Panel I Of A Hearing Of The House Oversight And Government Reform Committee- AIG: Where Is The Taxpayers' Money Going?
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REP. TOWNS: The committee will come to order.
Good morning, and thank you for being here today.
Eight months ago, the American taxpayers came to the rescue of AIG with an $85 billion bailout. That was followed by more money in November, more again in December, and more money still in March. The taxpayers have now provided more than $180 billion in financial assistance to AIG.
Yet much of what has been done with that money has been done in the dark. In fact, the one thing that stands out most about the collapse and federal rescue of AIG is the shroud of secrecy that has blanketed the entire sequence of events.
This secrecy has only made the situation worse. I get the sense, when I talk to people back home in Brooklyn, they simply don't understand what happened. And let me point out, they don't like the idea that their tax dollars are being used to bail out a big business. They want to believe that this federal bailout is necessary. But they wonder whether the money is being used wisely. And they want assurances that ultimately they are going to get their money back.
What is the plan to repay the American people, and does it have a realistic chance of working? Are the trustees adequately protecting the interests of the American people? In my view, AIG needs to demonstrate that it is headed in the right direction. We need to understand what the long-range plan is for AIG. Are you going to liquidate it, or are you going to restructure it in such a way as to return it to profitability and repay the taxpayers' investment?
According to testimony we will hear today, AIG plans to liquidate much of the company and spin off its insurance assets. Does liquidating the assets in the midst of a bear market make sense? Will this plan maximize the returns of the company in today's economic climate?
We know AIG agreed to sell their auto insurance unit. We hear they are negotiating the sale of their Tokyo headquarters building, a (unique ?) property adjacent to the Imperial Palace. Will the taxpayers get the best return on their investment by selling a premier property during the worst commercial real estate market in years?
A few days ago, we learned that AIG has put together a plan called Project Destiny. Project Destiny is described as a multi-year road map for the restructuring of AIG. I requested a copy of this plan, but AIG says that disclosing the plan would undermine its efforts to achieve its goal for the benefit of American taxpayers. AIG says it is consulting on the issue with the New York Fed; in other words, "Trust us. Don't rush us. Everything will be all right."
But everything is not all right. People in my district and throughout the country are hurting, yet AIG has spent millions of dollars on high-priced PR firms and big-time lawyers to attack its critics. AIG is paying PR executives as much as $600 an hour in taxpayer dollars.
Clearly AIG is making sure its lawyers and PR firms are watching its back. But who is watching the backs of the American people, the taxpayers? What should the American people think when millions of dollars in bonuses are paid to the very people who caused AIG's problems in the first place?
Less than a week ago, the AIG trustees still felt it necessary to write to Mr. Liddy and urge him to get executive compensation under control. I am surprised and disappointed to see that AIG continues to argue for secrecy. In his testimony, Mr. Liddy seems to argue that criticism of AIG will somehow hurt the company. Again, we are hearing "Trust us." But we are not willing to let $180 billion go on "Trust us." We will question. We will inquire. We will verify. And we will not hesitate to probe every aspect of AIG's management and operations to protect the taxpayers' investment.
It is our responsibility to ensure that those public monies are spent wisely, legally, and in the best interest of the American people. And we will continue to do just that. The question we are raising today should be easy enough to answer, but unfortunately AIG has failed to fully respond to straightforward requests for information. This cannot continue. As AIG moves forward, it has to know that Main Street is just as important as Wall Street.
I'm looking forward to hearing today from Mr. Liddy and also the AIG trustees.
On that note, I now yield to the ranking member, Congressman Issa from the state of Florida -- California.
REP. DARRELL ISSA (R-CA): Maybe Florida someday, Chairman.
REP. TOWNS: (Laughs.)
REP. ISSA: Thank you, Mr. Chairman. And thank you for facilitating this hearing today over the administration's management of $190 billion in bailout money.
I think it's reasonable to say that most Americans, even Bill Gates, cannot break $190 billion down into a meaningful increment. So, hopefully accurately, I divided the 300 million or so Americans into that and found it's about $633 for every man, woman and child in this country, plus or minus the latest Census.
Mr. Chairman, I voted against these bailouts. However, I'm in the minority, so I have to accept the policies given to me until the American people get their chance to vote on a different policy. And I have an opportunity, as the ranking member, to demand transparency and accountability on behalf of the American people, who have a right to know how their money is being spent. And Mr. Chairman, I want to thank you for being an equal partner in ensuring that we have that opportunity on a bipartisan basis in this important investigation.
Ensuring transparency and accountability for the more than $190 billion of taxpayers' money injected into AIG is a key component of this committee's responsibilities. Just last week we learned AIG paid $454 million in bonuses to its employees in 2008, while in March we were told it was only $120 million.
While I understand that there is confusion -- it may be that, in fact, the blame is based on different questions asked to different people in the process of getting the information -- this confusion illustrates as much the serious problem in government trying to manage a company this large and this complex.
The continued lack of transparency in this administration's bailout adventures -- and I must admit, much like the previous administration -- caused me to say, how dare we find out drip by drip by drip that our government has no ability to say how much money has been spent or on what? How much longer can the American people tolerate the lack of transparency?
I am pleased that Mr. Liddy is here today, and I want to acknowledge that he did not create the problems at AIG, but instead has taken on the very difficult challenge of unwinding an incredibly complex company while facing tremendous scrutiny from the public and from those of us here in Congress.
I want to personally say to Mr. Liddy, today we will make every effort to make this about how we can work together better, how we can achieve the transparency the American people are entitled to, and how we can do no harm to your efforts to maximize the return to all the stockholders of AIG. And particularly we're going to be asking about the 80 percent that the American people own.
Mr. Chairman, President Obama has promised the American people unprecedented level of transparency and accountability. And I see our role on the committee as one of holding the president to that promise, and that includes understanding the role of the three powerful individuals who now head the AIG trust, as designed by Treasury Secretary Geithner when he ran the New York Fed.
I believe that this trust is inherently unconstitutional, unaccountable entity that manages the taxpayers' investments in AIG not for the taxpayers but in the name of the interest of -- but in the interest of the federal government, specifically the U.S. Treasury.
It is important to remember, Mr. Chairman, that those two things are not one and the same. The U.S. Treasury is, in fact, not the same as the American people, who have invested $633 for every man, woman and child into this company.
I want to acknowledge also that for the second panel, the trustees, they did not create this problem, and they will not be held accountable for what was created. However, since they now control 80 percent of the stock of AIG, on behalf of what I believe should be the American people and not just the best interest of the Treasury, we must question why AIG trustees are immune from legal liability so long as they act in the best interest of the Treasury and are indemnified against any loss, cost or expense of any kind or character whatsoever.
Who can doubt, Mr. Chairman, in light of recent public bullying of Chrysler bond-holders, who were derided as speculators by President Obama, that these clauses insulate the trustees from the normal accountability and transparency we demand of all our representatives?
The New York Times recently reported that this unprecedented trust structure provides cover for officials who, despite the government's large stake in various banks, want to preserve the notion that neither the Treasury nor the Fed owns AIG or controls any banks.
Mr. Chairman, I would submit that this is inappropriate for regulators and bureaucrats to use this legal sleight of hand to obscure the influence in running the U.S. financial sector. The American people have a right to know what is being done with their money and how these companies are being run.
Mr. Chairman, I look forward to our witnesses. I appreciate your indulgence and would ask that additional material be placed in the record so as to preserve time, and yield back.
REP. TOWNS: Without objection. Thank you very much, Congressman Issa.
I now ask unanimous consent to leave the record open so members may submit their opening remarks and questions for the record, and we'll leave the record open for that.
At this time I would like to ask our witness to please stand. We swear in all of our witnesses.
Do you agree to tell the truth and nothing but the truth? If so, answer in the affirmative.
MR. LIDDY: (Off mike.)
REP. TOWNS: Let the record reflect that he answered in the affirmative.
You may be seated.
I'm sorry. We have the lights here. I'm sorry. And, of course, we start out, it's on green, and then it goes to yellow and then it's red. So when you get to yellow, you can start trying to wrap up, and which will allow all the members an opportunity to raise questions. And maybe something that you didn't say, you'll get a chance to say it during the questioning period.
You may begin.
MR. LIDDY: (Off mike.)
REP. TOWNS: (Off mike.)
MR. LIDDY: Better? Sorry. Let me start over.
REP. ISSA: You'll never be misquoted until you turn it on.
MR. LIDDY: Mr. Chairman, Ranking Member Issa, members of the committee, thank you for the invitation to appear before you today. I appreciate the opportunity to describe for the committee the business plan we are executing in order to put AIG's troubles behind it, to repay the monies that we owe the American taxpayer, and to secure an outcome that helps to put the American economy back on track.
We are working hard to determine the destiny of the component parts of AIG. Our plan contemplates that AIG's best businesses will establish separate identities from the parent holding company. The parent company will become smaller. The financial products unit will cease to exist.
How long the plan will ultimately take will very much depend on how quickly and how strongly the global economy recovers. But let me be clear: Our plan is explicitly designed to avoid having to divest AIG assets at fire-sale prices. Just the opposite is true. We intend for taxpayers to realize the fullest possible value from every asset disposition, and we have already made substantial progress in this restructuring.
We have reduced but not yet eliminated the systemic risk that AIG presents to the global financial system. We are selling assets where possible, despite adverse conditions in global financial markets. We are stabilizing AIG's liquidity so that we do not need support beyond those amounts already authorized by the government, although, as I've said, the economy will be a factor in this. And we are restructuring some businesses for public offerings. We are restructuring other businesses for later disposition or to be wound down so that future losses can be mitigated or avoided.
Across these four areas, we have in recent weeks achieved a number of important milestones. We are transferring two major foreign life insurance companies, ALICO and AIA, into special-purpose vehicles in exchange for a substantial reduction in AIG's debt to the Federal Reserve. We expect to complete the contractual arrangements for these transfers in the near-future.
We are also transferring the global property and casualty insurance franchise, known as AIU Holdings, into an SPV, a special- purpose vehicle. This will secure the value of that very substantial business in preparation for the potential sale of a minority stake, which ultimately may include a public offering of shares, again, depending upon market conditions.
And we continue to make significant progress in winding down AIG Financial Products. We have reduced the FP risk positions from 44,000 to 27,000, and we've reduced the notional exposure from a peak of approximately $2.7 trillion to just under $1.5 trillion today.
We continue to weigh every action with several criteria in mind: Will it reduce systemic risk? Is it the best use of federal assistance? Will it enhance our ability to pay back the government? Does it keep our insurance businesses strong and well-capitalized? And does it protect our policy-holders?
We're working hard to improve governance at the company. AIG is an incredibly complex entity with over 4,000 legal entities, cross- ownership, and a myriad of special-purpose structures. Our restructuring plan must make AIG less complicated, less risky, and more transparent.
The infusion of government capital to AIG brought with it a substantial new set of relationships -- with the American taxpayer, as AIG's largest single shareholder; with the taxpayers' representatives here in Congress; with the Federal Reserve and U.S. Treasury; and, more recently, with the trustees also appearing today.
These relationships are new and, in many ways, unprecedented. We work closely with the Federal Reserve Bank of New York and the U.S. Treasury. Representatives at the Fed and Treasury, and their advisers are engaged with various AIG officers every day. We view them as our partners.
We also consult closely with the trustees, and we appreciate the time they have devoted to understanding our restructuring plan and other critical issues. Their mature business judgment is a major asset.
I've led AIG now for eight months -- almost eight months, and I want to assure you that the people at AIG today are working as hard as we can to serve our policyholders, our customers and taxpayers.
We need your help as well. It's critical to remember that we are partners. When we at AIG make mistakes we expect to be criticized, but rampant, unwarranted criticism of AIG serves only to diminish the value of our businesses around the world, the businesses we are attempting to sell to repay the American taxpayer.
We continue to welcome a frank and open dialogue with Congress so that you can be in a position to support our efforts. This support is essential and will benefit AIG stakeholders, the American taxpayer most of all.
We cannot control the market conditions that will partly determine the timing of AIG's restructuring. But, we are confident that our approach is right, and that if we do this together we can demonstrate to the world a responsible government and capitalism still strive (sic) in the United States.
Mr. Chairman, thank you again for the opportunity to appear before you today, and I'm happy to answer questions that you or the committee might have.
REP. TOWNS: Thank you very much for your testimony.
AIG has received over $180 billion in financial assistance. Can you provide this committee with assurances that AIG will not require any additional federal money?
MR. LIDDY: Congressman, the assurance I can give you is we will do everything we can to not require additional federal money. But, the answer to that question, as I said in my prepared remarks, is so dependent on what happens to the world economic conditions, and, perhaps more particularly, the world financial markets.
We think the money that's been dedicated to us thus far -- that's $40 billion of TARP money; and approximately $43 billion of Federal Reserve borrowings; when coupled with another $30 billion of TARP -- just under $30 billion of TARP that is available to us; and the balance of the Federal Reserve borrowing -- we think, in today's marketplace, that is sufficient and we will not need additional money.
But, that answer is very dependent upon what happens to the overall economic conditions and financial marketplace around the globe.
REP. TOWNS: Well, can you assure us that the taxpayers will get their money back?
MR. LIDDY: Again, I'll assure you we're doing everything we can.
We have what we think is a terrific plan, a viable plan that's not as dependent on the capital markets as other plan might have been. But, asset values have to stay strong. There has to be a capital market that enables us to take businesses public.
I think that will happen, but I can't give you a guarantee on that. I can't control what happens in the world-wide financial marketplace.
REP. TOWNS: Does Project Destiny provide that the taxpayers will recover 100 percent of their money?
MR. LIDDY: It does. Project Destiny, as you indicated in your remarks, basically provides a strategy for each business that compromises AIG. And if the marketplace is -- if the marketplace holds the way it is right now, we think that the American taxpayer will be fully repaid.
Again, that's very conditioned upon the assumption that the world economy and the world financial markets stay where they are or improve, as opposed to deteriorate.
REP. TOWNS: Right.
Last week I wrote to you requesting a copy of your plan for the future for AIG, called Project Destiny. Your outside lawyers sent me a letter on Monday saying it was too sensitive to give to the committee, and you were discussing it with the New York Fed.
Are you trying to hide something? Why can't we get it?
MR. LIDDY: No. I'm prepared to share with you the broad brushstrokes of that plan for as long as you'd like.
When we get into the operating details -- that is, commercially sensitive material, there's a lot of people with whom we compete in the United States and around the globe, and to the extent they have access to that information it would impair our ability to sell, to operate those assets and sell those assets for the benefit of the taxpayers.
REP. TOWNS: Let me ask one other question.
Who's in charge of AIG -- you or the New York Fed?
MR. LIDDY: AIG is a shareholder-owned company, and we operate according to that.
The largest single shareholder we have is the American public, through an 80 percent ownership. The Federal Reserve is a -- and the U.S. Treasury are our partners. We don't do anything without reviewing it with them, making certain that they are in concurrence with it. So, it is very much a partnership, in terms of the way we think about making decisions.
REP. TOWNS: Right.
So, let me, for the record, Mr. Liddy, I want your commitment that you will provide us a copy of Project Destiny by the close of the business day.
MR. LIDDY: I'll talk to my lawyer about it, sir. I don't -- I want to provide you everything that you need to understand Project Destiny.
But, we're told, and the Federal Reserve has asked us to be very careful with what amounts of detail we describe, because that information, as I said, could be very commercially sensitive in the hands of our competitors and it could destroy our ability to pay back the American taxpayer.
So, if you will let me, please, consult with our attorneys about what we can do with that, we will work with you and your staff to provide you what is feasible as quickly as we can.
REP. TOWNS: Yeah.
You know, that kind of goes to the comment that was made by the ranking member, you know -- that (when you're ?) talking about transparency, I mean, in some instances, you know, some of this we just can't quite understand why, you know, we can't have it, or why we -- I mean, that's, you know, I want you to know that that's a big issue.
As we walk the street, you know, people are saying that "they're doing things in secrecy;" they're talking about the bonuses that people are getting." And I think that that's something that you have to be concerned about, in terms of the image of AIG as well.
