'This Week' Transcript: Larry Summers & Mitch McConnell

We are a country of law. There are contracts. The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system.

STEPHANOPOULOS: But, basically, I mean, tell me what's wrong with this analogy. Had the government allowed AIG to go into bankruptcy, these bonuses wouldn't necessarily have been paid.

We prevented AIG from going into bankruptcy for good public policy reasons, so why doesn't the government to have the right to at least limit these bonuses?

SUMMERS: The government -- look, I'm not a lawyer, George, and when the original agreements were reached, I wasn't part of the government and party to them.

What the Obama administration has done, based on the advice of attorneys, is done everything it can to, within the law and within the tradition of upholding law that we have in this country, to limit these bonuses.

And they have, as a result of Secretary Geithner's efforts, been scaled back.

And, obviously, this whole area is something we're going to have to look at, as we think about regulation in the future. Because no one can be satisfied with -- with what's happened. And in many cases, we just can't continue to do it -- to do it in this way.

It is outrageous. We are a nation of law, where there are contracts. And there is one other reality we have to recognize, which is that these companies have to be enabled to function, if the government is going to maximize the prospect of getting its money back.

STEPHANOPOULOS: There's a second issue that has to do with transparency. About $50 billion that went to AIG, from the taxpayers, has gone straight to their counterparties.

Now, it's been reported that these are banks like Goldman Sachs and Merrill Lynch, and some European banks, yet AIG won't say where this money has gone, won't release who these counterparties are.

And, secondly, a lot of experts wonder -- and Gretchen Morgenson asked this in the New York Times this morning. Why weren't these counterparties forced to take some kind of a haircut?

STEPHANOPOULOS: Why were they made completely whole?

SUMMERS: George, both questions are very fair questions. The Federal Reserve is the party to that portion of the agreement with AIG. And my understanding is that they're working with AIG on exactly this issue and getting the legal...


SUMMERS: ... getting the legal things that are necessary for disclosures. In just what way or just when, I can't tell you.

STEPHANOPOULOS: But the president wants that disclosed?

SUMMERS: Because it's the Federal Reserve...


SUMMERS: We'd like to see as much -- we would like to see as much transparency as is legal and is consistent with -- with market functioning. We don't have the ability, under law -- and it's one of the crucial things that, as we move to financial regulation, that the president and Secretary Geithner have emphasized that we need to have, a so-called resolution regime.

It's a technical thing. But it's basically a legal framework in which you're able to work these things out by -- by not needing bailouts and instead being able to limit payments in the way that a bankruptcy does.

But it's not something, as, frankly, we saw in the aftermath of what happened at Lehman, that you can just do in arbitrary or a higgly-piggly kind of...


SUMMERS: ... kind of way.

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