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October 21st, 2009
10:36 AM ET

Spitzer: Administration 'wrong' on bailouts, bonuses

With elections less than two weeks away, President Obama is busy helping raise millions of dollars for Democrats. He was in New York last night headlining a $30,000 a couple fundraiser and is scheduled to attend four more next week.

With a lot of Wall Street executives in the audience last night, the president made a pitch for regulating financial firms, saying “If there are members of the financial industry in the audience today, I would ask that you join us in passing what are necessary reforms. Don't fight them. Join us on it. This is important for our country.”

[cnn-photo-caption image= caption="Former New York Governor Eliot Spitzer says Tim Geihtner has not negotiated effectively with the financial industry on behalf of taxpayers."]

Former New York Governor Eliot Spitzer, once known as the sheriff of Wall Street, has strong views on the Obama administration's financial reforms. He says the administration has “not gone anywhere close to far enough to reform the banking sector.”

Spitzer joined Kiran Chetry on CNN’s “American Morning” Wednesday. Below is an edited transcript of that interview.

Kiran Chetry: It seems a little bit strange that at the same time you're commanding $15,000 a plate from people who can afford it – a lot of big business – you're asking them to reign themselves in. So is there a contradiction there?

Eliot Spitzer: There is, but it's worse than that because the moment to impose the reform was when we gave the industry trillions of dollars. Trillions with a “T.” We gave them all the money and yet have not imposed upon the industry anything close to the necessary reforms that were appropriate. Paul Volcker, you can read it in today's papers, is saying this administration is not going anywhere far enough.

I've been saying – many others, even Alan Greenspan – that we have to restructure banking because they're making millions and millions of dollars, billions of dollars, using our tax dollars to play with it in the marketplace and then taking those profits out in bonuses instead of lending it to the businesses that need the cash and capital to expand. The industry is opposing the fundamental reforms that are necessary. Tim Geithner had all the negotiating power in the world. He didn't use it. Tim Geithner continues to be the voice of Wall Street, not Main Street. This administration has not gone anywhere close to far enough to reform the banking sector.

Chetry: Former Fed Chair Paul Volcker – people say he's probably the most prominent economic adviser for the White House, outside of the administration. He said that the “nation's banks need to be prohibited from owning and trading risky securities.” That's what many people say caused all of our big problems. The administration is saying, no, they do not want to separate commercial banking from investment operations. Why the leeriness to try to make that happen?

Spitzer: I will not justify the administration on this at all. They are wrong. They are defending a status quo that got us into this problem in the first instance. They have embraced the same policies of the Bush administration in terms of rebuilding the same edifice of banking that permits the Goldman Sachs and Citibanks and Morgan Stanleys of the world to use taxpayer dollars, trade in the market place with highly risky derivatives and other stocks and other investments, make money when things go well and take it out as bonuses, and when things go bad, taxpayers bail them out. What Paul Volcker is saying – even Alan Greenspan, over in Europe they're saying the same thing – some of us have been saying it for a long time: too big to fail is too big. The federal guarantee here should not permit them to get involved in these risky transactions.

Chetry: So didn't we see this coming is what a lot of people are asking. There was a lot of talk about strings being attached to this bailout money. No one was watching this process and saying this needs to happen?

Spitzer: Well, again, I don't want to say go back and read the articles that many people, including I, were writing saying you're missing your opportunity, but when the banks were back on their heels begging for money, when AIG went bankrupt, when Goldman Sachs was teetering – even though they’ll deny it – they got a check for $12.9 billion from the taxpayer. We asked of them nothing. Tim Geithner missed the opportunity right then.

You need to know when to negotiate. Now you have the president saying please joins us and the banks are going up to Capitol Hill saying look at all the money we're making, look at all the contributions we’re making. Look at all the lobbyists we have pushing back, defeating the fundamental reforms, and the administration has caved on everything from the ability of judges to reform mortgages to the obligation of banks to give plain vanilla mortgages and credit card applications and deals. The administration has caved on the most important issues and now they come as a supplicant, but it's too late.

Chetry: The bottom line is Congress could be writing laws right now calling for more regulation.

Spitzer: They could be, they should be, but right now unfortunately we missed the opportunity. We can still fight this battle, and Paul Volcker, to his credit, is out there, and today's New York Times article is right on, spot on. Paul Volcker is the voice they should be listening to. He has the wisdom, the experience – even Alan Greenspan, the Bank of England, everybody else out there other than Tim Geithner. I don't get it.

Chetry: What about this argument that we're better off today than we were a year ago, and the fact that these bonuses are important because of the tax base they provide for the cities and the states? Mayor Giuliani said it when he was here, we rely on these bonuses.

Spitzer: I, as the former governor of New York, can tell you, those bonuses generate taxes for the state of New York. That is hardly a reason to build an infirm and flawed banking structure. We're better off because we took trillions of dollars of taxpayer money, gave it to the banks, and the banks of course are now solvent. Anybody will be solvent if you give them trillions of dollars. The question is what do they do with it? Do they then build an economy that is growing? Unemployment is continuing to rise. Asian and European economies are growing because they are restructuring their economy. What we're doing here is just giving money away to the banks. It's not working because they're just playing with it like a casino.

Chetry: And it is important to point out the banks that are talking about these billions of dollars in compensation are the ones that paid back the money with interest.

Spitzer: No they didn't. They paid back the T.A.R.P. money. The AIG bailout is a classic example. $80 billion. That was the first round. $180 billion total. Of the $80 billion that went to AIG, immediately went through to the counter parties from the CDS transactions. Goldman Sachs got $12.9 billion free and clear. They're never paying it back. That is just about identical to the amount they're paying out in bonuses. Tax dollars went to them to payout billions of dollars of bonuses that will never come back to the taxpayer. Nobody has explained why they got 100 cents on the dollar or why they got anything. These are the issues have to be answered.

Chetry: And you say the AIG money is never coming back?

Spitzer: It will not come back. And Tim Geithner should have got stock in Goldman, not in AIG. Again, I don't think he has negotiated at all effectively on behalf of the taxpayer.

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