MR. LIDDY: I'm very sensitive to it, sir.
And that's why we share with the Federal Reserve and the United States Treasury everything that we're doing. There are no secrets. Everything that we are doing we share with them.
I'm just -- I'm uncomfortable that if all of the operating details of our Project Destiny were to be made public, that it would put us at a severe disadvantage in terms of trying to realize value for the benefit of the American taxpayer.
REP. TOWNS: Do you honestly believe that you have a right to prevent Congress from reviewing how the taxpayers' money is being spent?
MR. LIDDY: No. As I said, I'm delighted. I will share as much of the overall broad brushstrokes as I possibly can, and I think that that will satisfy you. It's the operating details of that plan that I am more concerned about.
REP. TOWNS: I thank you.
My time is expired.
I yield to the Ranking Member from California.
REP. ISSA: (Laughs.) Thank you, Chairman. And I would have let you go on as long as you wanted to. You were doing extremely well.
Mr. Liddy, I'm going to pick up where the chairman left off, because I think he's on the right track.
Did you share this project, in its entirety, with individuals working for the New York Fed or Treasury?
MR. LIDDY: Yes, we did.
REP. ISSA: And was that in camera? And if so, how did you make that determination that what you shared with them was not going to be shared with your competitors?
MR. LIDDY: Well, the Federal Reserve is present at every one of our strategic discussions, at all of our board meetings and all of our committee meetings.
REP. ISSA: No, I appreciate what you're saying, but let me move to the point. The point is, they're not stockholders. They're sitting as members of the board, members of your executive committee. They're operating your company in the sense that they're insiders.
I sit on the board of a public company even today. I'm very familiar with the fact that what you're telling us you can't give us -- and you did tell us you couldn't give it to us, because, you said, you'd give us the broad-brush, the overview. Basically, you said, 'I won't share with you what I'm sharing with the Treasury.'
I'm going to ask you in a different way. I know you're going to talk to your lawyers -- and Mr. Boggs, back there, is about the best in town, so maybe you'd just reach over your shoulder when you get a chance.
Will you, given the same protections from disclosure to your competitors, make available to Congress the information? I understand the information is insider information, and people who have access to it need to understand they can't trade in the stock, they can't do other investments. Given those assurances, will you make that available to designated people from Congress?
MR. LIDDY: Congressman, I will talk to my lawyer --
REP. ISSA: Now he's shaking his head "no" -- (referring to lawyer). So, --
MR. LIDDY: -- at some point in time --
REP. ISSA: So --
MR. LIDDY: -- and he'll tell me what we can --
REP. ISSA: Okay.
MR. LIDDY: -- and cannot do, and what we should and should not do, sir.
REP. ISSA: Mr. Chairman, can we suspend for a moment to give him a chance to talk to counsel?
REP. TOWNS: I'd be delighted to do so.
(Hearing suspends while Mr. Liddy consults with his lawyer.)
REP. TOWNS: You may continue.
MR. LIDDY: Congressman, there is commercially sensitive material in there. My attorney advises me will work with you to provide everything that we possibly can.
The material that goes to the Fed or Treasury goes pursuant to a confidentiality agreement. And what we are concerned about is if it goes to Congress, does it give free access to our competitors? If we can find a solution to that --
REP. ISSA: And I appreciate that --
MR. LIDDY: -- we can provide --
REP. ISSA: -- so, I'll rephrase the question for counsel.
Assuming that we provide for in-camera -- for lack of a better term -- review by individuals who have signed onto the confidentiality agreement -- a limited amount, not Congress as a whole -- are you prepared to turn over to this committee's designated people for their evaluation?
And we would presume that we would probably have knowledgeable people outside this.
MR. LIDDY: Yes.
REP. ISSA: The answer's yes?
MR. LIDDY: Yes. Again, exactly the way you worded it, as long as we can get assurances that it doesn't go beyond that group.
REP. ISSA: Okay. Well, the chairman and I, I'm sure, will work together to find a way to make that happen. Because it is important that this branch of government have the same transparency as the other branch of government currently has on your government-owned entity.
Let me just go through one or two more quick things. If I read the arithmetic roughly right, 80 percent of your company was bought for $40 billion by converted preferred to common. Is that roughly right?
MR. LIDDY: Yes, except then another $30 billion -- or just under $30 billion is available if we need it. So you need to decide whether you want to include that in the calculation or not.
REP. ISSA: But that would further dilute the stock.
MR. LIDDY: Well, it would keep the ownership at 80 percent. So you don't go above the 79.9.
REP. ISSA: Okay. So getting to mark-to-market, if we will, what is the current value of your stock as an enterprise -- your market cap?
MR. LIDDY: It would be approximately $5 to $6 billion.
REP. ISSA: So we spent 40 billion (dollars), agreed to spend 70 billion (dollars) to buy 5 billion (dollars)?
MR. LIDDY: Well, it's 5 billion (dollar) plus what it can be worth at the end, if the Project Destiny execution goes well and the marketplace cooperates.
REP. ISSA: All right, but you're a publicly traded company. So you're worth what your worth on a given day -- your classic mark-to- market justification. You're worth 5 billion (dollars) today. If I went into the market to buy, I wouldn't have to pay 30 billion (dollars). I wouldn't have to pay 70 billion (dollars) to get 79 percent. I would pay a fraction of that if I bought into the other side of the equation. Is that right?
MR. LIDDY: Yes. The company's worth -- as you say, the company's worth about 5 (billion dollars) to $6 billion.
REP. ISSA: Okay. Additionally, and it's the last point I'll make on the finances, the government lowered your rate to LIBOR-plus- one roughly -- or now, LIBOR-plus-three. You're 3.5 (percent), 4 percent cost of money on a big part of what the government has loaned you. Is that right?
MR. LIDDY: Yes.
REP. ISSA: So the government is making money, because we borrow for less than that. But that's commercially, what, less than half of what you would normally, in your financial condition, borrow at? Is that right?
MR. LIDDY: Yes. I don't know whether half is the right number, but it's substantially less than what the rate would be if we were trying to borrow --
REP. ISSA: The BB&T's preferreds now are trading at par at 9 percent. So you're getting about half that.
MR. LIDDY: Yes.
REP. ISSA: So the government is not losing money on the loan, but in fact, you're getting a preferential treatment which hopefully comes back in the stock.
MR. LIDDY: Correct.
REP. ISSA: Okay.
Mr. Chairman, I hope we have a second round, but I beg your --
REP. TOWNS: We will. We will have a second round.
REP. ISSA: Thank you.
REP. TOWNS: I yield to the gentleman from Pennsylvania, Mr. -- (audio break) --
REP. PAUL KANJORSKI (D-PA): (In progess after audio break) -- obligations of approximately $2.7 trillion and that you would reduce that to approximately $1.7 trillion at the last time you testified.
Could you give us any indication where that exposure is today?
MR. LIDDY: Yes. At its zenith, that number was 2.7 trillion (dollars). At the end of the first quarter -- at the end of April it was down just below 1.5 trillion (dollars). So we continue to make progress -- we continue to make good progress.
REP. KANJORSKI: Do you have any time frame in mind as to when you will get down to the level that there will not be systemic risk exposure to the taxpayers of the United States?
MR. LIDDY: I do. We are -- first, we'd like to make progress in that every single month and every single quarter. But we think by the end of the year that that 1.7 trillion (dollars) and the 27,000 trades that exist will be materially smaller.
The challenge is if you go too fast, you wind up settling those trades at a disadvantage to us and therefore it'd cost the American taxpayer more so trying to do that with a little balance in the system is appropriate. We think we can get the right balance and make material progress by the end of the year.
REP. KANJORSKI: Right. Thank you.
Did I detect in your response to the chairman and the ranking member, in regard to providing your bailout plan -- or your plan of final execution that you have recorded or indicated exposure to Federal Reserve and Treasury, but have not made it available to committee staff -- is that because you may be suspicious of the congressional billboard company that we have up here on the Hill?
MR. LIDDY: No, no, it -- no. It reflects, really, just my concern that if that information gets out and gets in the hands of our competitors and it tells them what our roadmap is to resolve AIG's difficulties that they will use it against us and it will make it even harder to achieve the success that we want to achieve. It's as simple as that.
REP. KANJORSKI: I'm not criticizing your judgment -- (inaudible) -- of my chairman and the ranking member.
MR. LIDDY: No. I got it.
REP. KANJORSKI: One thing I'm interested in -- and you can be very helpful to us -- you know I'm involved in another committee and we're writing and deciding what we're going to do with the insurance industry. And when you analyze AIG, you recognize that for intents and purposes, it was a wonderful and very successful insurance company, except it had what some people call rogue organizations or offshore organizations -- the London group; the financial products division of AIG in London.
They were really the organization that in getting involved in taking positions as counterparties that they made the great opportunity of risk and weren't the best purchasers of those documents or situations. Now, that was not regulated, I take it, very stringently by your New York State regulator. Is that correct?
MR. LIDDY: The financial products business was not regulated by any of the insurance regulators, because it wasn't an insurance subsidiary. It was regulated by the OTS.
REP. KANJORSKI: Okay. Now, is OTS have a history or real experience with regulating that type of offshore operation to high success in your estimation?
MR. LIDDY: I think not. I think the last time I was before Congress, I was part of a panel that included the interim director of the OTS and I think he said as much -- that he simply lacked the capacity and the ability to adequately supervise businesses that were in Wilton, Connecticut; London; Paris; Tokyo -- what have you -- dealing in these very complicated financial instruments.
REP. KANJORSKI (?): After nine months now -- that's a short period of time, relatively speaking, to get the total lay of the land or to understand the culture, but would you feel qualified to render an opinion at this point? That looking at the existence of not only AIG, but several insurance companies that had the opportunities to do what they did in getting into the offshore operation in London and getting into derivatives, do you have any opinion as to whether or not it would be helpful and more protective to the American taxpayer to avoid their exposure and the economy to avoid systemic risk if in some way we developed a federal insurance charter that would be a regulator of that operation and much more closely involved than the present regulators have been?
Do you have a -- can you render that opinion, first? And if you can, will you?
MR. LIDDY: I can give you some preliminary thoughts. I don't know if it's a federal insurance regulator, as much as there needs to be someone who looks at systemic risk across large organizations.
So in my judgment, AIG should not -- it should have been the great insurance company it was and it should have stuck to that knitting. It should not have gone off into the financial products world. Once it did, I think it would have been helpful if there was an overseer or a regulator -- once a company gets to a certain size or engages in certain kinds of products, that company ought to be subject to some broad brush-stroke regulation, which I think right now does not exist.
I saw that the individual, Sheila Bair, who heads up the FDIC had a proposal where you'd bring together the heads of the Federal Reserve and Treasury and FDIC and they would share common knowledge about which institutions perhaps are engaging -- either are too large or have too much systemic risk or are engaging in practices that could cause difficult.
That struck me as a way of using a current regulatory environment, but getting more emphasis on those businesses that simply have become either too large or are engaging in things that are outside of their core skills.
REP. KANJORSKI: I think you're referring to Senator Collins' proposal in the Senate.
MR. LIDDY: Yeah, I'm sorry. I thought it was -- when I first read it, I thought it was part of an FDIC -- part of Sheila Bair's recommendation, but I could have that entirely wrong.
REP. TOWNS: The gentleman's time is expired.
REP. KANJORSKI: Thank you, Mr. Chairman.
REP. TOWNS: Congressman Bilbray from California.
REP. BRIAN BILBRAY (R-CA): Thank you, Mr. Chairman.
The chairman was rightfully saying the concerns of transparency and how far we can go with that.
It just sort of reminded me of the fact that if you had a proposal for major bonuses for your executives -- a proposal that had billions of dollars out there -- would you ever propose to present them with that argument at midnight and then expect them to vote on the commitment by noon the next day?
MR. LIDDY: No. I think my approach generally is to provide people the information they need in order to make an informed judgment.
REP. BILBRAY: Would you think that the 12 hours for a 1,000-page proposal would be appropriate time for consideration?
MR. LIDDY: As I said, I want to work with the Congress; I want to work with what you've asked for. I just want to make sure I protect the interest of the American taxpayer at the back end of this process.
REP. BILBRAY: Okay. I'm just pointing out, frankly, is that the representatives of the taxpayers -- we were actually asked by our chief administrative officer of Congress to ask us to vote to make that kind of commitment within that short a period of time, where I don't think any executive for any company would ask their board of directors to do that, but we were asked to do that. And that's when all hell broke loose when they realized there was a whole lot in that proposal that wasn't there.
MR. LIDDY: I understand.
REP. BILBRAY: This issue of hyperinflation coming down the pike is something we haven't talked about.
And I just want to sort of get reassured that with all the hyper spending that we're seeing the federal government do in the last few months -- and the projection is we're going to continue to do it -- most economists feel there is a great threat we'll go into hyperinflation.
If hyperinflation kicks in, what is the result on our payback? Now, I assume that we will not be going dollar for dollar.
It'll be value to some degree. But will it be dollar and will we then will hyper inflation then reduce the net value of what we're paid back to the Treasury?
MR. LIDDY: It's a great question, it's a very difficult one to answer because hype inflation, it would be accompanied by a lot of other factors, so you'd have to kind of go through a string of events, what would hyper inflation unleash? You know if you own real assets, fixed assets in a hyper inflationary period, that can be a good thing because the value of those goes up, but there's nobody that has any money in order to buy it. So you'd really have to step back and look at it. You know, our plan takes anywhere from three to five years to fully unfold, given current market conditions. How quickly a hyper inflation scenario if it were to occur, how quickly it would occur, don't know. So we could be well down the path towards realizing the repayment of the American tax payer before any hyper inflationary situation were to occur.
REP. BILBRAY: So in other words, you're hoping to be able to pay back the tax payers before the ceiling falls in on the inflationary spot?
MR. LIDDY: Well I'd like to make some major inroads into repaying the American tax payer, and I'm not so sure the ceiling falls in. As I said there's hyper inflation will be one element, there could be a host of other things that some offsetting that come with them.
REP. BILBRAY: Okay. Here's the catch follow up question here is how long you anticipate AIG to take to pay off that debt to the tax payers?
MR. LIDDY: Well I think it'll take somewhere between three and five years, and what makes the answer so difficult is in formulating a response you have to make a judgment about how strong will the economy be worldwide, and how good will the capital markets be worldwide? If they stay about where they are or get better, it's that three to five year timeframe. If they were to get worse, it could get elongated.
REP. BILBRAY: Has the administration given you any guidelines on when to start repaying AIG's debt?
MR. LIDDY: They've not given us any guidelines. We work with the Federal Reserve. Any time we use any of the dollars that have been allocated to us, we have to get a waiver from the Federal Reserve. It's our intent to try to start repaying that as quickly as possible as I mentioned in my oral testimony, we want to take some of our largest assets, put them in a special purpose vehicle. When we do that, the amount of debt that we've borrowed from the Federal Reserve will be reduced proportionately.
So we could do that in a matter of months assuming we can get all of the regulatory approvals for these special purpose vehicles done in that timeframe.
REP. BILBRAY: To what extent has the Federal Reserve officials been involved in the strategy of how to pay back this?
MR. LIDDY: They've been very involved in it. As I said, we don't, I treat them as a full partner, we don't do anything without --
REP. BILBRAY: So they're involved in day to day decisions involved here or is it just general policy?
MR. LIDDY: No I wouldn't say day to day decisions I would say more strategy and policy, some times it's hard to tell when you move from strategy to a policy to a decision, but we just don't, we don't want them to be caught off guard by anything that we're working on.
REP. BILBRAY: Okay. Thank you very much. Thank you Mr. Chairman, I yield back.
REP. TOWNS: Thank you very much. The gentleman's time has expired. Congressman Cummings from Maryland.
REP. ELIJAH CUMMINGS (D-MD): Thank you very much Mr. Chairman. Mr. Liddy good morning.
MR. LIDDY: Good morning.
