Why AIG Stumbled, And Taxpayers Now Own It

Steve Kroft Reports On The Troubled Insurance Giant, And Talks To Its New CEO

(CBS)  Of all the corporate bailouts that have taken place over the past year, none has proved more costly or contentious than the rescue of American International Group (AIG). Its reckless bets on subprime mortgages threatened to bring down Wall Street and the world economy last fall until the U.S Treasury and the Federal Reserve stepped in to save it.

So far, the huge insurance and financial services conglomerate has been given or promised $180 billion in loans, investments, financial injections and guarantees - a sum greater than the annual cost of the wars in Iraq and Afghanistan.

In return the U.S. taxpayers have been given a 79 percent equity stake in the company. We are now AIG's largest shareholder. We have 116,000 loyal employees who had nothing to do with this mess, some valuable insurance assets, and a new CEO, Edward Liddy, who says his only mission is to get our money back.

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Will AIG ever pay us back? BNET.com columnist Ed Leefeldt weighs in on the issue for 60 Minutes.com.

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"I think we have almost a unique place, and not a very desirable place, in terms of the anger and frustration that Americans feel about bailouts. You know, individuals aren't being bailed out. Why should a company be bailed out? So I understand it. We're just trying to do the best we can to pay back the taxpayer," Liddy told 60 Minutes correspondent Steve Kroft.

For the past eight months, Liddy's job has been to prevent AIG from collapsing: trying to extricate the company from its disastrous trades, and selling off the crown jewels of what was once one of the world's great businesses, all to satisfy its massive debt to Uncle Sam.

"Are there people from the government on this floor?" Kroft asked Liddy.

"There aren't people from the government on this floor. But I would guess today, there's probably 20, or 30, or 40, or 50 people either in our building or over at the Federal Reserve, which is a couple of blocks away, worrying and thinking about things related to AIG. They come to our board meetings. They come to our committee meetings. We have them in any strategic meetings, any decisions to buy assets, to sell assets. They're involved in those," he explained.

It's a thankless job that Liddy neither sought nor particularly wanted. He had retired from the chairmanship of the Allstate insurance company and was serving on the board of Goldman Sachs when Treasury Secretary Hank Paulson, Goldman's former chairman, asked him to take over AIG.

Liddy agreed to do it for a salary of one dollar a year

Asked what ever possessed him to take the job for a dollar a year, Liddy told Kroft, "First, I think, like much of your audience, if somebody calls and says, 'Could you please help your country?' people say, 'Yes.' With respect to a dollar a year, I knew I'd have to make some tough decisions. I didn't want in any way, shape, or form people to question my integrity, my honesty as to why I was doing it."

"Did you have any idea what you were getting into?" Kroft asked.

"In some regards, I did, and in some regards, I didn't. So certainly understanding how to restructure a company, I've done that before. The political issues, how you relate to the Federal Reserve or Treasury, or the Congress, that's new and sometimes terrifying to me," Liddy said.

"Especially the Congress," Kroft remarked.

"Especially the Congress, yes," Liddy replied.

Congress raked him over the coals for paying out $165 million in bonuses to some of the very people who helped wreck AIG. The bonus deals had been signed before Liddy got there.

"It's difficult to sit there and have 30 or 35 people throwing barbs at you, and really not appreciating that you're on their side and you're trying to help," Liddy said.

Asked if he knew how bad things were at the company when he took the job, Liddy told Kroft, "No, no, not at all."

Not long after he arrived, AIG reported the largest quarterly loss in U.S. history - more than $60 billion during the final three months of last year.

[Riskman]

Mr. Liddy was not all that honest with you in your interview. Mr. liddy was proud to say that he only earns $1.00 a year. What he didn?t tell you is that his benefits far exceed that of any normal employee. According to the company?s 10K filing with the SEC and the national underwriter, May 11, 2009 edition Mr. Liddy also received:
$47,578 for commuting from Chicago to NY
$38,368 for a NY apartment
$31,348 for car service
$180,341 toward his taxes
$162,686 paid to his attorneys for developing his compensation structure.
The article states another employee who worked on a ?voluntary Basis? actually received over $900,000 in compensation in 2009. This information shows that the people who received bonuses were not the only employees over compensated. As someone once told me,? the fish stinks from the head?.

