Insurance giant AIG's role in market crisis probed

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(Agencies)
Updated: 2008-10-08 09:54

WASHINGTON -- 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.

Former CEO of AIG Martin Sullivan, center, waits to testify later today before the House Oversight and Government Reform Committee on Capitol Hill in Washington, Tuesday, Oct. 7, 2008, as lawmakers probe the role of insurance giant AIG in the financial meltdown requiring government bailout. [Agencies]

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 US life insurance subsidiary.

"Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," Democratic House Oversight Committee Chairman Henry Waxman 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.

"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 Democratic Rep. Carolyn Maloney. "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 US 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."

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