REP. CUMMINGS: Mr. Liddy first of all I want to thank you for your comments about being concerned about the tax payers. We too are concerned and I heard your comments about criticism. Let me say this, when anyone's getting $182 billion of tax payer's money, many of those tax payers who have lost their jobs, savings, health insurance, you're going to get some criticism no matter what. But let me go to something that Mr. Bernanke said Fed Chair Bernanke said this a week ago when he was talking about pay and he said he had no problem with people receiving high paychecks, he said but there should be a pay system that prevents excessive risk taking and at the same time is directly related to performance. Do you agree with that?
MR. LIDDY: Yes, I do.
REP. CUMMINGS: And are you, so, and I know that you have come under AIG has come under criticism for these retention payments and the bonuses and whatever, what is being done consistent with Bernanke's statement that I just quoted to address that issue? If anything.
MR. LIDDY: It's a great question, Congressman.
REP. CUMMINGS: Thank you.
MR. LIDDY: I would say the most important thing we can do is not allow a situation like AIGFP to ever get started again. So in AIGFP the participants in that business generally got 30 to 35 percent of the profits. That can encourage some risk taking that simply is out of bounds. So the winding down of FP and the comp programs we have in place up there right now are not nearly as lucrative, they are specifically targeted at you get paid if you achieve certain objectives, so I think that is right on point with Chairman Bernanke's view that there's got to be a risk reward and a pay for performance standpoint. So I think we are making good progress on that.
In the basic insurance operations at AIG, we've almost all had that, you know, that is much more traditional looking in terms of the leverage that there is on a bonus plan, how much of a relationship there is between a base salary and a performance based bonus and they are very performance based. So in most areas of AIG I think we are in pretty good shape. It was more in the AIGFP area where I think the compensation systems got out of bounds.
REP. CUMMINGS: So let me make sure I understand now. We had in more, we had bonuses and retention payments I think in more than just FP, right?
MR. LIDDY: Yes, I was trying to respond to your --
REP. CUMMINGS: All right.
MR. LIDDY: -- to a specific part of Mr. Bernanke's comment that there ought to be a trade off between risks and rewards.
REP. CUMMINGS: All right. Now what can the American people expect as owners of 79 percent of this company with regard to bonuses and retention payments and say the next year? After all, and I'm going to say this over and over again wherever I go to losing a job, your homes, they're losing everything. And so they don't have, they have no sympathy for AIG. So I'm just wondering what can you tell them -- they're watching you, about you know what they can expect to see as they're seeing the foreclosure signs go up in front of their houses, what can they expect to see in the New York Times and the Washington Post about bonuses and retention payments at AIG?
MR. LIDDY: Specifically with retention payments, we are trying to recast as many of those as we can to make them performance based so that you have to earn them, not simply stay for a certain period of time. As I am told there are Treasury regulations which will be forthcoming that will be very specific about how much you can pay, what base salaries are, what bonuses can be, how they will be, how those bonuses can be paid. As soon as we get that material, we will revise our comp systems to be in 100 percent compliance with those regulations.
REP. CUMMINGS: Last question. Did AIG write swaps on any debt held by creditors to General Motors or Chrysler? And if so, what can you tell me about those swaps?
MR. LIDDY: I don't know. I saw that question someplace and I just don't have any information.
REP. CUMMINGS: It is a very important question.
MR. LIDDY: I'd be delighted to get the information and --
REP. CUMMINGS: How soon do you think we can get it?
MR. LIDDY: We'll do it as quickly as we can, sir.
REP. CUMMINGS: Yeah, we want to look into that very carefully.
And let me ask you this, on January 15th you told me in my, when we met that you expected to be able to pay back the debt by within five years. At that time of course I didn't know that AIG would have its largest loss in the history of any company in the world, quarterly loss, what's your projection today?
MR. LIDDY: As I answered this to the Congressman over here, I think the answer's three to five years, but it is very dependent upon what happens to the capital markets. And that loss as I've attempted to explain in the past to many of you, that loss had two major components. One was worldwide asset values plummeted in the fourth quarter. When asset values go down, we have to reflect that loss in our P&L, that's what drove that loss.
Second, when you're worried about the components of your business, you have things like goodwill and deferred tax assets, you aren't going to be able to realize those, you write them off. Those two things alone were the major drivers of that loss. I think the answer, we will be able to repay the tax payer in that three to five year time frame but it is heavily dependent upon what happens with the worldwide economic situation, the success of the stimulus programs that all of the world's governments are brining to bear, and the condition of the financial markets. We are not an island and those issues play such a large role in our ability to make progress paying back the tax payer.
REP. TOWNS: Gentleman's time has expired. I yield five minutes to Mr. Fortenberry.
REP. JEFF FORTENBERRY (R-NE): Thank you Mr. Chairman. If you decide to start a sub subcommittee on oversight of AIG I will volunteer to serve on it.
REP. TOWNS: -- to know.
REP. FORTENBERRY: Mr. Liddy, thank you for coming, you're in a difficult position. I understand you're basically not paid for this, you've taken this on to restructure the company. In that regard, I appreciate your willingness to do it, you very much understand the cynicism with which very often your testimony is met because of the pent up anger, particularly in Congress but more specifically among the American people about the reckless actions of this company previously. And in that regard, I'd like to take a step back if we could and trace a process by starting with just a general question. Can you explain to the American people who is AIG, you were formerly organized as a thrift holding company, the various business components of that, the business sector, one of those components that went bad in terms of the creation of exotic financial instruments.
And then how are you suggesting a restructuring of the company and management to deal with it?
MR. LIDDY: Sure, AIG consists of a number of component parts, and let's just think about it as a string. There are property casualty businesses, there are worldwide life and savings businesses. There are domestic life and savings businesses. There's a couple of large businesses like international lease finance. I think we own more airplanes than any other entity in the world.
And in that general area there's also the AIG financial products, so most of what I've tried to describe very briefly just now is it's an insurance company with a few exceptions. One of those large exceptions was starting at about 1987 or so, AIG got into a non- insurance business called AIG Financial Products, FP for short, and that's where we wrote very sophisticated derivatives, credit default swaps, hedges and things of that nature.
The credit default swaps generally performed well until the complete liquidity collapse that occurred in '07. Many of the credit default swaps, the multi-sector credit default swaps hat were written by AIG were tied to the housing market. When the housing market collapsed those credit default swaps called for the posting of collateral. We had to keep insuring the value of those instruments and we ran into a severe liquidity squeeze.
That's when the Federal Reserve and the United States Treasury came forward and the first rescue package was essentially a loan of up to $85 billion extended to us by the Federal Reserve. While that solved one problem it created another problem because we didn't have enough equity to support the $85 billion so that then was subsequently redone to include a balance of equity from TARP and debt from the Federal Reserve.
REP. : You stated that the default swaps preformed well. That's -- however, the reserves underlying the risk to manage those default swaps were clearly not there, which begs the earlier question about the overall structure in which AIG was operating under, a thrift holding company and a lack of regulatory oversight there.
MR. LIDDY: Yeah, as you know, Congressman, I was not there. I've been at the helm for eight months, and so my time and energy is focused on today and tomorrow and less on yesterday. What I do appreciate after being on the job for almost eight months is I don't think the financial products business belonged attacked to AIG in any way, shape or form.
And so when Congressman Kanjorski asked me the question about oversight, I think there needs to be substantially greater oversight of financial institutions. Maybe we could do that within the existing regulators to make sure that those that are either very large or pose systemic risk really get monitored on a regular basis so you can't have this kind of event occur again.
REP. FORTENBERRY: Let's quickly move to an issue of the bonuses. We were told earlier it was $120 million in 2008. New information has come out that it's 450 million. Why the discrepancy?
MR. LIDDY: We apologize for any confusion. We are asked so many questions about bonuses and each person wants it sliced a slightly different way. The first question we were asked was corporate bonuses. To us that means bonuses paid at the corporate center or paid from the corporation. That was the $121 million. We were then asked a separate question, a subsequent question, well how many bonuses were paid corporate-wide, anywhere in the company, worldwide, in Japan and South America, whatever. That's a different question and that's the larger number.
So we're trying to slice the information in accordance with each individual request that we get. We get them from Congress; we get them from the Senate. We get them from regulators and from the Fed and Treasury. We're being as cooperative as we can. Sometimes we're drowning in requests.
REP. FORTENBERRY: Back to the earlier question about your plans for management restructuring.
MR. LIDDY: For management restructuring, we divided the business into three categories, the three largest and most valuable businesses that we have. We intend to take public or sell a minority stake in. That will generate much of the funds we need in order to repay the taxpayer.
Some of the businesses will be held and we'll wait for a better day to sell them. Another section of the business is maybe a part of AIG going forward. It will take us, we think, three to four to five years if the marketplace stays where it is today or gets better, in order to repay the taxpayer. But we have a strategy to do exactly that.
REP. TOWNS: The gentleman's time has expired.
I yield now five minutes to the gentlemen from Ohio, Mr. Kucinich.
REP. DENNIS KUCINICH (D-OH): Thank you very much, Mr. Chairman. Mr. Chairman, I'm asking these questions on behalf of my constituents in Ohio, who are policemen, firemen, teachers and other public employees in Ohio, who AIG defrauded, defrauded their pension funds. These are people who protect our neighborhoods, teach our children, dedicate themselves to public service, and AIG cheated them out of $96 million.
Now AIG has admitted on multiple occasions to guilty pleas and restatements of 24 transactions that the company defrauded investors and lied to regulators. My question to Mr. Liddy, does your business plan include settlement of lawsuits against AIG for bid raiding, accounting fraud and market manipulations of AIG stock prices? We know that you paid an $800 million settlement to the SEC and 375 million to the New York Attorney General.
And if it does include it, why after receiving $85 billion on September 16, 2008, and after you assuming the duties of CEO of AIG on September 18th, 2008, why is it that AIG has cut off communications with representatives of a class action which includes police, fire, teachers and other public employees in Ohio whose pension funds AIG defrauded, and how can you tell this committee that could that -- those eight months which have passed which are contemporaneous with you becoming CEO, that you did not direct AIG to basically stall and continue the defrauding of these public employees in Ohio, Mr. Liddy.
MR. LIDDY: Congressman, I'm sorry. I just am not familiar with all the particulars of the particular suit that you have just --
REP. KUCINICH: Well, let me -- let me help you. On March the 26th you sat in front of a financial services committee and this issue was asked. I want the members of the committee to follow this now. You were asked about this before. You told the committee you'd look into it, do everything you can to make sure it gets resolved. Now you said -- you said you would do everything on March 26th. This is after people had already been waiting for months to hear whether their pensions were going to be secure.
Can you name one thing -- just name one thing that you've done to get this matter resolved with respect to the defrauding of policemen, firemen, teachers and public employees in the state of Ohio defrauding their pension fund. Can you name one thing that you ,as the CEO, have done about this?
MR. LIDDY: Anything involving legal settlements or legal challenges I depend upon our very substantial legal department to resolve. I believe that they have been either negotiation or contact. I don't know. We will meet with you; I will personally meet with you to make sure that we advance the situation.
REP. KUCINICH: That's fine. I want the committee to be aware of this. AIG repaid counterparties one to one. Counterparties in England, in Germany, in France. Dollar for dollar you repaid them, but when it comes to police and fire and teachers in Ohio, zero for the dollars they invested. This is during your watch; you can't say this about some other CEO. This is not acceptable, Mr. Liddy.
You cannot get $182 billion, as my friend Mr. Cummings pointed out, and then say well we want to -- (inaudible) -- criticism. Yes, this is criticism. AIG cheated police, fire, teachers and public employees in Ohio out of $96 million. That may not seem like a lot of money to a firm that's used to dealing in trillions, but you cheated people who save lives, who teach our children, and I want to know right now what you're going to do about it. What are you going to do about this.
MR. LIDDY: As I said, we will meet -- I'll meet with you right after this meeting if you like, and we can begin to understand exactly where we are. I just don't have the information on it. All of the things that you've mentioned, I'm very sensitive to them. They did all occur before my watch, but I'm prepared to take responsibility to decide whether they should be resolved and if so, how.
REP. KUCINICH: Well, you know we know the two other parties have already been settled in the class action case, Price Waterhouse and General Reinsurance Corp. Do you just feel that when it comes to public employees you can roll them, you can just dismiss them? Is this your attitude? You haven't resolved this, Mr. Liddy, on your watch.
MR. LIDDY: We will work with you and do everything we can to get it resolved.
REP. KUCINICH: Mr. Liddy, I'm the chairman of the subcommittee on domestic policy, and until this matter is resolved you are going to keep getting called in front of Congress to explain why it's okay for AIG to cheat police, firemen, teachers and public employees. I'm not going to let you go, Mr. Liddy, and I'll talk to you after the meeting, but you're not going to roll this member guaranteed.
MR. LIDDY: Yes, I'm not -- we'll get together after the meeting. We'll do everything we can to make sure we resolve it --
REP. KUCINICH: You said that on March 26th, I have your quote. Not -- Mr. Liddy, God bless you, thanks for being here, but there's a moment here of truth and you are going to have to remember these police, fire and teachers.
Mr. Chairman, I came to this Congress not to represent these people on Wall Street who are shafting the American people. I came here to represent my constituents and that's who I'm speaking on behalf of right now. I'm not going to let you go; I'm not going to let you get away with it.
REP. TOWNS: Thank you. And the gentleman's time has expired. The gentleman from North Carolina, Mr. McHenry, for five minutes.
REP. PATRICK MCHENRY (R-NC): Thank you, Mr. Chairman. Mr. Liddy, thank you for coming back before Congress. I know this is one of the more joyful days of your life. When did you receive the honor of being CEO of AIG?
MR. LIDDY: When did I?
REP. MCHENRY: Yes.
MR. LIDDY: Middle of September; September 18th, I think was the date.
REP. MCHENRY: September 18th. Okay. And in the whole run-up there's a Washington Post story today, which I'm sure that you caught, this morning about AIG entitled "Officials Knew of AIG Bonuses Months Before Firestorm."
Now I just want to touch on this. I don't want to -- you've received enough in the way of questions on this, and I think you've answered everything to the fullest extent you could. But documents show that senior officials at the Federal Reserve Bank of New York received details about the bonuses more than five months before the firestorm erupted and were deeply engaged with AIG, as well as outside lawyers, auditors and public relations firms about the potential controversy. But the New York Fed did not raise the alarm with the Obama administration until the end of February. So, interestingly enough -- so the New York Fed was very engaged and well informed on this matter long before it came to public light. Is that true?
MR. LIDDY: Yes. The AIG FP bonuses were a topic of great consideration starting in about the end of October or beginning of November.
REP. MCHENRY: Was the Chairman of the Federal Reserve of the Bank of New York informed of these bonuses?
MR. LIDDY: I can't answer that. We deal with --
REP. MCHENRY: Did you have a conversation with the Chairman of the Federal Reserve or the Bank of New York?
MR. LIDDY: No, I did not. I don't think so.
REP. MCHENRY: In the fall you never had a discussion with --
MR. LIDDY: The conversations, as I remember them, would've been more with the people that we interface with at the Federal Reserve on a regular basis, but they would not -- if you mean by chairman, if you mean Chairman Bernanke, no, there would've been no conversation with him. And I don't think --
REP. MCHENRY: What about the head of the New York Fed?
MR. LIDDY: Yeah. I just don't recall who the conversations were with.
REP. MCHENRY: Did you have any conversations in the fall with Timothy Geithner?
MR. LIDDY: Not in the fall. I don't believe so, no.
REP. MCHENRY: Okay. So you had no conversations?
MR. LIDDY: Mr. Geithner had pretty much recused himself from many of these activities because he was either -- they were considering him for the spot of the Treasury Secretary or he had already been nominated.
REP. MCHENRY: Well, when some of these actions took place there wasn't even a president-elect at the time, so -- you didn't have any conversations with Timothy Geithner during September or October of last year?
MR. LIDDY: Not on this topic. I don't remember that, but I'd have to go back and check. I don't think so, no.
REP. MCHENRY: Okay, if you could submit that to the Committee I'd certainly appreciate it. So you're saying you didn't have any -- apparently you're saying you didn't have any conversations with him whatsoever?
MR. LIDDY: Oh, on bonuses you mean, or in general?
