Spitzer: AIG Cooked The Books To Inflate Capital

In Eliot Spitzer's first interview since he resigned as New York's governor, he tells Fareed Zakaria that the problem with Wall St. isn't the individuals involved, but a culture that sought greater and greater returns without taking any of the risk. He also says he hopes Barney Frank will look more closely into the payments to Goldman Sachs via the AIG bailout funds:

FAREED ZAKARIA: So, do you think that the problems that AIG got into later on stem from some of the same practices that you were trying to get at?

SPITZER: They stemmed from an effort from the very top to gin up returns whenever, wherever possible, and to push the boundaries in a way that would garner returns almost regardless of risk. And so, to the extent that there is a discussion, did this begin before or after the tenure of Hank Greenberg, it's unambiguous -- unambiguous that the structures and the flaws and the policies began while he was there. That is why the board that he had controlled with an iron fist asked him to leave. It was their decision -- not my decision, their decision -- to ask him to step down, something that was then and is now very unusual.

He has invoked the Fifth Amendment, which, of course, is his right to do. But he was asked to leave by his own board, because they saw the flaws and the problems that have since multiplied and created this monster that can bring down the financial system.

Back then I said to people, AIG is at the center of the web. The financial tentacles of this company stretched to every major investment bank. The web between AIG and Goldman Sachs is something that should be pursued.

And as I have written...

ZAKARIA: Meaning what? Meaning that a lot of the money that we the taxpayers gave AIG has ended up being paid to Goldman Sachs...

SPITZER: Precisely. And...

ZAKARIA: ... and other companies.

SPITZER: The so-called counterparties to these very sophisticated financial transactions.

When AIG initially received $80 billion -- a decision that was the consequence of a very brief meeting of the president of the New York Fed, the secretary of the Treasury, perhaps Chairman Bernanke and arguably, some reports say, the chairman of Goldman Sachs -- $80 billion, virtually all of it flowed out to counterparties, $12.9 billion to Goldman Sachs.

Why did that happen? What questions were asked? Why did we need to pay 100 cents on the dollar on those transactions, if we had to pay anything? What would have happened to the financial system, had it not been paid?

These are the questions that should be pursued. Look, bonus is a real issue. It touches us viscerally. The real money and the real structural issue is the dynamic between AIG and the counterparties.

ZAKARIA: Because those payments are in the tens of billions of dollars. The bonuses are a few hundred million.

SPITZER: The bonuses we think are $164 million, give or take -- huge money. I mean, nobody should diminish that. These counterparty payments, tens and tens of billions of dollars.

ZAKARIA: And it, to your mind, it seems as though this taxpayer money may have been recklessly and unwisely paid off?

SPITZER: Well, it may be that a case could be made that it should have been paid.

But at a moment in our nation's history when everybody is being asked to bear a piece of the burden -- everybody -- people are being told work four days a week, not five. Sales taxes are going to go up. Contracts are being broken and renegotiated for workers across America. Our 401(k)s and our savings have been depleted by the recklessness of Wall Street.

For Goldman and the other counterparties not to be able to say, we can make do with only 50 cents on the dollar, 30 cents on the dollar, after we've already given Goldman a $25 billion cash infusion, they are sitting on vast amounts of cash on the sidelines -- which is their right, but they're going to invest it in due course, based upon their judgment -- for them, on top of all that to get another $12.9 billion in the dark without questions, after a meeting of this sort, is fundamentally wrong. And that is the nature of the inquiry that should be raised.

ZAKARIA: Is there, as far as you know, a congressional inquiry into these monies?

SPITZER: I do not know if there is or isn't. I certainly hope that Barney Frank, who is the chairman of the right committee, will do so. He's a brilliant guy, a spectacular legislator and lawyer. I have absolute confidence that if he pokes at this, he will get to the bottom of it.

He is somebody -- there are many on Capitol Hill who are beating their chests so loudly, you know it's just a cover-up of their neglect and failure over the last decade. They sat there and watched and did nothing, as they clearly should have known that we were building a system that was a house of cards. And they enjoyed it and prospered from it, and there was a symbiotic relationship between them and Wall Street.

Barney Frank is not one of those. Barney Frank will ask the right questions, and I hope he does.

(See rest of transcript here.)

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