WASHINGTON–American International Group Chairman and Chief Executive Officer Edward Liddy said today he agreed to pay bonuses to employees at its troubled Financial Products unit only because "I am trying to prevent an uncontrolled collapse of that business."
He also said he understood the reason for public anger at the bonus payments after the government agreed to provide AIG with $173 billion in cash to keep it solvent, but asked for patience and said the only way for the government to get its money back was to continue the course he has undertaken at AIG.
He also said AIG is working with federal agencies and New York Attorney General Andrew Cuomo to get as many employees as possible who received the payments to return them.
"Obviously, we are meeting today at a high point of public anger," Mr. Liddy said.
"I share that anger," he added.
"As a businessman of some 37 years, I have seen the good side of capitalism," he continued. "Over the last few months, in reviewing how AIG had been run in prior years, I have also seen evidence of its bad side."
In his comments, Mr. Liddy portrayed the problems at AIG in the starkest terms as he sought to tamper outrage in Congress and in the country itself of disclosure that AIG over the weekend paid bonus and retention payments of $165 million, which the firm believes is required by contract, to employees of the troubled AIGFP unit.
"Mistakes were made at AIG on a scale few could have ever imagined possible," he said.
The most critical of those was the creation of a credit default swap portfolio, "which eventually became subject to massive collateral calls that created a liquidity crisis for AIG," he said.
Specifically, he testified, although AIG has wound down more than $1 trillion in the portfolio of AIG Financial Products, "the unit that is at the root of our financial problems," that portfolio remains very large, $1.6 trillion, and it continues to contain substantial risk."
He added, "The financial downside for taxpayers is potentially very large and very real, and that's why we're winding this business down."
Mr. Liddy made his comments in sworn testimony before the Capital Markets Subcommittee of the House Financial Services Committee.
The committee room was packed, as was an overflow room a floor above the hearing room in the Rayburn House Office Building on Capitol Hill.
And the scene was raucous as more than a dozen cameras were waiting to photograph Mr. Liddy from each of the only two entrances he could use to enter the hearing room.
Members of the committee on both sides of the aisle focused intently on the proceedings as they sought in one or two minutes or less to either voice their outrage or to heap blame on the other party for the problems at AIG in general, and the bonuses specifically.
Rep. Paul Hodes, D-N.H., used his time to proclaim, "For the American public, AIG now stands for arrogance, incompetence and greed."
Mr. Liddy said that in an effort to sooth public anger at the AIG bailout, he has asked the employees of AIG Financial Products "to step up and do the right thing."
Specifically, he said, he has asked those who received retention payments of $100,000 or more to return at least half of those payments.
In response, he said, some have already stepped forward and offered to give up 100 percent of their payments.
"The action we are taking today is the result of discussions with numerous parties, including Attorney General Cuomo of New York," he said. "We will work to ensure the highest level of employee participation in this effort in the days ahead. And we will keep the Congress and the American people informed of our progress."
In general, Mr. Liddy said, "we are essentially operating AIG on behalf of the American taxpayer so that we can maximize the amount we pay back to the government."
"We weigh every decision with one priority in mind: 'will this action help our ability to pay monies back to the government or hurt it?'" he said.
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