REP. MCHENRY: Did you have any -- if you'll listen to me specifically here. Did you have any conversations with a Mr. Timothy Geithner in September, October, November or December of last year?
MR. LIDDY: Yes. I would say in October or November, preceding the revision of the original bailout program, I would've met with Mr. Geithner.
REP. MCHENRY: Did you have any mention of the word "bonus" with Mr. Geithner?
MR. LIDDY: No. Not in those meetings, no.
REP. MCHENRY: Did you have any discussion with Mr. Geithner in September, October, November or December in any way, shape or form regarding anything to do with the word "bonus" or what a bonus means?
MR. LIDDY: No, I don't believe so.
REP. MCHENRY: Okay. Thank you. I'm not an attorney, but it seems a little slippery the way you're trying to answer this, so I want to make sure we have that on the record. Recent data about commercial real estate predictions for this coming year and the following year -- this is the substance of what I'd like to talk about and I'm sorry we had to belabor that and it was painful for me, as well, to try to ask that question and get a direct answer from you. But, increasing vacancies -- we had a discussion about the real estate industry and specifically with the commercial real estate industry this year and next regarding increasing vacancies and, perhaps, loan defaults.
As liquidity for refinancing remains very scarce, we see a lot of troubles in the CMBS market, obviously, some talk about AIG's commercial real estate portfolio and loan exposure and how you think this portfolio will hold up if it were subjected to a stress test style of assessment the 19 largest banks went through. If you could touch on commercial real estate in your loan portfolio and your exposure there.
MR. LIDDY: We have a substantial commercial real estate portfolio, either in owned real estate or in CMBSs, as you referred to them. Those things lost substantial value in the fourth quarter. And our writedown of those, in fact, was what contributed to our very large loss in the fourth quarter. You know, I'm worried about that portfolio. I'm worried about real estate in general.
If there's a lack of economic activity, I think it does not bode well for commercial real estate at all. If the stimulus money that's being brought to bear on our economic travails does in fact work, then I think we could work our way out of that. I don't have a sense of what that timing would be, but I think commercial mortgages and CMBSs in general, which a lot of insurers invest in because they're long dated liabilities, long dated assets that match their long dated liabilities. I think that those asset classes could be under some stress for a while.
REP. TOWNS: The gentleman's time has expired. I yield five minutes from the gentleman from Massachusetts, Congressman Tierney.
REP. JOHN TIERNEY (D-MA): Thank you, Mr. Chairman. Thank you, Mr. Liddy, for being here with us today. Let me ask you, about November of 2008 the Federal Reserve Bank of New York established Maiden Lane III, a financing agency. Correct me if I'm wrong, it was that agency that provided the money for AIG to then go out and purchase some of the underlying subprime securities of a little more than $27 billion?
MR. LIDDY: Yes.
REP. TIERNEY: Now, you did that and then you canceled the contracts that you had with those counterparties, am I right?
MR. LIDDY: Yes, we did.
REP. TIERNEY: Would you provide copies of those contracts to this committee?
MR. LIDDY: The Federal Reserve would have to do that because the Federal Reserve did that, so let me just explain. While we were the counterparty, we would fight tooth and nail with them. Once the Federal Reserve decided that we would put money into a financing entity, a special purpose vehicle, then the Federal Reserve took over the responsibility for the negotiation of those settlements and the cancellation of the contracts. They would have to provide those.
REP. TIERNEY: All right. So --
MR. LIDDY: They kind of stripped them all.
REP. TIERNEY: Thank you. And the special purpose entity, will you explain to me how that was structured?
MR. LIDDY: AIG put in the equity, AIG sold the assets, the underlying assets at some cents on the dollar -- I don't remember the exact number -- 45 or 50 or --
REP. TIERNEY: To raise the equity?
MR. LIDDY: No, the equity came from money that the Federal -- that the U.S. Treasury had provided us, but then we sold the assets and the sale of those assets went into Maiden Lane III.
REP. TIERNEY: So they -- I'm just trying to learn here. So the sale of the assets were the subprime instruments?
MR. LIDDY: It was the underlying assets that were valued at, as I said, 45 or 50 cents on the dollar. The Federal Reserve then bought them and that money went into the funding of Maiden Lane III.
REP. TIERNEY: All right. The reports are that you paid full value for the subprime securities. Is that accurate?
MR. LIDDY: Again, the Federal Reserve did that.
REP. TIERNEY: So they paid full value?
MR. LIDDY: Yes, the Federal Reserve did that. In fact, we don't even know what they did because we were out of that process.
REP. TIERNEY: Okay. Before that all happened, AIG had been having serious collateral disputes with Goldman Sachs over certain values involved in their portfolios, correct?
MR. LIDDY: Oh, it was any counterparty, not just Goldman Sachs; it was any counter-party. It gets to the root of market to market. You and I can look at the same set of facts and you can think it has one value, I could think it has another.
REP. TIERNEY: And I guess, Mr. Chairman, we would need to go and get those contracts from the Fed. The question here, Mr. Liddy, obviously, is why we paid full value when there were legitimate disputes as to the value on that, why we didn't negotiate a better arrangement on that. And you're telling us that it's the Fed we should speak to, not you, because you weren't involved in that?
MR. LIDDY: Yes. We were asked to step aside once those financing vehicles were set up, and I believe the Federal Reserve had the responsibility for those.
REP. TIERNEY: Okay. Now Mr. Kanjorski asked you a question about regulation going forward and you answered on that. Why wouldn't we favor some sort of a regulatory system that disallowed entities like this from getting too large and too diverse as opposed to just having somebody oversee them and sort of watch over them? Why would we go back to something of the nature of Glass-Stiegel or that type of operation where we would just simply say you can't get that diverse and that large. You want to comment on that?
MR. LIDDY: You know, I would. I'm not so sure it's the issue of large, it's a matter of breadth. So if you're in one product line and you're really muscular in it and you're very good at it and you know it, that's one thing. But if you're in 20 different product lines and that's the definition of large, that seems to me to have a different level of risk. So I think it's properly the centerpoint for a debate that ought to occur. I just don't think a situation where an AIG, really a premier insurance company, should have a financial products business attached to it.
REP. TIERNEY: Thank you for that. You got another $43.7 billion between September of 2008 and December of 2008 that was from the public that you used to satisfy financial counterparties with respect to the Securities Lending operations of AIG. Were there any negotiations involved in those payments or were they contractually obligated for the amount that you paid?
MR. LIDDY: No, that's a whole different situation. It's where we have to pay a dollar back to somebody who's got our assets. If we want our assets back, we've got to give them a dollar, but the investments -- we had invested our dollar and it had declined, so it's a much different situation than a credit default swap.
REP. TIERNEY: Would you be able to make those contracts available?
MR. LIDDY: I assume -- I will ask our general counsel, and I'm always worried about, you know, who's on the other end and did we sign a confidentiality agreement that we won't make anything available? If you'll give us the time to research whether we can do that, we'll come right back to you. We'll do it.
REP. TIERNEY: Thank you. Yield back, Mr. Chairman.
REP. TOWNS: Thank you very much. The gentleman yields. The gentleman from Arizona, Congressman Flake.
REP. JEFF FLAKE (R-AZ): Thank you, Mr. Chairman. Mr. Liddy, can you tell us what the administration's plans are moving forward with AIG?
MR. LIDDY: I cannot. I don't have any idea.
I know what my -- I think I know what my marching orders are, and that is to run the company as well as we can, and in a way that is responsible, gives us a chance to pay back the American taxpayer, preserves the jobs, and that's what we're trying to do.
REP. FLAKE: Well, great.
I didn't think you could answer that question, I was just -- asked that to point out that the minority has asked for an administration witness for quite awhile. It would be helpful to know what the administration has planned, but we're unable to ascertain that.
And I appreciate that's not your job to answer that question. But, it's just difficult, from our side, if we don't know what the administration has planned. And I hope that we have some hearings coming up where we can find that out.
I would ask, though, there have been some talk that AIG, in its effort to come back, is undercutting the competition -- offering insurance products under-value and making it difficult for competition. Who are your main competitors?
MR. LIDDY: Domestically, ACE -- well, let me just, ACE, Zurich, AXA, Allianz, Travelers.
I would also say that a number of organizations have looked at that issue. The GAO looked at it, and they commented on it the last time I was here before Congress. The Federal Reserve has commissioned its own study of that.
And we found -- we just don't do that. We just don't -- we don't put the federal money into the property casualty businesses, and then use that as a competitive advantage. And I think any analysis that's been done would support that. Brokers have done that same kind of analysis and there doesn't appear to be much validity to it.
REP. FLAKE: So, any allegation that that is taking place has no basis in reality?
MR. LIDDY: I don't believe so.
You know, it's a very competitive marketplace. And, like most areas of business, people fight tooth and nail. But, in terms of us appropriately or inappropriately pricing our product, we do not do that.
What I don't want to do is have this company get out of the mess that it's in, and then find out that the book of business that we have is underpriced and we've got insurance issues. We're just not going to do that.
REP. FLAKE: You can see why some might be concerned about that, though, whenever government is backing someone. We've seen it with the GSEs. There's simply less care taken --
MR. LIDDY: Yes. No, I --
REP. FLAKE: -- and, and --
MR. LIDDY: -- understand it 100 percent. Again, I'd say, if you look at the results of the -- the early results of a GAO study, or some work done by the Federal Reserve, or work done by brokers, I think you'll find little, if any, validity to that issue.
REP. FLAKE: Okay.
Thank you, Mr. Chairman.
REP. TOWNS: Thank you very much.
The gentleman from Missouri, Mr. Clay.
REP. WILLIAM LACY CLAY (D-MO): Thank you, Mr. Chairman --
REP. TOWNS: Five minutes.
REP. CLAY: Thank you.
Mr. Liddy, welcome back. AIG continues to post significant losses despite infusions of taxpayer dollars amounting to over $180 billion. Just last month AIG experienced a shocking $61.7 billion loss -- a quarterly loss, which was the highest in U.S. corporate history.
Is AIG really too big to fail? And hasn't it already failed?
MR. LIDDY: Well, as I explained earlier, there were reasons for that loss. It had to do with market valuations, and then writing off assets on our balance sheet which we thought did not have as much value as we were carrying them on.
I would point out to you that just last week we reported our results for the first quarter, and that loss was not $62 billion, it was $4.3 billion, which was substantially less than the loss was in the first quarter of 2008. So, we are -- we believe we are making some progress.
I don't think that AIG has failed. I think, as I've attempted to say in my oral -- my oral remarks, and then here, in response to several questions, it's a very complicated institution. It's a very complicated situation. I think there is -- we have a good plan to work our way out of this, and hopefully to repay the American taxpayer.
But, it is heavily dependent upon economic recovery and the capital markets staying where they are or improving.
REP. CLAY: Now, given these jaw-dropping figures, you know, I'm concerned that any taxpayer investment in AIG can be equated to throwing money into a bottomless pit. It appears that taxpayers are simply propping AIG up.
Is AIG, in effect, a sinkhole?
MR. LIDDY: No. As I said, I don't believe so. I think we have a good plan, that we will be able to repay the American taxpayer. Some very vital businesses will emerge from AIG. We'll be a much smaller, more transparent, more nimble company. So, I would not categorize it as a sinkhole.
REP. CLAY: Let me ask you about the AIG Financial Products division. Did AIG retain any of the executives in its Financial Products division that ran AIG into the ground?
MR. LIDDY: The short answer is, no.
The top three or four or five people -- the folks that I would say, I characterize them as the architects and builders of the multi- sector credit default swaps, those people are gone.
Do we have people who did credit analysis or trade on securities? Yes. But, they weren't the architects and builders and engineers of that program.
REP. CLAY: So, you are not working with a completely new team at the Financial Products division?
MR. LIDDY: We're working with a completely new leadership team. Many of the folks who are executing on those contracts are the same, but they're executing under different standards and different leadership, and different requirements.
REP. CLAY: You know, all of the losses that we've talked about today have occurred under your watch as C.E.O.
So, tell the committee what exactly you are doing today that is so different from what you have done in the past few months, so that you will better protect taxpayers' investment in AIG and ensure a return on their investment.
MR. LIDDY: Well, we are trying very hard, and I think making good progress, to wind down the AIG Financial Products which posed the systemic risk that we represented to the U.S. financial system. And we've made -- we've made good progress on it.
If asset values continue to go down, we could continue to record losses. Hopefully, that does not occur.
REP. CLAY: Thank you for your answers.
Mr. Chairman, I yield back.
REP. TOWNS: Thank you very much.
As you know, we have votes on the floor. And what I'd like to do is to recess until 12:15, and return. And, of course, that would give us enough time to have the three votes, you know, plus get a drink of water.
We will recess until 12:15.
REP. TOWNS: I recognize the gentleman from Massachusetts for five minutes.
REP. STEPHEN LYNCH (D-MA): Thank you, Mr. Chairman. I also thank the ranking member in his absence for -- for holding this hearing and I want to thank Mr. Liddy for appearing before this committee again to help us with our work. Mr. Liddy, the title of today's hearing was "AIG: Where is the Taxpayer Money Going?" And in addition to that, in the letter of invitation that was sent to you and discussed with your counsel in part we asked you to respond to the question where -- where is the federal -- federal financial assistance going -- where is the taxpayer money going.
Regrettably, in your written testimony we gave you an ample opportunity to -- to provide a written response of reasonable length to that question, where is the federal money -- where is the taxpayer money going. You did not respond to that in any -- any significant fashion. There's not a sentence in there that addresses the central question of where -- where is the taxpayer money going. And look, I'm trying to work with you.
I understand that you -- you came out of retirement to do this. I understand you're working for a dollar a year. I understand all that. But we're not getting the responses that we -- we expect. I don't think there's a majority tax -- excuse me, I don't think there's a majority shareholder in this country owning 80 percent of any company that's being treated like the American taxpayer is in this case.
It's a plain fact that AIG would've gone bankrupt but for the goodness of the American people to step forward and rescue this company. That should have been a game changer on your side. That should've signaled a shift that this company is now 80 percent or 79.9 percent owned by the taxpayer, and it's a new ball game, one of transparency and -- and accountability to the American taxpayer.
I have not seen that happen. I did not see that happen in the -- in the bonus controversy which continues because the numbers are different now than they were last time you were here, and this lack of information -- that we'll get back to you, I'll have somebody dig up those documents for you -- and a complete absence of any response to the central question of where the taxpayers' money is in your opening statement or in the written testimony that we asked you to provide.
I'm disappointed at that. I'd love to work with you. I'm not here to -- you know, I'm not here to be contentious, but I'm here to do my job on behalf of the American taxpayer, and I associate myself strongly with the words of Mr. Kucinich earlier today. I feel like you're trying to roll us and you -- you're trying to obfuscate things and obstruct us from doing the job that we need to do.
You did mention in your statement the fact that AIG has reduced their nominal exposure from 2.7 trillion (dollars) to 1.5 trillion (dollars). So let me ask you about that. Since you haven't responded to the central question of the hearing let me ask you about that. You reduced the nominal -- excuse me, the notional exposure from 2.7 trillion (dollars) to 1.5 trillion (dollars), but how much of that reduction have you accomplished by shifting the exposure to the American people either the -- either through the Fed, through Treasury, through Maiden Lane or through any of these -- TALF any of these other federally- or taxpayer-backed entities?
MR. LIDDY: Little, if any, of that would -- of that notional -- of that reduction of notional exposure would have anything to do with the number of items that you just mentioned. That notional exposure has been reduced by settling those trades, selling the books of business, and just overall downsizing of the business known as AIG FP.
REP. LYNCH: Would -- let me ask you, the -- I know that we approved up to a 50 -- well, I think it was Treasury approved up to 52.5 billion (dollars) in loans in order to purchase troubled assets that were formally owned by AIG, now owned by the United States government. Wouldn't that -- wouldn't that result in a shift to -- from AIG to the government?
MR. LIDDY: Yes. That would've and I was -- I'm sorry, I was trying to draw a reference to the last time we had a conversation about this, what has changed. So Maiden Lane was put in place in November of 2008, and you're absolutely correct, some of those assets would've been transferred into the Federal Reserve after they did a very thorough evaluation analysis of what their potential would be. Since then, any reduction in the notional value has not been as a result of a transfer.
