After Bailout, AIG Execs Lounged At Resort

House Panel Probe Into Market Crisis Also Reveals Insurance Giant Hid Risky Practices

(CBS/ AP)  Less than a week after the federal government had to bail out American International Group Inc., the company sent executives on a $440,000 retreat to a posh California resort, lawmakers investigating the company's meltdown said Tuesday.

The tab included $23,380 worth of spa treatments for AIG employees at the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy.

The retreat didn't include anyone from the financial products division that nearly drove AIG under, but lawmakers were still enraged over thousands of dollars spent on catered banquets, golf outings and visits to the resort's spa and salon for executives of AIG's main U.S. life insurance subsidiary.

"Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," House Oversight Committee Chairman Henry Waxman, D-Calif., scolded. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."

The hearing also revealed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released Tuesday by a congressional panel examining the chain of events that forced the government to bail out the conglomerate.

The panel sharply criticized AIG's former top executives, who cast blame on each other for the company's financial woes.

"You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country," said Rep. Carolyn Maloney, D-N.Y. "You were just gambling billions, possibly trillions of dollars."

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept the $85 billion government loan that gives the U.S. the right to an 80 percent stake in the company.

Waxman unveiled documents showing AIG executives hid the full extent of the firm's risky financial products from auditors, both outside and inside the firm, as losses mounted.

For instance, federal regulators at the Office of Thrift Supervision warned in March that "corporate oversight of AIG Financial Products ... lack critical elements of independence." At the same time, Pricewaterhouse Cooper confidentially warned the company that the "root cause" of its mounting problems was denying internal overseers in charge of limiting AIG's exposure access to what was going on in its highly leveraged financial products branch.

Waxman also released testimony from former AIG auditor Joseph St. Denis, who resigned after being blocked from giving his input on how the firm estimated its liabilities.

Three former AIG executives were summoned to appear before the hearing. One of them, Maurice "Hank" Greenberg - who ran AIG for 38 years until 2005 - canceled his appearance citing illness but submitted prepared testimony. In it, he blamed the company's financial woes on his successors, former CEOs Martin Sullivan and Robert Willumstad.

"When I left AIG, the company operated in 130 countries and employed approximately 92,000 people," Greenberg said. "Today, the company we built up over almost four decades has been virtually destroyed."

Sullivan and Willumstad, in turn, cast much of the blame on accounting rules that forced AIG to take tens of billions of dollars in losses stemming from exposure to toxic mortgage-related securities.

Lawmakers also upbraided Sullivan, who ran the firm from 2005 until June of this year, for urging AIG's board of directors to waive pay guidelines to win a $5 million bonus for 2007 - even as the company lost $5 billion in the 4th quarter of that year. Sullivan countered that he was mainly concerned with helping other senior executives.

Sullivan also came under fire for reassuring shareholders about the health of the company last December, just days after its auditor, Pricewaterhouse Cooper, warned of him that AIG was displaying "material weakness" in its huge exposure to potential losses from insuring mortgage-related securities.

AIG's problems did not come from its traditional insurance subsidiaries, which remain healthy, but instead from its financial services operations, primarily its insurance of mortgage-backed securities and other risky debt against default. Government officials feared a panic might occur if AIG couldn't make good on its promise to cover losses on the securities; investors feared the consequences would pose a threat to the U.S. financial system, which led to the government bailout.

AIG suffered huge losses when its credit rating was cut, thanks largely to complex financial transactions known as "credit default swaps." AIG was a major seller of the swaps, which are a form of insurance, though they are not regulated that way.

The swap contracts promise payment to investors in mortgage bonds in the event of a default. AIG has been forced to raise billions of dollars in collateral to back up those guarantees.

Sullivan said many of the firm's problems stemmed from "mark to market" accounting rules mandating that its positions guaranteeing troubled mortgage securities be carried as tens of billions of dollars in losses on its balance sheet.

This in turn, said former AIG chief executive Willumstad, who ran the company for just three months after Sullivan left, forced the firm to raise billions of dollars in capital. The federal rescue came after AIG suffered disastrous liquidity problems after its credit rating was lowered, forcing the company to come up with even more capital.

"AIG was caught in a vicious cycle," Willumstad said in the testimony.

