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 â a form of insurance â 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 â 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 â ranging from $1,000 to nearly $6.5 million â 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 â 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 â 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.