REP. LYNCH: Okay. There's also up to 34.5 billion (dollars) in Fed loans retired by securities and equity interest provided to the government by AIG --
MR. LIDDY: Again, that --
REP. LYNCH: -- that's on top of the 52.5 billion (dollars) that I first mentioned.
MR. LIDDY: Those were all items that were a part of Maiden Lane either II or III and go back to November. Since then, we haven't transferred any additional risk to the American public.
REP. LYNCH: So you're basically you're saying this is right then. The 86 (billion dollars), 87 billion (dollars) here went from AIG to the U.S. government here?
MR. LIDDY: Well, assets -- assets with real values got transferred to the Federal Reserve and they got transferred at -- I don't remember the exact number, 45 --
REP. LYNCH: Half -- for these --
MR. LIDDY: No. The assets got transferred to the Federal Reserve at cents on the dollar -- let's say, 50 cents on the dollar.
REP. LYNCH: Yeah.
MR. LIDDY: So the Federal Reserve has the opportunity and the American public has the opportunity to benefit from any appreciation or recovery in those asset values. That's what Maiden Lane and -- II and III are all about.
REP. LYNCH: I don't have enough time in my -- I wish you had in your testimony outlined, you know, where the -- where the taxpayers' money has gone.
MR. LIDDY: Congressman, can -- can I address that? The last time --
REP. LYNCH: (Inaudible.)
MR. LIDDY: -- I was here we provided a very exhaustive document that showed exactly where all of the taxpayer money has gone. So of the $82 billion -- $40 billion of TARP and roughly 42 (billion dollars) or 43 billion (dollars) of a loan from the Federal Reserve -- it's a very exhaustive analysis that breaks it down into how much went to the counterparties, how much went to municipalities to protect the guaranteed investment contracts, how much went to pay off debt that was called because we'd lost our ratings, how much went to securities lending. There's a very exhaustive analysis that's a part of the record that explains that in some detail. We aren't trying to obfuscate anything. We thought we had already provided that. And if you'd like, we'll provide you another copy of it. I think it'll answer all your questions.
REP. LYNCH: Well, I think when we entitled this hearing where did the money go and we send you an invitation and we say, tell us what you did with the federal financial assistance, I think that sort of is asking that. And so now we have this hearing and we have you up here and we don't have any response, and that -- you know, that bothers me to no end, you know.
MR. LIDDY: Well, we --
REP. LYNCH: We're going to have to have you back up here. I'm not going to -- you know, I'm with -- I'm with Kucinich on this. We're not going to be rolled on this, and when we ask you a question and we get all these people together and we have a hearing and we ask you a specific question to address on your testimony, by God, we want the answer. We own 80 percent of your company. You exist because the American taxpayer purchased, you know, 79.9 percent of your shares, and so there's a -- there's an obligation due here.
There's transparency that's owed to the American taxpayer and we don't see it, and it is particularly frustrating. Let me ask you. I did see some of the counterparty obligations here that when the first money went into AIG one of the top beneficiaries was Goldman Sachs --
MR. LIDDY: Uh-huh.
REP. LYNCH: -- at $12.4 billion. Now, the person who arranged that deal was Secretary Paulsen who formally of, you know, associated with that firm. Did you feel any pressure or anything in terms of the order in which you had to compensate or provide those funds to those individual firms? Did you feel any conflict there?
MR. LIDDY: I did not. And the final resolution -- the final determination of who got what was made by the Federal Reserve, not by people at AIG.
REP. LYNCH: Okay. Okay. Well, that -- that explains a lot. Okay. Well, again, I'm going to ask that the committee re-invite you to another hearing at which you actually can -- can get into that central question of where the taxpayer money went. Maybe we could do that in conjunction with Mr. Kucinich and the questions he had. But at this point I'll yield back. Thank you, Mr. Chairman.
MR. LIDDY: And I will -- Congressman, I will provide to you within the next couple of days a fresh copy of what we provided the -- the previous committee that I was at which -- which goes into great detail as to where the money went.
REP. TOWNS: Thank you very much. Gentleman from -- you pass? Okay. Congressman Connolly from Virginia.
REP. GERRY CONNOLLY (D-VA): Thank you, Mr. -- thank you, Mr. Chairman. And welcome, Mr. Liddy. Couple of questions -- your predecessor, Mr. Greenberg, testified before this committee two weeks ago and he indicated that he would now favor federal regulation of credit default swap instruments and derivatives, for that matter. Do you share that opinion, that the federal government needs to regulate those financial instruments?
MR. LIDDY: Yeah. I think they need to be put on an exchange. I think they need to be standardized and there needs to be a lot more transparency, and if there was federal regulation you would get all of those.
REP. CONNOLLY: And if I understood your testimony this morning, Mr. Liddy, you believe that, in retrospect, where AIG went wrong was, frankly, branching out into such financial instruments in the form of AIG FP specifically?
MR. LIDDY: Yes, those instruments are more appropriate for large commercial banks and investment banks that have the skill set, the more refined skill set, to handle them. It's not appropriate for an insurance company, in my judgment.
REP. CONNOLLY: Right. Could you just review for me the figures I thought I heard you give in your testimony this morning. How much did AIG get into the company directly from appropriated dollars from this body and how much came directly from the Federal Reserve?
MR. LIDDY: As we stand right now, the money that's been advanced to the company is $40 billion out of TARP, out of the Treasury program, and about $43 billion in loans from the Federal Reserve.
REP. CONNOLLY: Gotcha.
MR. LIDDY: Now, in addition to that -- let me just finish. In addition to that, there's another $30 billion of TARP that we can draw on if we need it and there's an additional $17 billion, to top the $43 billion off to 60 (billion dollars), that we could draw as a loan from the Federal Reserve.
REP. CONNOLLY: Okay. Thank you. Now, with respect to governance, if I understand it correctly, there are three federally appointed trustees?
MR. LIDDY: Yes.
REP. CONNOLLY: All of them are appointed by the Federal Reserve? Is that correct?
MR. LIDDY: You should ask them. They represent Treasury as the owner of the 79.9. I think they were appointed by the Federal Reserve because the Federal Reserve was delegated that responsibility by Treasury, but I'm not involved in that process.
REP. CONNOLLY: Right, but with respect to their govern -- I mean, their names are Jill Considine, Chester Feldberg and Douglas Foshee. Does that ring a bell?
MR. LIDDY: Yes.
REP. CONNOLLY: Those are all Federal Reserve appointees, are they not?
MR. LIDDY: Yes, but -- I'm sorry. I'm stumbling because I don't -- I'm just not involved in it. I think they represent the Treasury's interest, the ownership interest of (crosstalk) --
REP. CONNOLLY: You say you're not involved in the selection and role of the --
MR. LIDDY: In the selection.
REP. CONNOLLY: In the selection, but you certainly are involved in the interaction.
MR. LIDDY: Oh, absolutely. Yes.
REP. CONNOLLY: Are there any other federal trustees?
MR. LIDDY: No.
REP. CONNOLLY: So, for example, there are no elected officials or anyone appointed by this elected body as a trustee of AIG?
MR. LIDDY: No, certainly not that I'm aware of.
REP. CONNOLLY: Hmm. They don't attend board meetings, is that correct?
MR. LIDDY: They do not. The Federal Reserve has a delegate at every board meeting and every committee meeting.
REP. CONNOLLY: And is the board still pretty much a private sector like board?
MR. LIDDY: Private --
REP. CONNOLLY: What I'm asking is, is there a clear delineation between the public trustees representing federal interests of almost 80 percent and the board of directors that apparently, I'm asking, stays pretty much privately controlled and appointed?
MR. LIDDY: There is a delineation, but again, the linchpin of that would be the representatives from the Federal Reserve who are observers and overseers at every board meeting, every committee meeting, every strategy meeting, every discussion that we have. REP. CONNOLLY: So representatives of the Federal Reserve sit in on board meetings?
MR. LIDDY: Yes, they do.
REP. CONNOLLY: Gotcha. Unlike these trustees?
MR. LIDDY: Correct.
REP. CONNOLLY: What is -- going back to the governance question, what is the distinction then between the role of these trustees and those members of the Federal Reserve who sit in on board meetings overseeing that procedure?
MR. LIDDY: I'm going to answer and then I think you should address that to the trustees. The trustees are the protectors of the 79.9 percent ownership and the value that we'd like to create for that. The Federal Reserve is representing its interest as a lender and has in the past been asked by the Treasury to also kind of coordinate Treasury's interaction with the company so that there can be only one organization doing it instead of splitting it. We are -- we have 360 degree oversight with an awful lot of people wanting to understand what our strategy is, what our execution is. The Fed has been asked to try to coordinate that 360 degree oversight.
REP. CONNOLLY: My time is probably running out, but let me ask a final question. With respect to bonuses, one of the rationales in the public record anyhow for bonuses was recruitment and retention. How many folks--with respect to the bonuses in question -- how many folks left the company who received bonuses?
MR. LIDDY: Yeah, I would say very few. Now, are you talking about -- and here's where it's very easy to get off the track. You're talking about FP retention bonuses or overall company bonuses, or what --
REP. CONNOLLY: I'll gladly go with the FP bonuses for a minute.
MR. LIDDY: On the FP sector, we had about maybe ten to 12 to 15 resignations. We've had several of those people rescind those resignations and stay with us even as they work to return their bonuses. Don't know if the resignations are over yet. Some have said, you know, "I'm going to help you wind this down and be as professional as I can, but then I want to get on with my life and I want to resign," so I don't know that my answer is reflective of what will eventually happen.
REP. CONNOLLY: If it's possible to get us data for the record in terms of that list of people who qualified for bonus and/or got bonuses and how many of them left the company or stayed with the company --
MR. LIDDY: Okay.
REP. CONNOLLY: -- I would appreciate that. Thank you. Thank you, Mr. Chairman. I yield back.
REP. TOWNS: Thank you. Yield five minutes to Mr. Westmoreland, the gentleman from Georgia.
REP. LYNN WESTMORELAND (R-GA): Thank you, Mr. Chairman. Mr. Liddy, how many lawsuits are currently pending between AIG and C.V. Starr, Starr International, and/or Mr. Hank Greenberg?
MR. LIDDY: I can't give you an exact number, but several and there are several that are quite large. I try to keep a finger on the pulse of the largest ones, but then I rely upon our general counsel and our legal department to handle those issues.
REP. WESTMORELAND: How much money has AIG spent on these lawsuits and legal fees so far and how long do you think this could go on and how much money has AIG set aside or projected for the future costs of these lawsuits?
MR. LIDDY: I don't have the details, sir. We can provide them to you, but I would say the largest -- one of the largest lawsuits we have involves a lawsuit with SEGO (ph) and it has a $4 billion potential recovery attached to it and so working to get that money so that it can be used for the benefit of the taxpayers, we think, makes some sense.
REP. WESTMORELAND: Okay, and so, but, you know, from what I've been reading or told is that this could take three or four years and tens of millions of dollars to get these lawsuits settled, with C.V. Starr or Mr. Greenberg or Starr International.
MR. LIDDY: Well, the first of those lawsuits is scheduled to go to trial on June 15th of this year.
REP. WESTMORELAND: Okay.
MR. LIDDY: And the start of that lawsuit would go back to, oh, 2005, 2006, so an awful lot of work has already been done with respect to it, so the issue becomes do you continue to pursue it because you're now very close to what you think will be a legal victory involving a fair amount of money.
REP. WESTMORELAND: But that's one of the lawsuits. Do you -- you said you didn't know exactly how many are pending?
MR. LIDDY: No, that's one -- I know that one because it's one of the larger. Then there's a suit against Mr. Greenberg to the tune of about $1.6 billion to recover the fines and penalties that the company paid as a result of his behavior that was determined -- that's what we had to do in order to pay the attorney general of the state of New York.
REP. WESTMORELAND: Okay, but you will get us the information about how many lawsuits are pending?
MR. LIDDY: Yeah.
REP. WESTMORELAND: And where they're at in the legal process, if you don't mind?
MR. LIDDY: With respect to Mr. Greenberg?
REP. WESTMORELAND: Yes, that would be fine. According to the news reports, and I want to ask you if this is true, that Mr. Greenberg has offered to submit all these matters to a mandatory arbitration. Are those news accounts true?
MR. LIDDY: We've gone through various forms of either mediation or arbitration in the past, generally without any successful conclusion, and now that all the work has been done and this trial is ready to start and the judge who is going to hear it has been briefed and is knowledgeable on it, most of those activities are no longer ongoing, but we certainly have engaged in those discussions before.
REP. WESTMORELAND: But -- I think my question is, are the news reports true that it would be mandatory arbitration? Binding arbitration?
MR. LIDDY: I don't think so, no. Again, we're going to quickly exhaust my level of expertise in terms of exactly what that would be and that's why --
REP. WESTMORELAND: Could you get that information, too, to find out if these news reports are true, that it would be a binding arbitration that he has suggested that he and AIG go through.
MR. LIDDY: Yes.
REP. WESTMORELAND: Because, you know, to be honest with you, Mr. Liddy, now that AIG is about 80 percent taxpayer owned I would think that if this binding arbitration was an offer that was out there for both sides to do, that it might be in the best interests of the American taxpayer to get these things settled rather than going on for years and years and years paying these legal fees, and I'm sure that binding arbitration with whoever the arbiter would be could, in fact, in the end result bring this to a close and save the taxpayers, myself and my kids and grandkids millions of dollars over this period of time. You mention yourself that this has been going on since 2005 in this one case and so if there's more than one case, how much longer could it go on? How much more money are we going to spend on lawyers and what would be the harm in going to a binding arbitration?
MR. LIDDY: Like I said, we have attempted to do that on numerous occasions with Mr. Greenberg on at least one suit, and probably others, and now all of the work and effort has been teed up to actually take this to trial, so we think we have an excellent chance of --
REP. WESTMORELAND: So you've never been to binding arbitration, is what you're saying?
MR. LIDDY: I'll provide you the detail. I just don't know.
REP. WESTMORELAND: Okay, because, I mean, if you've been to binding arbitration, then it looks like it would be binding. I don't want to badger you and I'm not trying to, but --
MR. LIDDY: Yeah, no, I know we've been through several rounds of mediation.
REP. WESTMORELAND: -- well, I would like to know the details on that, because I feel like since the -- you know, we now own 80 percent of the company, that we do have an interest in that and in ongoing litigation that could cost millions of dollars. And --
REP. : Would the gentleman yield?
REP. WESTMORELAND: I will.
REP. : Thank you.
Mr. Liddy, earlier I asked you about the current stock value of the -- you know, of your stock, but I didn't ask you about your portfolio in its entirety.
As an enterprise value, what would you say the fairly-stated enterprise value of the going concern you run today is -- not what you could liquidate it for, but what the enterprise value is, so that we could decide what you believe it is worth in a fair market, not what it's going to earn over years in which you get artificially low loans and stock which is paying no dividend, but what do you believe the enterprise is worth today?
MR. LIDDY: I would go back to the discussion we had earlier. I think it's the -- I think it's the equity value. It's about 2.7 billion shares, I think, at approximately $2 a share. Because it's not just the assets that you have to value, it's all the liabilities. It's the $40 billion that we --
REP. : Well, that's why I asked for the --
MR. LIDDY: -- (inaudible) -- there's $250 billion --
REP. : -- enterprise value.
MR. LIDDY: -- of other debt that we owe. So, I think the enterprise value is, at most, what the equity value is worth today.
REP. : So, you're saying you're worth $5 billion, and you've got $190 billion of the stockholders' investment?
MR. LIDDY: Again, the key is to be able to manage this situation over time so that we can liquidate the liabilities, pay back everything, and then have a value retained which the trustee are the guardians of.
REP. : Thank you, Mr. Chairman.
REP. TOWNS: The gentleman's time has expired.
REP. WESTMORELAND: Mr. Chairman -- and I'll yield back my time.
But I would like to make a request that we do get this information from Mr. Liddy and AIG as far as the future liability that could be imposed upon taxpayers.