Greenberg said that AIG "wrote as many credit default swaps ... in the nine months following my departure as it had written in the entire previous seven years combined. Moreover, "unlike what had been true during my tenure, the majority of the credit default swaps that AIGFP wrote in the nine months after I retired were reportedly exposed to subprime mortgages."

But Sullivan said the complex swaps had underlying value, even as the market for them froze, sending their book value plummeting and forcing AIG to scramble for collateral.

"When the credit markets seized up, like many other financial institutions, we were forced to mark our swap positions at fire-sale prices as if we owned the underlying bonds, even though we believed that our swap positions had value if held to maturity," Sullivan said.

The hearing is the second in two days into financial excesses and regulatory mistakes that have spooked stock and credit markets and heightened fears about a global recession.

The Fed rescued AIG on Sept. 16, one day after investment bank Lehman Brothers declared bankruptcy when the government wouldn't come to its aid. Lehman Brothers' chief executive officer testified Monday before the congressional oversight panel but didn't shed much light on how the mid-September events cascaded into a collapse of credit markets requiring a broad bailout.

Richard S. Fuld Jr., chief executive officer of Lehman Brothers, declared to the committee "I take full responsibility for the decisions that I made and for the actions that I took." He defended his actions as "prudent and appropriate" based on information he had at the time.

"I feel horrible about what happened," he said.

[bobnjersey]

[how can we start a revolution?]
[Posted by ocguy64 at 10:30 PM : Oct 07, 2008]

at one point not too long ago this would have been classified as dissent ... and you a dissenter ... and well within your right to do.

now ... by making a statement like this ... you''re an enemy combatant ... and you might just disappear one day with nobody knowing exactly what happened to you.

and this new classification comes under the title of ''patriot act''

[deepperppl]

Despicable. I kinda wonder why our government was too stupid. Same thing happened with Katrina victims, victims in a chemical leak in Graniteville SC, etc. Come on, do we really expect people who suck at using money responsibly to use the stuff they got from the bailout wisely? Fine the jerks and take back the money. And get smarter, morons in Washington. Of course they are irresponsible, that is what started all this to begin with!

[vikagg]

We should take the $85 billion back from AIG. the government should provide insurance to the people who have insurance with AIG. AIG is wasting bailout money on executives. WE NEED THE $85 BILLION BACK!!!

[riceuguy]

Although I completely understand the anger, as an ex-employee of AIG American General (the division in this story), I can tell you this has been HORRIBLY mischaracterized. These trips are for insurance agents who exceed certain sales targets. Aside from being planned a year in advance, you don''t cancel a trip like this for your top NON-EMPLOYEE salespeople at the very time they''re wondering if they should keep selling your products. Now, before somebody''s blood boils over, the AIG employees should have skipped the spa treatments and told their guests that would be in the best interest of policyholders. Before you villify these employees (who incidentally, unlike their AIG colleagues in a totally different division, have run a solid, stable business that will fetch a premium price when it is sold and will help repay taxpayers%u2014with interest), recognize that you simply don''t tell a company that needs to keep its life insurance business profitable in order to sell it and keep us all off the hook for the $85b that they should not engage in a sales practice that every other insurer engages in. Agents will stop selling their products, and the taxpayer will get stuck with the bill. I am reminded of why government shouldn''t try to run companies...if we have Senate committees looking over the company''s shoulder the whole time we''ll never get our $85b back, as most of these Senators (nor most posters!) have never spent a day running a business! Get informed before getting emotional!

[jjp735i]

Well of course they took they went to a resort. Did anyone really think Bush & Friends gave AIG money to really save the company?

[trillion1]

Yup. Keep reelecting those incumbents. They are the one''s who got us into this mess. Do you think these AIG scum would have pulled this stunt if they didn''t think the goverment would just turn a blind eye. Again.

[antoniof123]

company''''s financial woes.

Don''''t criticize them send them to gitmo and practice our tourture techniques on them.

God this is the fault of deregulation that the Republicans sent out way and yes I know that the Democrats jumped on the bandwagon but all in all facts all stated this the the GOP way. Less government and let the market do as it wants.

Posted by antoniof123 at 09:28 AM : Oct 08, 2008

Oh and I forgot put it on National TV and make all of the other Exec''s watch use red hot pokers to make the point.

