WASHINGTON (AP) — The chief executive officer of failed
insurance conglomerate AIG acknowledged Wednesday that the
company’s multimillion-dollar bonuses were “distasteful” to many
and had provoked a firestorm of wrath.
“I share that anger,” Edward Liddy, chairman and CEO of
the American International Group Inc., said in testimony prepared
for Congress.
Lawmakers from both parties expressed fury over the
company’s behavior. For the American public, AIG now stands for
“arrogance, incompetence and greed,” said Rep. Paul Hodes,
D-N.H.
Liddy, in his written remarks, said, “Mistakes were made
at AIG on a scale few could have every imagined
possible.”
But, he also said that the roughly $165 million in bonuses
paid out over the weekend should be honored as a legal commitment
of the United States government, which now owns 80 percent of the
battered insurer.
“When you owe someone money, you pay that money back,”
Liddy maintained. “We at AIG want to believe that we are all in
this together,” said the man named six months ago to take over the
company as part of the government rescue. Some $170 billion in tax
money has now been pledged to AIG.
Meanwhile, the agency that oversees AIG said that, while
its criticism of the company’s practices had sharpened over the
past five years, it failed to recognize the extent of risk posed by
the exotic financial instruments the insurance company offered,
many of them tied to a housing market that had long been
rising.
Scott Polakoff, acting director of the Office of Thrift
Supervision, said regulators failed to accurately predict what
would happen to AIG’s so-called credit default swaps — a form of
insurance — if housing values collapsed, as they have. “There are a
lot of people walking around who failed to understand how bad the
real estate market had gotten,” he said.
Liddy’s stance that the bonuses should be honored, no
matter how distasteful, drew sharp comments from both
parties.
It is “time for us to assert our ownership rights,” said
Rep. Barney Frank, D-Mass., chairman of the full Financial Services
committee. Frank said Congress will be asking for the names of the
bonus recipients — and if AIG declines to provide it, he will
convene the committee to subpoena for the names. “We do intend to
use our power to get the names,” he said.
Rep. Scott Garrett of New Jersey, the senior Republican on
the subcommittee, complained that the administration still has no
exit strategy for disentangling itself from the insurance
giant.
“Part of me wants to say to some of the loudest critics,
`What did you expect and why weren’t you asking more questions
before?’ I would argue that the real outrage now is the $170
billion of taxpayer moneys that’s been pumped into this company and
to what effect,” he said.
Rep. Gary Ackerman, D-N.Y., cited a “tidal wave of rage”
throughout America right now.
AIG is under fire for $220 million in retention bonuses
paid to employees in its troubled financial products division. The
most recent payment of $165 million began to be paid last Friday
and caused a furor.
The retention payments — ranging from $1,000 to nearly
$6.5 million — were put together in early 2008, long before
then-Treasury Secretary Henry Paulson asked Liddy to take over the
company. Liddy himself is not getting a bonus and is only drawing
$1 a year in salary.
Liddy also said in his prepared testimony that AIG grew
into an internal hedge fund that became overexposed to market
risks. AIG is the largest recipient of federal government emergency
assistance.
“No one knows better than I that AIG has been the
recipient of generous amounts of governmental financial aid. We
have been the beneficiary of the American people’s forbearance and
patience,” he said. But he also said that “we have to continue
managing our business as a business — taking account of the cold
realities of competition for customers, for revenues and for
employees.”
The clamor over compensation overshadowed AIG’s weekend
disclosure that it used more than $90 billion in federal aid to pay
out to foreign and domestic banks, including some that had
multibillion-dollar U.S. government bailouts of their own. AIG is
the single largest recipient of government assistance — a company
whose financial transactions were so intricate and intertwined that
it was considered simply too big to fail.
Orice Williams, director of financial markets and
community investment at the Government Accountability Office, the
government’s top watchdog agency, told the panel that the
government’s intervention helped AIG avoid failure, but that the
company is still struggling to pay back the money.
Market and other conditions have prevented the insurer
from making significant asset sales, she testified. She said most
restructuring efforts are still under way.
Liddy said the company’s new management team found its
overall structure “too complex, too unwieldy and too opaque for its
component businesses to be well managed as one company.”
He said the new managers have “addressed our liquidity
crisis and stabilized the company’s cash position” and is winding
down the financial products side of the business.
The White House and Treasury Secretary Timothy Geithner,
both of whom have condemned the bonus payments, have been pounded
by questions about why they did not know about the bonus payments
sooner.
The White House for the first time on Tuesday night said
Geithner learned of the impending bonus payments a week ago
Tuesday; he told the White House about them last Thursday, and
senior aides informed President Barack Obama later that
day.
Geithner said on Tuesday he was working with the Justice
Department to find ways to recover some of the payments. He cited a
provision in the recent economic stimulus law that gave him
authority to review compensation to the most highly paid employees
of companies that already have received federal
assistance.