REP. TOWNS: Without objection, we'll hold the record open for the information.
The gentlewoman from Ohio, Ms. Kaptur.
REP. MARCY KAPTUR (D-OH): I thank you, Mr. Chairman.
And welcome, Mr. Liddy.
Mr. Chairman, I would like to place on the record, as I begin my questioning here, the list of the current board of directors of the Federal Reserve Bank of New York; as well as the list of primary dealers with the Federal Reserve Bank of New York; and the amount of funds that have been provided to the different institutions that are primary dealers, as being counterparties to some of the funds that were received through AIG.
REP. TOWNS: (Off mike.) -- objection.
REP. KAPTUR: I thank you.
Mr. Liddy, may I ask you, what is the actual address at which AIG is headquartered?
MR. LIDDY: 70 Pine Street.
REP. KAPTUR: 70 what?
MR. LIDDY: Pine -- P-i-n-e, in New York.
REP. KAPTUR: P-i-n-e. Is that in New York City?
MR. LIDDY: Yes, it is.
REP. KAPTUR: Okay, where in New York City is it? Is it part of the Wall Street community?
MR. LIDDY: Yes. It's lower Manhattan.
REP. KAPTUR: It's lower Manhattan. Who would be your closest financial neighbors there?
MR. LIDDY: The Federal Reserve is two blocks away.
REP. KAPTUR: All right, thank you.
The American people have now given AIG nearly $200 billion -- and I guess others have stated we own about 79.9 percent of AIG. Have you paid the taxpayers back any of the money that they have lent you to date?
MR. LIBBY: We have. We're required -- whenever we sell an asset we're required to take the proceeds of that asset, to the extent it's not, to the extent we can get out of the insurance companies, and whatever's been sold, we pay it back to the Federal Reserve.
REP. KAPTUR: And how much have you paid back to the taxpayers of the United States?
MR. LIDDY: Several billion dollars. I don't have the --
REP. KAPTUR: Billion?
MR. LIDDY: -- exact -- Billion, yeah.
REP. KAPTUR: Several billion?
MR. LIDDY: Yes.
REP. KAPTUR: So, it was paid to the Federal Reserve. That doesn't necessarily mean it's deposited at Treasury to be refunded to the American people, I take it?
MR. LIDDY: That's correct. It's in satisfaction of the debt that we owe to the Federal Reserve.
REP. KAPTUR: All right.
So, could you provide more accurate numbers, dates and amounts returned to the Federal Reserve --
MR. LIDDY: Yes.
REP. KAPTUR: -- since the original infusions to AIG?
MR. LIDDY: Yes.
REP. KAPTUR: And could you also submit for the record a list of your board of directors, please?
MR. LIDDY: Sure.
REP. KAPTUR: Thank you.
Next question. Approximately how much have you paid out to your employees in bonuses, and dividends to your shareholders over the last six months?
MR. LIDDY: We've paid no dividends to shareholders. We're not allowed to do that. As soon as we received help from the Federal Reserve all dividends to the shareholders were not allowed.
Bonuses: There's so many ways to slice this number, I just can't answer it. If you would give us the time -- if you'd give us the time to respond in writing, that's a better way to do that, and we will do that shortly.
REP. KAPTUR: All right. We would very much appreciate that, as soon as you can give it to us.
Let me ask you, of the funds AIG has been given by the American people, 40 percent of it was then redirected to other Wall Street firms, as I understand it. And the largest recipient was Goldman Sachs, that received $12.9 billion. Is my understanding correct?
MR. LIDDY: Yes. There are two or three firms that received double-digit -- you know, 10 (billion dollars), 11 (billion dollars), 12 (billion dollars), 13 billion (dollars) in settlement of legal contracts.
REP. KAPTUR: Yes. And at least five of those that received these funds are the worst offenders in the subprime market, including JPMorgan Chase, Wachovia, Citigroup, HSBC, Bank of America. It's very interesting to see who got funds when they're responsible for three- quarters of the subprime mess in the housing market that this country is facing.
I would ask you to use your power, since you've given them money, to get them to do loan work-outs at the local level -- where citizens are outraged that companies like JPMorgan Chase, which is the top of my -- at the top of my "bad boys" list for not returning phone calls. Thousands and thousands of families, in places like Ohio, are affected by their recalcitrance and arrogance. And it offends me to see that they get money, and they perform so poorly.
But, my question regards Goldman Sachs. Could you clarify your relationship with Goldman Sachs, the largest recipient of these counterparty funds, through AIG -- $12.9 billion? What years did you serve as a member of the board of Goldman Sachs, please?
MR. LIDDY: I was on the board for approximately five-and-a-half years. Don't remember the year exactly I went on, but I exited that relationship as soon as I became the chairman and C.E.O. of AIG back in September of 2008.
REP. KAPTUR: September, 2008. Is there a specific date?
MR. LIDDY: Within a -- tendered my resignation within a -- as soon as I could get to it, within a week or 10 days of my being appointed.
REP. KAPTUR: Did you leave in early September or late September?
MR. LIDDY: It would be after September 18th, but before September 30th.
REP. KAPTUR: After September 18th. Thank you.
Is it true that you served as chairman of the Audit committee of Goldman Sachs?
MR. LIDDY: I did, for the last year of my service.
REP. KAPTUR: All right. So, you would have done that through middle- to late-September last year?
MR. LIDDY: Yes.
REP. KAPTUR: All right.
Bloomberg News reported on April 17th that you currently own 27,129 shares of Goldman Sachs stock. Is that true?
MR. LIDDY: Yes.
REP. KAPTUR: All right. Could you please estimate the market value of that to date?
MR. LIDDY: $3-plus million.
REP. KAPTUR: All right. And you currently hold that?
MR. LIDDY: No, I don't. It's the -- I own about 8,000 shares outright, which I bought when Goldman Sachs went public in 19 -- 2000, 2001. And the rest of it I received as compensation as a director.
I did not take any cash. I took it in deferred stock -- the deferred stock you can't get at until you retire from the board, and some time in May or June that would be available to me. So, it's been restricted.
REP. KAPTUR: But, in any case, you have a direct interest in Goldman Sachs -- you have a financial interest in Goldman Sachs. And I understand you may also have some other type of agreement with them where you were paid some type of lump sum?
MR. LIDDY: I don't have any other type of agreement.
REP. KAPTUR: So, your only interest would be the stock, then -- several million dollars?
MR. LIDDY: Yes.
REP. TOWNS: The gentlewoman's time is expired.
REP. KAPTUR: I thank you, Mr. Chairman.
REP. KAPTUR: Congressman Souder, from Indiana.
REP. SOUDER: Thank you.
I'm going to yield to the ranking member in a minute. I didn't want to repeat questions, because I was over at Homeland Security earlier, but I have a question on the bonuses.
On bonuses at AIG, what percent of a normal salary -- typically, before all this happened, would bonuses be? In other words, is it an integral part of someone's pay, or is it intermittent? Is it a small amount -- 5 percent? Is it --?
MR. LIDDY: It's literally all over the lot. There's 115,000 people that work at AIG. So, typically, that bonus, as a percentage of your base, would be lower at the lower ends of the organization, and higher as you work higher into the organization.
REP. SOUDER: And since, just like at Goldman Sachs, you were getting stock dividends -- that was as a trustee, did AIG give stock dividends, or were they always cash?
MR. LIDDY: No. At AIG you could have a base salary. You could have an annual performance bonus. And then there would be a long-term bonus. The long-term bonus would be stock. And you were expected -- at the time, you were expected to hold that stock until you retired from the company. And if you left before you retired you could lose it.
REP. SOUDER: And my understanding, as we've gone through these different hearings, is the argument for the bonuses was is that you needed to retain personnel -- the company (could fold, and ?), particularly key personnel. Is that --
REP. SOUDER: Again, not the last round on the legal argument, but this has been going on -- AIG has had these problems way back before December. And the question is is that, in the bonus round, part of the feeling was -- and what my question is to follow that, and you can explain if that's not true, is is that right now there's not a lot of whole lot of other types of jobs available. Certainly, with a resume coming off of some of the problems at AIG, it would be a very difficult time to do that.
In my district we're getting hammered by unemployment. They're looking at the bonuses. They're saying, "We don't -- we don't get bonuses when our company goes down. We get laid off." And it becomes problematic as to why AIG would need the bonuses to retain personnel. Why AIG would be paying such huge bonuses when companies -- I have some companies in my district where bonuses can be 40 percent of their normal salary, and they're not getting any bonuses.
Why is it unique in your industry, and firm? Is there, like, commissions? And I'd just like to hear a little bit more of an explanation because I don't know how --
MR. LIDDY: Sure.
REP. SOUDER: --because I don't know how to explain it, because I haven't heard a good explanation that anybody's buying.
MR. LIDDY: I think we need to be careful with how we use that word "bonus," because it can represent so many different things. And it's what's caused members of this committee some frustration. So let me see if I can quickly explain it.
There are normal annual performance bonuses. If you do a good job on this, in addition to your salary, you'll get 15 (percent), 20 (percent), 25 (percent), 40 percent over and above that. So I guess you could look at it as a commission, but in our industry it really is -- it's a performance-based bonus. That was -- earlier in the day we had the conversation about that total, about 450-some million dollars paid over the entire breadth of our company and against a payroll of some seven and a half to eight billion dollars in size. So that's one form of a bonus, an annual variable pay or performance bonus.
Then there were retention bonuses put in place. I think the ones you're referring to are at AIG FP. They were designed in 2007, put in place in 2008. And when we decided and knew that we were going to wind that business down, we asked people to stay, to not leave until they accomplished certain things -- sell a book of business, make it less risky. To the extent they did that, they were paid a retention bonus or an award, again, for some level of performance. So it depends upon which area that you're really poking at.
REP. SOUDER: In other words, I understand the basic choices. I've been in the middle of companies, before I came to Congress, that had all those different ranges. Sometimes things like annual performance bonuses don't become performance bonuses; they become expected. And my question is, so were dividends, yet your dividends are zero.
So why would the company have made decisions to continue at any level things that are supposed to be performance-based? Did you have a big exodus of employees at different times? Indeed, was it critical to the survival of the company? Because it seems odd that you were saying to the people who invested, many of whom were trust funds and retired people, people who own that, that you get nothing, but we're going to continue things that are supposed to be performance-based when the performance of AIG was not good for an extended period of time, not just the last few months.
MR. LIDDY: Well, I think, Congressman, you have to break it down into pieces so that total performance of the business as a whole may not have looked good because it was severely damaged by one or two enterprises, but then there were a host of other enterprises that performed well. And to the extent those people who work in those businesses earned those performance bonuses, they would have been paid. If they didn't earn them, they would have gotten zero.
REP. TOWNS: The gentleman's time has expired.
REP. SOUDER: The interesting thing, people with the stock didn't get treated the same way.
REP. TOWNS: Thank you very much.
The gentleman from Rhode Island --
REP. PATRICK KENNEDY (D-RI): Thank you, Mr. Chairman.
REP. TOWNS: -- Congressman Kennedy.
REP. KENNEDY: Welcome, Mr. Liddy.
I think you obviously heard a great deal of frustration from many people here, because obviously we represent our constituents, who are undergoing a great deal of economic struggle, and as you no doubt understand yourself, are very frustrated just with their own economic circumstance, and after having seen the travails of the financial system, are questioning the very basic foundation of our financial system in every form. And that's the reason why these questions seem so directed at you.
But please understand, we understand that your goal is to try to get the best deal possible for the taxpayer. And believe me, in doing so, it'll be for the best interest of all of our constituents that AIG is able to pay back the taxpayer. And certainly I think all of us are interested in that. And certainly taking your expertise to be able to do that will be something that we're all interested in seeing being fruitful and successful.
One of the things that I think will be of a great deal of concern, I know, for all of our constituents down the road, as you've heard echoed over and over again with respect to these bonuses, is this notion of the transparency. And when you started in your remarks talking about how, you know, AIG is the parent company, and you talked about separating off various other entities from AIG, I think that what it raised in terms of questions with respect to Project Destiny and how you're going to move forward is when we as a Congress passed limitations on, you know, future bonuses, you know, from being used out of the TARP, the question is whether these future, if you will, special-purpose vehicles, these separate entities that are no longer part of, quote-unquote, AIG proper, are going to be considered TARP recipients for purposes of the rules and governance of these bonuses.
And as such, you know, all I know is that if my constituents hear a couple of years down the line that there's a subsidiary of a TARP recipient whose CEO is pulling down some huge bonus, albeit it's a successful subsidiary and, you know, it's helping to kick back the dollars that we need for the taxpayers overall, it's just going to drive them nuts.
And so what I need to get an answer from you on is, are these kind of separate companies, are they going to be under the same governance for purposes of the TARP regulations that AIG is under?
MR. LIDDY: If they're still owned by AIG and a part of AIG, yes, it's our understanding they absolutely will be. There'll come a point in time when they're completely disassociated from AIG; they're totally separate companies. That'll be a good day, because that means we will have gotten dollars, and we've used those dollars to repay the federal government, either the loan to the Federal Reserve or the TARP dollars.
I suspect when that occurs, because they will not be TARP-related at all, then they would not be subject to it. But that would be a good thing. As long as they're owned by AIG and a part of AIG and AIG is subject to TARP dollars, then the subsidiary and pieces of AIG are subject to them.
REP. KENNEDY: Mr. Chairman, I just call your attention to this. I think it's going to be a fine line where we're going to have to watch, because I guarantee it's going to come back and bite us all in the behind if we're not careful in terms of what constitutes something that's owned by AIG or something that's now no longer part of AIG because it's been spun off by AIG.
The American people aren't going to look at it so clearly as, you know, maybe lawyers might. And we're all going to be in the soup politically if we're not careful. And I just would like to make sure that we're very sensitive to that, for purposes of the fact that down the road we're going to need to go back to the taxpayer on occasion to get them to, you know, have their confidence in their federal government. And if they don't have confidence that we were true to our word at the beginning, and if they perceive that there was some kind of shades of gray here that were held back and not fully forthcoming, they're going to feel as if nothing was on the level.
And I just worry about the kind of perception that it's going to create in terms of future efforts on our part to get any kind of support in the future for our financial system, which, of course, as you know, has been key to our being able to recover the confidence that we've needed in order to keep this financial system from going completely belly up.
I'd also like to ask --
REP. TOWNS: The gentleman's time has expired.
REP. KENNEDY: Okay.
REP. TOWNS: The gentleman's time has expired.
REP. KENNEDY: Thanks.
REP. TOWNS: Congressman Turner.
REP. MICHAEL TURNER (R-OH): Thank you. Thank you so much, Mr. Chairman. Ranking Member, I appreciate your continued focus on the issue of the financial crisis that we've had and how we look further into holding people accountable.
My community has been significantly impacted by the mortgage foreclosure crisis, which was a precursor of the financial meltdown that we saw in our financial industry. My primary county in my district, Montgomery County, with a population of approximately around 500,000, since I have been in Congress for six and a half years, has had 27,000 foreclosures -- 27,000 foreclosures in an area of around 500,000 people.
Most recently, last week, this Congress moved forward with calling for a commission that would look at the mortgage foreclosure crisis and its contributions to the financial crisis. When the financial crisis was first identified, there was a discussion of the issue of toxic assets, which people described as mortgage-backed securities. And we know that AIG had issues with mortgage-backed securities and also credit default swaps that were related to mortgage-backed securities.
From the experience in my community, where we had the mortgage foreclosure crisis, what we saw with those individuals, that the Fair Housing Lender Center saw and others who tried to impact this and to assist families that were going through it, is that the loan-to-value ratio of loans that the families received, predominantly through refinancing, started with the family being underwater, meaning that the value of the loan that the family was given exceeded the value of the property.
I'm from Ohio. We're not an area that has had wild speculation in property values and escalation; modest appreciation. So a loan-to- value ratio where you're underwater where you start the loan underwater structurally is a loan that, if there's any difficulty at all, is going to go to foreclosure. The asset, of course, is not valued high enough to back the loan as collateral, and the family is left with leaving the home, sometimes to abandonment, and to the financial institutions.