[adfolder]

Listen up American taxpayers, all the stink''in govt. wants you to do is shut-up, git you butt outta bed, and go to work if you can find a job. Can''t your figure it out? They all (politicians & ceos) laugh on the way to the bailed-out bank!!!!!!

[barneybo5]

That is ***! Make those A-holes pay it back!! They should get in trouble for this, but of course their politician buddies were probably right there with them! This is America for you now!

[adfolder]

That''s right!!!!!! Live it up on the backs of the Good ''Ole American Taxpayer. Everybody else does!!!!!!!!

[flreason]

Obama hit the nail on the head when he stated in last night''s debate that AIG should be required to repay the Fed the amount spent on this outing, and that the executives who approved this misuse of taxpayer money should be fired! Talk about fiddling while Rome burns!!!!

[antoniof123]

The panel sharply criticized AIG''s former top executives, who cast blame on each other for the company''s financial woes.

Don''t criticize them send them to gitmo and practice our tourture techniques on them.

God this is the fault of deregulation that the Republicans sent out way and yes I know that the Democrats jumped on the bandwagon but all in all facts all stated this the the GOP way. Less government and let the market do as it wants.

[easeup-2009]

For $23,000 in massages, they MUST have included the ''happy ending!''

[fedup_w_pols-2009]

This is why the big corps donate the max to both sides campaigns. That way no matter who wins they are already bought and paid for. Why would you give money to either if you didn''t care who wins unless you wanted to make sure you were paid up in full.

[misha128-2009]

The Bush administration proves incompetent at managing/oversight/regulation of a company where they are now 80% owners. The talk about doing nothing as company execs lavishly spend on themselves.

[myopinion1]

Most working Americans will never visit a spa, let alone a resort. It is a luxury item reserved only for the most dispensable income, none of which is floating around in great abundance these days. Nevertheless, these thieves will do what they will because THIS COUNTRY ALLOWS THIS SORT OF FINANCIAL ABUSE TO OCCUR. Nevermind the man who just lost half of his retirement income or the family that just lost their home due to a layoff because the company execs abused their powers. These people should be in PRISON and the American people should demand no less.

Remember before the bailout when the articles talked about MILLIONS of people tying up lines telling Congress NO! to the bailout? Yeah, they really listened to us, the voters, didn''t they? When are the American people going to take away their bread and butter and DO SOMETHING? VOTE THEM OUT! Take away their livelihood.

[tbuckl]

Thomas Jefferson knew that there would be CEOs like those who worked/played at work while swindlling billions of dollars from the American citizens. We Americans have been attacked by Corp. America, waylayed by criminals and the government. The Government failed to protect the people of America. It has done nothing but support these criminals and bank roll their next crimes. Laws have been broken, people have been harmed, the government is sworn to protect us, they must arrest these criminals and put them away like anyone else who hurts American citizens.

[docpeter1953]

IOW, it was business as usual after the richocrats received $85B bailout.

The taxpayer got 5CREWED AGAIN!

Just wait until we see what happens AFTER the $850B bailout just approved.

Can I go play golf with them?

[harbinger09]

House Oversight Committee Chairman Henry Waxman, D-Calif., scolded. "Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."


Well what in the he11 did you fvckwits expect? You try to fix a problem by just fixing one of the latest symptoms and ignored the ROOT CAUSE as usual. You have the taxpayers on the line for TRILLIONS and now you have an epiphany and discover its business as usual at the fvck the taxpayers in the arrrrse express. Who Knew?

THE PUBLIC KNEW--THAT''S WHO. Congress is a bunch of incompetent, stupid, short sighted crooks who know nothing except spend, spend, spend. You can tell us how the Lehman Bros CEO got over 400 million in bonuses as his company went under too.
Fact is--every single person who voted for this stupid, stupid bill should be voted out of office--as for McCain and Obama--both who voted for--maybe we all should just write in Mickey mouse and make sure neither idiot gets into office!!!!

[glashound]

How is this even legal!!! Are there no guidelines on how this "free" money is to be spent by the corporations recieving it? This story is an outrage and a slap in the face to every American taxpayer. Just another example of corporate America sticking it to us with no fear of reprisal. Wichever canidate comes out and calls for some kind of action against AIG gets my vote. Guess ill be voting for Jed Clampett again this election.