ROBERT SIEGEL, host:
Even by the standards of undercapitalized banks with TARP funds and bankrupt auto companies and nominally independent government-sponsored mortgage entities, the relationship of AIG to the federal government is stunning. The insurance giant got a $180 billion bailout from the government. It paid out bonuses earlier this year that infuriated many. On the other hand, it's now losing senior management because of a $500,000 compensation cap. And the New York Federal Reserve has evidently told AIG not to discuss payments that were made with federal bailout funds to its own trading partners, which is generally taken to mean to Goldman Sachs.
Diane Brady, senior editor at Business Week, tells us that she is immersed in all things AIG these days. So, welcome to the program to share in your immersion with us.
Ms. DIANE BRADY (Senior Editor, Business Week): Thanks. Nice to be here.
SIEGEL: And let's start with that last controversy. What is it that some members of Congress want to know about AIG that the New York Fed has told them not to disclose?
Ms. BRADY: Well, what they want to know now is whether Treasury Secretary Tim Geithner was involved in these emails to AIG that was essentially pressuring them to withhold information on payments that it made to the banks.
SIEGEL: He at that time was...
Ms. BRADY: He was the president of the New York Fed. And I think what has subsequently made the public so angry is this is a company that was on the precipice of disaster, was going to go the way of Lehman and basically these contracts, which were worth very little, the banks were getting a hundred cents on the dollar.
SIEGEL: Banks insured their investments with AIG, and AIG, even as it was bust and had only federal funds to go on, was paying off a hundred cents on the dollar.
Ms. BRADY: Yes. AIG basically was doing these credit default swaps, which is in essence a form of insurance policy on these collateralized debt obligations, which is the bundling of all these toxic mortgages. But one other thing that has made people angry - and I know Goldman Sachs has been so vilified in the past year - is Goldman Sachs, we've since discovered, created and sold these collateralized debt obligations and then it sold them short, which basically means they were pressuring the credit agencies to say they were solid bets even as the firm was betting against them. But the heart of the matter is the public money was being used to pay a hundred cents on the dollar on contracts that were in no way worth that much.
SIEGEL: Because Goldman Sachs was betting against these securities by going to AIG and insuring with them.
Ms. BRADY: Exactly.
SIEGEL: Was AIG being stood up, in fact, as a conduit of federal funds passing through it to those other banks?
Ms. BRADY: Exactly. And I think especially when you see Goldman Sachs coming out and paying what some people have deemed to be egregious bonuses, but they've had a banner year and one reason they've had a banner year is in part because they've benefited from situations like AIG where, had the company gone under, they would have had to fight for their money. Instead, they walked away with a hundred cents on the dollar of every dollar that they put in.
SIEGEL: Now AIG, like a lot of other companies that received bailout funds, has said we don't want to see caps on compensation because we'll lose talent. And, in fact, their general counsel, the head of HR as well at AIG, is leaving because she says she's not getting enough.
Ms. BRADY: I think it's a complex issue. Yes, there are caps. I think there have to be caps right now in part to assuage Washington and the public, who do not want to see both millions in payout and millions in salary. I think AIG also has the - the big issue, frankly, is that its brand is very tarnished and its future is very uncertain. And if you're, let's say, CEO material or certainly senior executive material, you would think twice about going to AIG. So they're going to have trouble. They have had trouble recruiting people, but it's especially hard to recruit people when you can't pay marketplace dollars, and frankly for a general counsel, they tend to make more than 500,000 a year.
SIEGEL: Hmm. Well, what's the future for this company? I mean, is it clear that it will actually survive for a few more years or is this the wind-down of AIG?
Ms. BRADY: I think that's a very good question and people aren't quite sure. I mean, even the stock has been very skittish. But basically they're looking to sell off a lot of assets. They're having trouble retaining their people. The brand - where possible, they've dropped the name. And I think a lot of people are very skittish about the future and at the very least they think that the government support is going to continue for quite sometime.
SIEGEL: Diane Brady, senior editor at Business Week, thanks a lot for talking with us.
Ms. BRADY: Thank you.