This commission that's moving forward is going to take a look at this issue, it's going to take a look at the issue as how do we get into this problem, the mortgages that were granted, and I believe that what we're going to see is probably the largest theft or fraud in history, where there was a systematic effort to give people loans that either exceeded the value of their property or were in such a high loan to value ratio that the loan itself was likely to result in foreclosure.
So sir what I want to ask you is I'm looking for documents where our financial institutions had knowledge or knew that this process was happening. I believe that if there are mortgage backed securities that were issued where the issuers knew that the collateral was insufficient to support the value of the loan, that that's fraud. I believe that if the loan to value ratios are not disclosed in subsequent purchasers that it effects the very level of the risk for the mortgage backed security and therefore I think that also is fraud. And it certainly effects the value of the underlying mortgage and the suspicion that it would have a higher likelihood for default.
Now I understand you have a very big organization, but I am assuming that somewhere along the way, someone in your organization, an analyst, someone who was reviewing the processes of the trading and mortgage backed securities, the issuing of them, the issuing of mortgages, someone who was looking at this may have brought to the attention of the company or others that there was a problem with the loan to value ratios that were being packaged and then traded. Because I can tell you in my community on the ground the problem existed.
So my question to you is has anyone ever discussed this issue with you that there was a problem with the loan to value ratio of the underlying mortgages inherent in the mortgage backed securities that were subject to credit default swaps? And also would you be willing to share with this committee for the purposes of sharing with the commission that's going to be impaneled any documents or information that you have where there is a discussion of how that loan to value ratio effects the level of risk for the mortgage backed securities with it being out of whack? In other words, any documents that you have or someone says I have a concern that this loan to value ratio is such that the loan exceeds the value of the asset, that the collateral is insufficient to support the value of the loan, of the mortgage and that that lack of collateral value and that excessive loan to value ratio effects the level of risk for these mortgage backed securities and therefore their ultimate value?
MR. LIDDY: Yes, I would add, I'd add one thing to what you just said. In AIG's, particularly AIGFP's situation, we insured those values. So it wasn't just one individual home, they all went into a pool and different institutions would aggregate those pools so what would come out of it, you'd have 100,000 loans. So you didn't get to look at the loan to value ratio at each one of those, you'd look at the rating. Many of those were rated AAA by the rating agencies and when the AIGFP people underwrote them, they took at face value that they were AAA rated. So we have some of the ankhs over the same situation as you do.
We'll help you in whatever way you'd like and whatever way we can, I just caution you that we're kind of down at the bottom of that food chain as well, and by the time we looked at these things, they had been aggregated to a point where we didn't look at loan to value ratios on an individual house. We looked at them at a whole pool of items so we may not be a source of information that you're seeking. If we are, we'll help you with it. But we could be a source of at a minimum equally frustrated because we assume, we took at face value that these were AAA rated, but they were not.
REP. TURNER: Well that's why I'm asking for your help. Because if we have this commission impaneled and they're given the responsibility to look at it, this is going to be like pulling threads to get to what was I believe ultimately a systemic process for this to occur and you might have information that help leads us in the right direction.
MR. LIDDY: If we do, we'll be delighted to share it with you.
REP. TOWNS: Gentleman's time has expired. Gentlewoman from California, Congresswoman Speier.
REP. JACKIE SPEIER (D-CA): Thank you Mr. Chairman. Thank you Mr. Liddy for appearing before the Committee and answering our questions. Let me just at the outset underscore something you've said now a couple of times today and once before the hearing before the Financial Services Committee and in one way or another you said AIG should return to its core operations, to it's nitty as you put it. That would suggest that we should reinstate the Glass-Steagall Act doesn't it?
MR. LIDDY: I'm not sure if we should go back to it, but we should sure have a very rigorous debate about whether what we've allowed to happen has gone too far.
REP. SPEIER: Well by your own admission today said you should never have been involved in derivatives, it was Glass-Steagall that gave you the opportunity to get involved in derivatives. Had you been just an old fashioned insurance company with reserves that you had maintain, none of this would have happened, correct?
MR. LIDDY: With respect to AIG and our insurance operations versus AIGFP, correct. But I don't necessarily, my response to you was meant to suggest I don't necessarily know that I would generalize from our situation to the overall Glass-Steagall situation.
REP. SPEIER: All right. Let's kind of talk about where we are. When Secretary Paulson came before us, he said we're going to get all of our money back from AIG, in fact we'll make money. We spent a lot of time around here talking about a 79 percent interest that we own AIG except for the fact that we have no say and that's the big problem. The tax payers are absolutely apoplectic about the fact that there are hundreds of bonuses of a million dollars or more given to AIG employees who brought this company down and the tax payers are picking up the tab.
Now my question to you is on the heels of what the gentleman from California Mr. Issa asked earlier can we really ever expect that the tax payers are going to be repaid? I mean if in fact you're talking about $70 billion in TARP money, another $50 billion that we paid for Maiden Lane, another $60 billion in a loan from the Fed, and you're worth $5 billion. I mean, we've all got to be scratching our heads, how can you possibly repay the tax payers?
MR. LIDDY: Well the $5 billion is what's worth after you've sold many of the good assets and paid off many of your liabilities including the Federal Reserve and all of the other debt that we have. So some of the businesses that I've mentioned in the course of our discussion today, a business like AIA it's probably got a value of $25 billion. A business like Alico it probably has value of 18, our property casualty business has a book value of $35 or $38 billion so you just keep going down the list and there's great opportunity for the tax payer to be repaid. But sorry to be repetitive, it's very much a function of what happens to the economy and what happens to the capital markets.
REP. SPEIER: How much did the financial products unit pay in taxes or did it pay anything in taxes since it was located in London?
MR. LIDDY: Now the taxes would have been, their earnings would have been added in with all the other earnings of the businesses that comprise AIG to get an aggregate number and we would have paid taxes to the appropriate jurisdiction on that aggregate number. So if that's important to you, we'll get you the number in terms of what we've paid in taxes over the last couple of years. But AIGFP would have just been a piece of it.
REP. SPEIER: But if it was located in London, I mean, it could have been a tax haven for AIG, could it not, and all of the profits just retained in AIGFP and not brought back to the United States and therefore taxes not paid on it?
MR. LIDDY: Yeah, we depend upon where those taxes were recognized and as we sit here right now, I just don't have the answer to that.
REP. SPEIER: Could you report back to the committee on precisely how much AIG paid in total in taxes and then if in fact AIGFP paid any taxes at all?
The GAO recently came out with a report in April recommending that all the contracts be renegotiated regarding executive compensation at AIG if and when the $30 billion was sought by AIG. I presume you've seen that report and I'd like you to comment on it.
MR. LIDDY: You know, we are trying to do that in many cases, particularly with respect to FP, we're going back to the contractual arrangements that were entered into at the end of '07, beginning of '08. They call for retention payments in 2010, we are working now to restructure those payments to make them more performance oriented. We're going to comply with whatever the rules and regulations are that come out when the Treasury promulgates them.
REP. SPEIER: And I guess my final question, although my time is now up, I will yield back.
REP. THOMPSON: Thank you very much, Jackie. We're not going to have a second round but if you have a question, I will recognize you to ask your question. Yes, Congressman Kucinich.
REP. KUCINICH: Thank you very much, Mr. Chairman.
Mr. Liddy, the AIG had a filing with the securities and exchange commission recently in which was included a letter that you sent to individuals who were to receive bonuses. If you need, I have a copy of the letter to refresh your memory. Now in this letter, this letter by the way was sent four days after you became the CEO, you became the CEO on the 18th, the letter was sent on the 22nd, it was a little more than a week after AIG received $85 billion from the Fed.
And what you -- what you write -- and after you call for transparency you wrote a letter to employees who are disclosing the company's recent SEC report saying, quote, "As this special award is being made to a very select group of executives I ask that you treat is as confidential."
The letter goes on to assure this select group that in the event the AIG entity -- that is, your employer, the company -- experiences a change in control -- that is, consummation of a merger, consolidation, statutory share exchange, or similar form of corporate transaction involving the sale or other disposition of all or substantially of any -- of all or substantially all the company's assets to an entity that is not an affiliate of the company -- AIG guarantees the payment of the 2008 special retention cash -- a special cash retention award on the dates and under the conditions specified above. My question to you, sir -- first of all, you -- you are familiar with that letter, are you -- are you not?
MR. LIDDY: I -- I haven't read it in quite a while so I'm -- I'm familiar with the issue, yes.
REP. KUCINICH: Okay. Is it -- based on that letter, is it true that -- that even if the United States took over AIG 100 percent that -- that these bonuses would be awarded?
MR. LIDDY: No. In fact, many of them have not. Many of them have been restructured or they've been -- the payment of them -- of them has been delayed and we're looking at revising them and trying to figure out how -- how do we pay them -- how do we keep people that we need to run these businesses but how do we honor both the spirit and the intent of what comes out with the Treasury regulations.
REP. KUCINICH: So -- so you're telling this committee that it is the position of -- of AIG management, of which you're the CEO, that this letter that you sent that's part of your SEC filing is no longer operative?
MR. LIDDY: No. It -- it's -- it's what causes us such difficulty, Congressman. We have that letter, which can be viewed as a contract, but we have a new set of events which says it's going to take a lot longer to pay back the American taxpayer. How do we balance those two? How do we balance a commitment that we made with the understanding that we have right now that the fact that it's going to take us longer to repay the American taxpayer. It's -- it's difficult.
We need the leadership of this business -- of our businesses if we're going to keep them viable, sell them, and pay back the taxpayer. So that's -- that's where there's great tension in the system right now. How do you -- how do you keep the leadership, pay them competitive wages, honor a commitment like that, but still be responsive to whatever new legislation is put in place?
REP. KUCINICH: So -- so do you intend to honor the commitment that you made in the letter?
MR. LIDDY: I'm going to wait to see what -- what comes forward from -- from the Treasury to see if those kinds of payments are committed -- if they need to be restructured -- if they need to be more performance based. I just don't have enough information to -- to answer the question, and I'm told that those rules and regulations will be forthcoming in a number of weeks.
REP. KUCINICH: Will you be able to let this committee know whether or not you intend to honor the letter that says that you're going to pay bonuses to -- to people, essentially that they'd be able to collect bonuses at taxpayers' expense even if AIG -- even if the government has a bigger stake?
MR. LIDDY: Yes. Many of those dollars, to the extent they go to people that are senior executives, that would have to be reported. We have to make an 8-K filing or a 10-Q filing. You'll know it.
REP. KUCINICH: Well, because the reason why I ask if we'd know, Mr. Chairman, is because you had asked the previous recipients of this letter to keep the matter confidential. So are we -- are we to expect a more forthcoming approach, more transparency in the dealings with this committee, or are you going to have confidential relationships with your employees to pass on bonuses to them without this committee being aware of it?
MR. LIDDY: No. We intend to be very transparent in everything that we do.
REP. KUCINICH: Thank you, Mr. Chairman.
REP. TOWNS: All right. Let me just say this before I recognize Congressman Tierney. You know, Mr. Liddy, I hope you recognize what people in the street are saying. You know, like when I go home to Brooklyn they're saying, how do you pay a person -- give him a bonus when they've failed. They put us in this mess and now you're going to give them a bonus for it.
I mean, I don't know how we answer people when we hear that. So I think that you need to really keep that in mind as you move forward because that's the thing that the people out there are so angry about. And then, of course, when (they're paid the retention ?), you know, they said, why would you want to retain them, you know, and that's what we're hearing in the street. And I don't know whether or not, you know, you're getting this as you talk to people but that's the thing that we're really -- really -- really getting.
And then the other one is that they say to us, you know, why would you give them, you know, a retention bonus, first of all, (they're ?) fail and the fact that the economy is so messed up where can they go. I mean, these are the issues that are being raised. So I just think, you know, so you can sort of get a feel from our frustration up here as we deal with our constituents in terms of how we answer this, and then -- and believe me, that's an issue that's been raised, you know, day in and day out. I yield to the congressman from Massachusetts, Congressman Tierney.
REP. TIERNEY: Thank the chair.
Mr. Liddy, when Hank Greenberg was in front of this committee I asked him whether or not he believed that AIG should have been allowed to go bankrupt or whether they should have been bailed out, and his answer was that he thought that the company should have been allowed to go bankrupt -- that it would not have created the systemic problem. What's your response to that? What do you believe to be the case?
MR. LIDDY: I wasn't there when that decision was made and neither was Hank so --
REP. TIERNEY: I understand -- (inaudible) --
MR. LIDDY: -- that was a decision that the Treasury and Federal Reserve made. You know, as I examine the situation I think it would not have been good if it had gone bankrupt and the reason I think that is, first, the institutional shock wave at that time -- I mean, those were dark days in the middle of September when people were very concerned about the -- the survivability of the worldwide financial system.
So we'd had Fannie and Freddie being taken over. We'd had Bear Stearns several months before that. We had WaMu. We had the failure of Lehman Brothers. I think if AIG had gone bankrupt it really would have sent shock waves through the system. So I think the passage of time has led me to conclude it would not have been a good idea to do that. AIG also -- not just institutionally -- from a retail standpoint, an individual customer standpoint. We had 81 million policies -- life insurance, pensions, retirement and savings plans.
The -- the difficulty of managing something that large in 130 different countries regulated by 400 regulators would have been something the world has never seen. So I think it would have -- would have created much more difficulty than the current situation that we find ourselves in would have.
REP. TIERNEY: And yet we could still end up there.
MR. LIDDY: You know, we have a plan that we don't think puts us there. You just -- you never know what's going to happen. As I've said many times, we are so dependent upon what happens with the economic recovery and what happens with the values of our assets, which are driven by the capital markets. We think we have a plan that prevents that. It's a good plan. It takes time to -- to implement.
REP. TIERNEY: I -- I just note there's a distinction -- (inaudible) -- that would not have been good, which I think is the way you phrased it, and whether or not it still should have been allowed to go bankrupt because, you know, no bankruptcy situation is good. The question really would have been would it have been catastrophic or would it have been systemic.
MR. LIDDY: Yes.
REP. TIERNEY: And your belief is that it would have?
MR. LIDDY: I -- I think it would have been catastrophic and systemic. As I said, the -- the folks that had to make that decision, they were making that decision not in a vacuum but in a context of an awful lot of other moving pieces, and people, I think, were genuinely afraid of the damage that an AIG bankruptcy could do on top of the heels of a Lehman Brothers bankruptcy.
REP. TIERNEY: Thank you. I yield back, Mr. Chairman.
REP. TOWNS: Thank -- thank you very much. Yes, Congresswoman Marcy Kaptur?
REP. KAPTUR: Thank you, Mr. Chairman. Going back to Goldman Sachs, Mr. Liddy, as a member of the board of Goldman Sachs (through ?) last September were you involved in any of the meetings or discussions leading up to the disposition of Lehman Brothers or Bear Stearns during which -- during which time advice was given to Treasury Secretary Paulsen, the former chairman of Goldman Sachs, on those institutions' disposition?
MR. LIDDY: Yes. Anything that would have transpired before whenever I resign, which I think is the 23rd, 24th, 25th, if there were board meetings on those -- on those subjects I would have participated in those board meetings.
REP. KAPTUR: Yes, and how would we obtain minutes of those meetings and a full understanding of your role?
MR. LIDDY: You -- I don't keep any records like that. You'd have to go to the Goldman Sachs general counsel and ask them for that.
REP. KAPTUR: Mr. Chairman, I would very much like to ask that the committee uses subpoena power to obtain those records. Let me ask this -- today there are many people staffing you. We recognize some of their faces. And I'm wondering if for the record those individuals who currently are working for AIG directly or on contract to AIG could stand up in the audience and provide for the record the organizations or firms for which they work and the terms of their contract. Could those individuals that are currently under contract or working directly for AIG, could you please stand up? Thank you. Anyone else? Anyone else? All right. I'd appreciate it very much if those firms and the contracts could be made a part of the public record, Mr. Chairman. I have --
REP. TOWNS: Without objection so ordered.
