself is going to be tomorrow, and they're going to outline other things as we go through this week. The basic idea is outlining the details of a public-private partnership so that we leverage money from the government with the private sector so that the government doesn't get in the business of overpaying for assets and things like that.
MR. SMITH: And you know, there's already grumblings from the private sector that if the federal government is going to be so heavily involved, they don't want anything to do with it.
MR. GOOLSBEE: Well, I know some people have rumored that. You quoted the CEO of Bank of America. Most of the people saying that so far have been people who are on the hook and have received a lot of money from the U.S. government. What we saw this week and what we have seen in our discussions with people is that if you lay out clear rules that are responsible, people want to participate if there's a business reason to participate. And in this circumstance where we're trying to encourage the private sector to participate, that's going to be treated totally differently than companies like AIG or Fannie Mae where they are only in business because the government saved them.
MR. SMITH: Right. One of the other aspects of this whole thing that's going to be talked about this week from the White House is this idea of putting controls on executive compensation. People are going to have their hair on fire talking about this, that the government is somehow going to have its hand in the control of private, private, private enterprise.
MR. GOOLSBEE: I would characterize that as not an accurate description of what the president's policy is. I've seen the article that you're describing. The president has, for more than a year, been calling for financial regulatory reform, and the centerpiece of that regulatory reform is to prevent the $170 billion bailouts of AIG type where a life insurance company morphs into a hedge fund, turns into a huge loss, is too big to fail, and the government has to come in. The point of regulatory reform is to prevent that.
MR. SMITH: There's been a lot of negative press about this thing that hasn't even been unveiled yet. And Paul Krugman in his blog today said, for the private investor, this is an open invitation to play heads I win, tails the taxpayers lose.
MR. GOOLSBEE: I don't think that's an accurate description. I mean, if the government doesn't make money, the private sector doesn't make money, either. I mean, these guys are coming in in a partnership. And one of the reasons you want to have the partnership is precisely so that, a, the government doesn't massively overpay for these troubled assets that are on the balance sheets and, b, so that everybody has got skin in the game and you don't get into situations where you're paying guys for failure.
MR. SMITH: I want to talk about the budget a little bit because the Congressional Budget Office came out with a description of the deficit which is significantly larger than the White House's estimate. How does this potentially endanger the White House's budget plans?
MR. GOOLSBEE: Well, I would say two things about the CBO report. One, on a technical level, the primary difference between the CBO and really most other forecasters is they're much more pessimistic about the long-run strength of the U.S. economy seven, eight, 10 years down the road. They believe that the growth rate will be significantly slower than it was in the long run in the past. The government is more in line with the private forecasters. But even in the CBO numbers, you see that the president's goal of cutting the deficit in half while investing in health care, in the clean energy economy and in the education of our kids --
MR. SMITH: Is there any sense at the White House --
MR. GOOLSBEE: The CBO shows that he is able to do that.
MR. SMITH: That's my question. Is there anything in this budget that is expendable if the deficit is so huge, moderates, folks in the middle just aren't going to be able to go along?
MR. GOOLSBEE: The president has committed, as I say, to cutting the deficit in half by the end of his first term. He's going to be working with Congress. He's outlined a budget program and these principles of making those three key investments and cutting the deficit in half. And I believe he's going to be able to do that.
MR. SMITH: Austan Goolsbee, we thank you for your time this morning. Do appreciate it.
MR. GOOLSBEE: Great to see you.
MR. SMITH: All right. We'll be back in a moment.