Today, the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing to “examine the American International Group (AIG), how it got into its current situation, why it has received so much federal assistance, and how to move forward.” A specific purpose of the meeting was “to ensure that any taxpayer money AIG receives is spent efficiently and effectively.” Testifying before the Subcommittee were:
- Scott Polakoff, Acting Director, Office of Thrift Supervision – recommending a systemic risk regulator and regulation of credit default swaps (CDS) to promote consistency and transparency in order to “prevent similar financial companies from repeating AIG’s errors in managing its risk”
- Joel Ario, Insurance Commissioner, Pennsylvania Insurance Department, on behalf of the National Association of Insurance Commissioners – also calling for a “collaborative approach to the regulation of financial enterprises that create true systemic risk, such as AIG Financial Products.”
- Orice M. Williams, Director, Financial Markets and Community Investment, Government Accountability Office – presenting GAO's report entitled "Preliminary Observations on Assistance provided to AIG" and stating that “it is too soon to tell whether AIG will be able to repay its outstanding debt to the federal government, which in large part depends on the stability of the overall financial system”
- Rodney Clark, Managing Director, Insurance Ratings, Standard & Poor’s Rating Services (S&P) – providing a history of AIG’s S&P rating and maintaining that S&P’s “role is to act as independent observers offering our views of creditworthiness”
- Edward M. Liddy, Chairman and Chief Executive Officer, American International Group – calling some of the recent compensation payments “distasteful” and reciting AIG’s restructuring plan goals: repayment of AIG’s debt to the government, continuation of AIG’s main insurance units, and continuing the protection of policy holders.
Although the hearing was slated to discuss AIG’s impact on the global economy generally, this week’s announcement that AIG paid $165 million in bonuses to its executives, including executives in its Financial Products unit, shifted the focus of the statements and questions of the Subcommittee. House Financial Services Committee Chairman Barney Frank (D-MA) asserted that the contracts underlying the bonus payments clearly contemplated bonuses in the face of losses by AIG. He urged AIG to name the people who received the bonuses and, if AIG was not forthcoming with names of bonus recipients, threatened to subpoena the names to determine whether to hold the recipients accountable for their involvement in AIG’s failure. During the hearing, Mr. Liddy said that he is urging AIG bonus recipients earning more than $100,000 per year to return half of the bonus amounts they received, noting that "some have already volunteered to give back 100 percent." These bonus payments have inspired the Senate Finance Committee to propose today new executive compensation restrictions for TARP recipients.
Yesterday, Treasury Secretary Timothy Geithner released a letter that he had sent to House Speaker Nancy Pelosi (D-CA) expressing his dismay over the bonus payments and outlining actions taken by the Obama administration to "recoup the retention payments just made, and to deal with future payments of executive compensation at AIG."