REP. KAPTUR: I thank the gentleman very much, and I have two additional requests for information. One, Mr. Liddy, can you provide for the record the names of individuals who in late 1998 or thereabouts worked for and ran the AIG Financial Products Division, created it actually, and developed and issued the first credit default swaps, and also any internal documents related to the initiation and development of AIG's credit default swap and derivative activity from its inception?
MR. LIDDY: Congressman, what -- what was the year? I'm sorry. The year?
REP. KAPTUR: When it started. You referenced the year 1998?
MR. LIDDY: AIGFP started in 1987.
REP. KAPTUR: All right. When did the credit default swap piece of it get started?
MR. LIDDY: Well, I'll have to get you the exact date. I understand your request. So whenever they start -- (inaudible).
REP. KAPTUR: I want the historical development of that division. It appears to be very important. When you appeared before Congress a couple weeks ago, you said only 20 people worked for that division. Is that possible?
MR. LIDDY: No. There's three -- there were 400 people in that division. The folks that worked in the credit default swap area, there were probably 20 of them. There were only three or four who designed the multi-sector credit default swaps that caused us the difficulty that we're in.
REP. KAPTUR: Well, I think it's important for us to unwind back to the beginning what happened. So we would look for the information about that inside of AIG and if it goes back to 1987 then let's see when it morphed and when it became something other than what it was originally and who actually did that.
I understand, did that occur in England or in this country -- the actual creation of the idea to do that?
MR. LIDDY: I think there were some people in -- I think Mr. Greenberg started it in 1987, and then it got ramped up to a greater extent in the late '90s and early 2000s. And it would have been, simultaneously, in Connecticut and London.
REP. KAPTUR: I think it's very important for us to understand what happened. And I think seeing who worked for that instrumentality inside of AIG, from inception through the morphing that happened after Glass-Steagall's up-turning by this Congress, would be most interesting.
Also, to provide for the record all materials your firm possesses on the $2.2 billion diverted to Dresdner Kleinwort in Germany, and particularly the financial assessments made to justify their receipt of funds.
How does Dresdner Kleinwort get involved in all this, particularly since they are -- have been in deep trouble in Germany and are being acquired by Commerzbank and by Allianz Insurance Group in Germany?
Very interested in how you got involved in Dresdner Kleinwort . Do you wish to comment for the record on that at this point?
MR. LIDDY: No, that was all before my time. I don't have any sense of it at all.
REP. KAPTUR: All right. It's my understanding that Dresdner Kleinwort, through some process I would like to unravel, became the possessor of a great deal of subprime housing paper from this country. I would like to know how it was transferred to them -- through which firms, in what years, and what caused them to collapse.
MR. LIDDY: I just don't know that we have any information on that whatsoever. To the extent we had a relationship with them, we'll provide you the material.
REP. KAPTUR: Well, you've given them $2.2 billion. You must have some kind of relationship with them.
MR. LIDDY: Yeah, but I would assume that will be in satisfaction of some sort of a credit default swap contract, or what have you. But, all the other information -- you know, how much did they participate in subprime lending, we wouldn't have that information.
REP. TOWNS: The gentlewoman's time is expired.
REP. KAPTUR: Who would have that? Were you ordered to give them the $2.2 billion by the Federal Reserve?
MR. LIDDY: The Federal Reserve, when we set up Maiden Lane III, took responsibility for the settlement of all of those credit default swap contracts.
REP. KAPTUR: Thank you.
REP. TOWNS: Thank you very much.
REP. KAPTUR: Thank you.
Mr. Liddy, I've got a couple of ones that I know are sort of like you've heard before, but what I wanted to say first was, please consider taking this $400-plus million in bonuses; breaking it down -- not necessarily just for one member, but for the public, into those people who were generating EBIT in sections of the company that are providing positive cash-flow and positive EBIT.
And let people understand that these are performers who were delivering real value, who should be rewarded, because you need that profit as part of your going concern. And then whatever's left we can argue about.
But, I'm hoping, for the sake of all of us on the dais, and for the public, we make it very clear that even in a company that's having bad times -- even when a car dealership is only selling 12 cars, you still pay a commission to the guy that sold 11 of them, okay. And you pay a bonus to the guy -- (laughs) -- that sold 11 out of the 12 cars.
So, to the extent that you have those individuals -- whatever percentage, whatever dollars, I think those performers, maybe not by name, but by category, should be identified so the American people don't see a big number and assume that this was all just a giveaway.
I've spent too long in business to not appreciate your problem of keeping good people that can keep the ship afloat, particularly the ones that are producing, in divisions that are producing.
But, I want to get to one closing set of questions, though. Your predecessor -- I guess, two ago, Mr. Greenberg, when he came to us he not only told us that you should have filed bankruptcy, but he basically led me to believe that you had an obligation to file bankruptcy. The Treasury had an obligation. Everyone had an obligation.
When you stopped being a -- when you had a going concern opinion, you stopped working for the stockholders and you start working for the secured creditors. That's just a reality of your board, that, as a viable going concern, you maximize stockholder value. As soon as you are not a going concern, you have to look to your, in order, preferred creditors -- secured creditors, and you have an obligation to them.
Mr. Greenberg led us to believe -- and I've checked with bankruptcy experts, and it appears he's right, that tens of billions of dollars were paid out that, had your firm filed bankruptcy, would not have been paid, because the corpus that was bankrupt was firewalled from other parts of the company.
Therefore, yes, FP would have gone bankrupt. It would have delivered whatever assets it had. Other claims against the company, to the extent they existed, would have been cleared in bankruptcy. But, huge parts -- some of the very companies you're talking about that have large value, would have been firewalled from that.
How do you respond to that?
MR. LIDDY: I think the regulators in those 130 countries that we do business would have grabbed those -- would have grabbed those insurance assets, and would have held onto them and wouldn't have released them to anybody. And there would have been a very substantial debate, internationally, about who owned and who controlled those assets.
REP. ISSA: So, what you're saying is, you couldn't count on the rule of law, so that's why the Treasury ordered you to pay money to people like Goldman Sachs, who you did -- who you paid with dollars that were put into the corpse and paid out of the corps in excess of any kind of value that it had, but are burdened to the parent company around what otherwise would have been a firewall?
MR. LIDDY: Well, once a decision was made not to declare bankruptcy, that sets in motion a whole series of events: You have to honor the contracts. The Federal Reserve decided that we should pay 100 cents on the dollar. That 100 cents on the dollar should be paid in the settlement of those various --
REP. ISSA: But, these were credit default swaps that I could have bought for a fraction of that on an open market, to the extent that somebody was floating them at the time, right. So, we paid more that their current value at the time we paid them off.
MR. LIDDY: I believe that's what the Federal -- the Federal Reserve decided was in the best interest of the financial system.
REP. ISSA: So, the Federal Reserve paid a premium -- I just want to make sure we have it, because we have three trustees we're entrusting with our money, going forward -- the Federal Reserve paid a known premium; and they paid it not to FP -- so that we're all talking about FP, where they paid it to the parent company and caused you to take onto your balance sheet, and your stockholders to be diluted, based on a decision the Treasury made for you not to file bankruptcy, and, in fact, for you to go down their way.
And, as you said, they made the decision. You got your instructions from the Fed and Treasury. That's what you've said here, right?
MR. LIDDY: Well, the Federal Reserve -- it's not just getting instructions, the Federal Reserve handled those discussions and negotiations to settle those counterparties.
REP. ISSA: So the question I'm going to be asking the trustees, going forward, because they're in a similar situation, but a little different than you.
Your board and you had an independent responsibility to your stakeholders -- now 20 percent, used to be 100 percent, and to other creditors, that when you, when the decision was made outside of your company not to go into bankruptcy; and the decision was made to take all of the assets otherwise not encumbered in a normal firewalled situation and put them in; your company today, whatever it's worth, owes this money to the Treasury, to the American people.
But, it owes it based on decisions that were made that were not prudent on their face for your company. It may have been prudent for the world, it may have been prudent for the financial markets, but they weren't prudent for your company in the ordinary course of 'you get to make the decision.'
MR. LIDDY: Well, Congressman, it could turn out that they were very prudent. It's all a matter of whether, at the end of this whole situation, we're able to pay back the American public all the money that's been either loaned to, or invested in, AIG.
REP. ISSA: But, I just asked you what your enterprise value was worth, in the last round --
MR. LIDDY: Right.
REP. ISSA: -- and I asked you so you'd have an opportunity to take the $35 billion here, the $40 billion here, and say, these enterprises, after we get into a good situation, are worth x-amount, offsetting, you know, 100 percent of the debt, potentially, and returning -- because a year ago, a year-and-a-half ago you could have been worth $100 billion for your stock price.
I agree that our investment of $40 (billion) to $70 billion, at the height of your stock in the last two years, would have been whole. My question to you, though, was -- and I'd like you to answer for the record, is, break down what you believe the enterprise value is today.
Mr. Kashkari, when he was before this committee, told us he didn't know what he paid for things; that he didn't know what they were worth; and he couldn't answer it, but he'd give a report in 30 days. He resigned in roughly 29 days, apparently, so he's not back. Please do not think you're not going to be back before us. If you can't answer what you believe today the enterprise value is, so that, given a static economy -- not pie-in-the-sky and not future earnings, but the real value of your enterprise, what it's worth.
What have the American people bought for $190 billion?
MR. LIDDY: The assets, minus the liabilities -- including all the money that we owe, either to the Federal Reserve or to TARP, that number is what's left over, and that's what's represented in that 2.7 billion shares at $1.85 or so a share. But, that's after you settle all of the obligations.
REP. ISSA: So, your answer today is, 'We're completely solvent, other than our $40 billion has become 70 percent of $4 billion?' That's where we are. That's the answer you're giving me here today when you answer that way -- is that assets and liabilities balance in the enterprise value; what's left is the hypothetical market that the market is saying, which is $4 billion. And that's $40 billion of our money, and the rest of the stockholders'.
So, that says we have a loss, in your statement, of that (delta ?) -- call it $39 billion. If that's what you believe, fine, but that's what the market is marking your stock for. What I asked you for was your real belief of your enterprise's -- individual enterprise's value. You know, you can normalize them for multiples of EBIT, what their PEs would be in an ordinary market; what their PEs would be on a separate company basis.
You know all the ways to value it. I just think this committee should have an understanding of, today, what you believe the enterprise -- which you're running, and the trustees are overseeing, is worth in a way that we can have some understanding of why you think you'll pay us back, over and above what you gave us here today.
And I appreciate the fact that the stock is, whatever it is on a given day, what I want to know -- and I think the chairman and I both want to know, is just how you value these assets normalized? We understand you may not realize them for two years, but we have been asking for those kinds of numbers since the previous president and previous-everybody in this cycle.
MR. LIDDY: I'll just take one more crack at it. Those assets, if you take the assets that I just talked about earlier, and added them all up, they'll add up to -- whatever, $80 or $90 billion, I can't do the math that fast -- and that should be enough to satisfy the $83 billion that we actually owe to either the Federal Reserve or the United States Treasury now.
To the extent we have to use more of the $30 billion, we hope that we'll be able to get -- recover that value by having even higher asset values, because we plug an asset hole, or what have you.
So, the asset values should be sufficient to satisfy what all of the obligations of the company are, and keep the taxpayer whole -- if the marketplace stays strong. That leaves only the stub residual value, which right now is at $5 or $6 billion. And, hopefully, this all works out well, and that's worth more and more.
REP. TOWNS: Thank you very much, Mr. Liddy.
Thank you very much for your testimony. And you can see, based on the questions here, that we are frustrated. And people are -- the gentlewoman? (Off mike consultation.) Yes. Just a moment.
I was getting ready to let you go, but we have Congresswoman Maloney.
REP. CAROLYN MALONEY (D-NY): First of all, I want to thank you for your public service and for coming in to help out.
Why did AIG meet the criteria of systemic risk while Lehman Brothers did not?
MR. LIDDY: Congressman, you'd have to ask the Treasury secretary and the Federal Reserve -- New York Federal Reserve individual the made that decision at the time.
REP. MALONEY: They made determinations that municipalities and foreign governments were of systemic importance to the United States banking system. Do you share that belief?
MR. LIDDY: I think because --
REP. MALONEY: -- (inaudible) --
MR. LIDDY: I think the totality of AIG represented systemic risk, not just to counterparties but the guaranteed investment contracts, and all of the policyholders that we have. I think, had that failed, I think it would have created a real problem.
REP. MALONEY: But, what proportion of the AIG counterparties would have faced bankruptcy without federal bailout of AIG?
MR. LIDDY: I just -- I do not know.
REP. MALONEY: And, could you -- have you seen, or could you provide the committee with any analysis of the impact of the ownership of the residential mortgage-backed securities by AIG's life insurance companies, including whether problems in AIG's life insurance business, as a result of their purchase of these, played a role in the decision to provide the bailout?
Basically, I have heard that the life insurance portion of AIG was regulated and was solvent. Is that true or not -- that the life insurance portion did not receive, nor did it need bailout, that it was properly managed?
MR. LIDDY: It was regulated and it was solvent. But, as values of the residential mortgage-backed securities went down -- because that was part of the investment that they had, it created a hole. And that hole has been -- we've plugged some of that hole with money from the Federal Reserve.
REP. MALONEY: So, the Federal Reserve money has gone into that.
MR. LIDDY: Yes -- yes.
REP. MALONEY: And, AIG argued that the bailout was necessary because of potential problems in the life insurance business. And you believe that is true?
MR. LIDDY: I do.
REP. MALONEY: How much went into the life insurance division? -- (inaudible) --
MR. LIDDY: It's somewhere between $17 and $20 billion --
REP. MALONEY: Really.
MR. LIDDY: -- to make up for the loss in asset values.
REP. MALONEY: Really.
And, going forward, do you think -- I read in the paper that AIG does not need another infusion of public money, do you perceive that in the future you will not need any public money, additional public money?
MR. LIDDY: Congresswoman, I certainly hope so.
As I've said many times, we think what we have -- we have a good plan that will enable us to repay the American taxpayer. But, it's very dependent upon what happens with the economy and what happens with global financial markets.
If they were to go south, the way they did in the forth quarter, that could change. If they remain stable, or improve, the way they appear to be -- they appear to be doing, that would be good news for our efforts.
REP. MALONEY: Well, let's hope they remain moving in the right direction.
Again, I want to thank you for coming in, as a public service, to help restructure one of America's great businesses.
And, finally, some employees of AIG are questioning the break-up of the company. They're saying that this is really not good for the future of a competitive business in America. And could you comment on the break-up and the selling off of assets at AIG?
MR. LIDDY: I think, in many of those companies that are going to receive separate identities, and will be spun-off companies, those people are excited about that prospect. So, in an AIA or an ALICO there's great excitement about those businesses. With respect to our property casualty business, where we'll sell at least a minority interest in it, and we'll separate from the AIG name, there's great excitement there.
If you work, maybe in a technology area, or an operations area in the corporate core, you might have a different thought about it, because your job could be eliminated, or you could get picked up by one of those companies as they get spun-off.
REP. MALONEY: And, finally, the Insurance division was regulated, but also the "risky products" division was regulated under the Office of Thrift Supervision, the regulator that AIG selected, because they had a small portion of their company that was in S&L.
And, could you comment on the quality of regulation coming out of the Office of Thrift Supervision on the so-called "risky products" -- AIG Financial Products?
MR. LIDDY: Congresswoman, I can't. Although, the last time I was before Congress there was an individual from the OTS who, if I remember his testimony, he said, you know, they just didn't have the wherewithal to be able to regulate something as massive and complicated as AIG Financial Products.
REP. MALONEY: Again, thank you for your public service, and we appreciate it. Thank you.
REP. TOWNS: Thank you very much, Congresswoman.
And also thank you, Mr. Liddy, for your time, and, of course, we appreciate you coming. And thank you so much for the information that you've given us. But, as you can see on this side, there's a tremendous amount of frustration. And that we're trying to ask -- answer questions that are being raised, and at the same time we're also trying to protect the American people's tax dollars, which is also very important. So, we thank you very, very much for coming today.
MR. LIDDY: Thank you.