[Azsandman]

Ok we own it right? How do we get rid of it then? No one asked me if I wanted to own a pink elephant. SO, I want to cash in my share. Please make the check payable to "BEARER" Where is the "cash out line?"
There is lesson from the past Mr. Obama needs to learn. When the Titanic was sinking the Captain ordered,"abandon ship," not, "we can bail this out if we all use our shoes as buckets."

[number1GI]

Now that I am one of the new share holders I want to vote myself a raise of Oh ! say ten billion dollars and some pillow cases to put it in and a jet plane to escape in. ROTFLMAO

[brianbwb-2009]

"AIG is struggling because of Obamas liberal policies forced them into this position." Posted by mrs_trepidatious

Get a grip, AIG was in the hole long before Obama became president.

Reading is fundamental, the first paragraph of the article states,

"...none has proved more costly or contentious than the rescue of American International Group (AIG). Its reckless bets on subprime mortgages threatened to bring down Wall Street and the world economy last fall until the U.S Treasury and the Federal Reserve stepped in to save it."

Now who was president last fall? When did AIG begin the practices outlined in the first paragraph? How much are you being paid to look like a limbaugh Bushbot?

[tedryfiak]

If less than a quarter of that bailout money was lent directly to US manufacturers to hire workers and produce useful goods, the economy would have turned around instantly. People that have jobs spend money. Financial institutions are only good at hoarding money unless they find someone to lend it to that doesn't really need it.
If our politicians and financial experts figure out that jobs for average citizens have to come first, there might be some hope for us but don't hold your breath.

[lovegetpeace]

I can't help but roll my eyes when someone suggests that we might get repaid on this deal..... It's not going to happen.. It was never intended... by anyone... for there to be a repayment... We were ripped off..... We'll STAY ripped off.....and I think we're wasting our time even discussing it. This whole thing is positive proof that the people cannot control the government, once the crooks in government decide to do something.......
Posted by WiseAsOwl at 7:09 AM : May 18, 2009

Can you train me how to predict the future? I want to make trillions in Walls Street.

[WiseAsOwl]

I can't help but roll my eyes when someone suggests that we might get repaid on this deal..... It's not going to happen.. It was never intended... by anyone... for there to be a repayment... We were ripped off..... We'll STAY ripped off.....and I think we're wasting our time even discussing it. This whole thing is positive proof that the people cannot control the government, once the crooks in government decide to do something.......

[walt1944]

I agree with Liddy when he says that only a handful of people brought the company down, but it doesn't mean he isn't in some way responsible for it!

I have worked in companies which hired upper executives who worked to satisfy their own egos rather than be concerned with making sure the company survives. That includes making bad decisions, getting the company involved in risky ventures, moving away from the company"s "core" to make a quick buck and not worry about any "flashback"!

And when that "flashback" happens, these guys who get the company in trouble end up walking away with a bag of money, while the top executives and the average employee at the company are holding the bag of "poop"!

This doesn't absolve the top management from blame. Top management should have been monitoring these greedy, egotistical corporate executives and should have acted on them when it became apparent that what these corporate "hotshots" were doing could really harm the company. Instead, top management gave them freedom to get involved in any outhouse they wanted and never said a word to reprimand them!

The one's who really suffer are the average worker at the company who has put his/her entire life into building the product or pushing the pencil, and ends up losing thir jobs because of it even though they had absolutely nothing to do with it!

As George W. Bush would say, THAT'S BUSINESS!!!!

HAIL OBAMA!!!!

[ramos1129]

Kudos to Libby. He has taken on a very hard job for the taxpayers at $1 per year.

AIG has been tagged way too big for us to allow it to fail. Good enough. But, AIG itself is akin to a holding company composed of about six different companies. Except for AIG Financial and possibly one more, all of the other four are financial solvent and perhaps even profitable.The two that are not are dragging AIG into insolvency.

Since we own AIG, we should immediately break AIG into a number of small companies. These could start repaying what AIG owes the government. The bad two firms could be quarantined and then either sold or liquidated. Problem solved.

[inachu1]

Now that taxpayers own it then..... shouldn't the service be cheaper?