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AIG's Liddy: Greenberg Wrong on Bankruptcy

UPDATED at 1:37 P.M.

AIG chief executive Edward Liddy said that former AIG chief executive Hank Greenberg is mistaken by saying that AIG should have gone into bankruptcy rather than getting bailed out by the U.S. taxpayers to the tune of at least $150 billion so far.

Rep. Darrell Issa (R-Calif.), ranking member of the House Oversight committee grilling Liddy, pressed him on why AIG didn't declare bankruptcy, which some say would have prevented the big government bailout.

Issa suggested that AIG's good assets -- its profitable insurance business, as opposed to its troubled Financial Products division -- would have been "ring-fenced off" and protected under bankruptcy.

Liddy disagreed, saying bankruptcy would have complicated matters for years.

"I think regulators in the 130 countries were we do business would have grabbed the insurance businesses and held onto them and there would have been substantial debate on who owned those assets," Liddy said.

Liddy was just dismissed to make way for the panel to take testimony from three AIG trustees. The Ticker is going to exit the hearing at this point but you can watch it here on C-Span.

Liddy Pushed On Bonuses

1:18 P.M.: Liddy said that "tension in the system" at AIG is trying to figure out how to honor bonuses promised to top executives against new marching orders from the federal government and public outrage, during testimony underway before the House Oversight committee moments ago.

Rep. Dennis Kucinich (D-Ohio) read from a letter Liddy sent to employees in September and that was filed at the SEC in which Liddy outlined the bonuses promised to retain top executives.

"Is it true that even if the U.S. took over AIG 100 percent these bonuses would be awarded?" Kucinich asked.

"No," Liddy said, adding that many of those promised bonuses have been restructured or delayed.

But then he acknowledged that his letter promising the bonuses can be looked upon as a contract that must legally be upheld.

The tough part, Liddy said, is balancing that against honoring "the spirit and and intent" of forthcoming Treasury Department regulations on executive compensation that will doubtless put reins on them.

"That's the tension in the system right now," he said.

Panel Probes Liddy's Ties to Goldman Sachs

1:02 P.M.: AIG chief executive Edward Liddy's ties to Goldman Sachs were probed moments ago at a hearing underway before the House Oversight committee on how taxpayer money is being spent at the troubled insurance giant, which has absorbed more than $150 billion in bailout money and is 80-percent government-owned.

Under questioning by Rep. Marcy Kaptur (D-Ohio), Liddy acknowledged that AIG paid Wall Street investment bank Goldman Sachs $12.9 billion in bailout money to pay off debts to Goldman.

Kaptur also questioned Liddy about his 5.5 years on the Goldman board, the last year of which was spent chairing the audit committee.

She asked him about his Goldman stock holdings, and he responded that he purchased 8,000 shares when Goldman went public. His remaining Goldman shares came as deferred compensation for his board service, which he can gain access to this summer.

"Could you please estimate the value of that?" Kaptur asked.

"Three million-plus dollars," Liddy said.

Liddy: Taxpayers Won't Be Paid Back For 'Three To Five Years'

11 A.M.: It will take at least three to five years for AIG to repay the more than $150 billion in taxpayer money the troubled insurance giant has received, and even longer if the capital markets degrade, AIG chief executive Edward Liddy said moments ago, while testifying before the House Oversight committee.

Grilled by Rep. Elijah Cummings (D-Md.) about the outrage-inducing bonuses given to employees of AIG's Financial Products (FP) division -- which brought down the company and nearly the entire financial system -- Liddy said that employees routinely received 30 to 35 percent of the division's profits in compensation.

"The most important thing we can do is to not allow a situation like AIG FP to get started again," Liddy said. The high compensation "encouraged risk-taking that was simply out of bounds," he said.

In other words: Employees at AIG FP sold derivatives and credit-default swaps that were way took risky because they were compensated so highly for doing so.

AIG To Give Congress Details of 'Project Destiny'

10:45 A.M.: AIG will turn over the details of its "Project Destiny" restructuring plan to the House Oversight committee if it can be assured that the plan's operating details won't be shared with its competitors, Liddy said.

Liddy was pressed to turn over the details of the plan by committee chairman Rep. Edolphus Towns (D-N.Y.) and ranking minority member Rep. Darrell Issa (R-Calif.).

Liddy initially promised to give the committee the "broad brush strokes" of Project Destiny but not the operating details. His reasoning: If AIG's competitors get hold of the plan's operating details, they will be used against AIG and make it harder for AIG to repay taxpayer bailout money, which has thus far exceeded $150 billion. AIG is 80-percent government-owned.

"Do you honestly believe you have the right to prevent Congress from reviewing how taxpayers's money is being spent?" Towns asked, testily, noting that other federal officials -- members of the New York Fed, who sit in on AIG meetings -- have access to Project Destiny details.

After a break to consult with his lawyer, Liddy told the committee that if designated members were to sign confidentiality agreements, he would turn over details of the Project Destiny plans.

Liddy: We Have Not Eliminated AIG's Risk To System

10:21 A.M.: The likelihood that troubled insurance giant AIG will take down the entire financial system has been reduced but not completely eliminated, Liddy said.

Liddy, who was appointed by the government to take over AIG last fall and is taking a $1 salary to run the wind-down of the company, said he is working hard to prevent selling AIG assets at "fire-sale prices," instead trying to get the best deal possible for taxpayers, who have thus far plowed at least $150 billion into the company.

AIG was an insurance giant that began selling derivatives, becoming what Fed Chairman Ben Bernanke called essentially a hedge fund. The AIG Financial Products division eventually sold more derivatives than could be covered by the insurance side, when the housing/credit bubble burst, and, because of AIG's complexity and connection with hundreds of counter-party businesses, the company's collapse threatened the entire financial system.

Today, lawmakers want more answers on how taxpayer money is being spent.

Liddy said that he will do everything he can to prevent having to ask the government for more money but cannot guarantee it, based on what happens with the global economy.

Check back here for updates.

-- Frank Ahrens
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By Frank Ahrens  |  May 13, 2009; 1:37 PM ET
Categories:  The Ticker  | Tags: AIG, Edward Liddy  
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