Why AIG Stumbled, And Taxpayers Now Own It

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

(CBS)  At AIG Financial Products, more than 30 percent of the profits were paid out in compensation. And no one benefited more than Joseph Cassano, who oversaw the London operation that brought AIG down.

Cassano, who is holed up in his London apartment, has declined all requests for interviews.

Liddy told Kroft he has never met Joe Cassano.

"But he's clearly one of the 20 people who helped wreck this company," Kroft said.

"Joe Cassano ran FP for a number of years," Liddy replied.

"According to these figures I have, he made $43 million in 2006, $24 million in 2007 - a total of $280 million over the course of the eight years. Do you believe that he was more concerned with the values and the survival of AIG than he was about his own compensation?" Kroft asked.

"Based upon those numbers, it doesn't sound like it. But that's pure speculation on my part," Liddy said.

Cassano continued to defend his investment strategy even after the subprime mortgage crisis reared it ugly head in the summer of 2007. On a conference call with Wall Street analysts he said there was nothing to worry about: "We see no dollar of loss associated with any of that business."

He was off by more than $40 billion.

"Do you think that Mr. Cassano knew that everything was all right in August, 2007, when he made that statement?" Kroft asked.

"I don't know what he was thinking," Liddy said.

"You mean, like I don't know what he was thinking?" Kroft asked.

"I mean, like I don't know what he was thinking," Liddy replied.

"Either he didn't know what was going on, which is a kind of frightening prospect, or he did, which would suggest that he and maybe others at AIG FP engaged in a massive fraud over a period of years. It's one of those two choices," Frank Partnoy told Kroft.

Partnoy is a law professor at the University of San Diego and an expert on the kind of complicated financial derivatives that ruined AIG.

"The fraud would be not telling AIG's shareholders, its investors, about the massive risks that AIG was taking," Partnoy explained. "The fraud would be not disclosing the fact. And it turned out to be a fact, that AIG had significant exposure to subprime mortgages."

Partnoy says AIG didn't tell its shareholders about its risky positions until June 2007, and even then the disclosure was limited to a single sentence buried in a 96-page report.

The conduct of AIG's Financial Products division and its CEO, Joseph Cassano, is now the subject of wide ranging investigations by the Securities and Exchange Commission and the FBI And that has made Ed Liddy's job even more difficult.

"The first thing that I did was walk in the door and say, 'AIG FP, we're going to shut it down.' We are not going to be in that business," he told Kroft.

But there are still employees working at AIG FP, winding the business down, getting paid and getting bonuses.

"You may have said, 'Let's shut it down,' but you're not out of that business yet,'" Kroft pointed out.

"No, we are not out of the business. And it'll take a while for us to be out of it. But we will substantially de-risk and shrink that business by the end of this year. People will be surprised by how much progress we make," Liddy said.

[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?