American International Group Chairman and CEO Edward Liddy is warning that the $123 billion liquidity lifeline the federal government is providing might not be enough to keep the company going while it tries to sell off assets, pay back the government and emerge as a smaller company.

Mr. Liddy made his comments Wednesday in an interview with Ray Suarez on the Public Broadcasting System's "News Hour with Jim Lehrer," where he explained that the company's collateralized debt obligations are weighing heavily on its liquidity.

He said AIG is in the process of cutting costs as it seeks to preserve cash while it tries to sell off assets in a market environment that continues to get worse.

"Clearly, we'd prefer to be doing this asset sale a year ago or two years ago than right now, but I think there will be plenty of excellent demand for what are really very, very good assets," he said.

He also noted, "I think it was a wise decision on the part of the Federal Reserve and Treasury to throw that lifeline to AIG so that we could emerge from this crisis in an orderly way," he said.

"AIG touches an awful lot of other financial companies around the world with the credit default swaps and some of the financial products which you alluded to earlier," he added.

"...Anyone who thinks we didn't need the Federal Reserve as a lifesaver simply doesn't understand the precarious nature of where we were," he said later.

Yesterday, the Federal Reserve Board disclosed that AIG's borrowings are now at $90.3 billion as of Wednesday.

Of that $90 billion, $18 billion is being provided under securities lending facilities and $72.3 billion has come from the $85 billion loan provided by the government on Sept. 17 in exchange for 79.9 percent of the company's stock, according to Joseph Norton, an AIG spokesman.

In the interview, Mr. Liddy said the $18 billion from the lending facilities is in exchange for quality securities owned by AIG's life insurance units and is in lieu of commercial paper the company would normally sell to provide cash.

"Because there's no commercial paper around right now, it's a liquidity facility where we give the Federal Reserve assets; they give us cash," Mr. Liddy said.

Most of the cash the Fed is providing is being burnt through to provide collateral for the credit default swaps the company sold through its now-shut AIG Financial Products subsidiary, based in London, he explained.

Specifically, he said that to the extent the credit markets continue to decline, "and we have to keep posting collateral, as it's called in the vernacular in the industry, it's possible it may not be enough."

This collateral is "primarily in the financial products area, where as the value of those assets go down--maybe they're residential mortgages or what have you--as they go down, we have to keep filling up the bathtub to make certain that the assets that we've underwritten remain the same," he said.

"So, if the value goes down, you have to make it up with something. We make it up by writing a check," Mr. Liddy said. "So we've had to write more and more checks to keep the bathtub full."

Special Reports /

AIG May Need More Gov't Help

Related Stories

Recommended For You