Former AIG Chief Blames Mark-to-Market

Former AIG chief executive Martin Sullivan (headed AIG from 2005-2008) is testifying before the House oversight committee and moments ago blamed the so-called "mark-to-market" accounting rules for much of AIG's decline.

Quick tutorial: Mark-to-market accounting requires companies to value assets on their books at the price they would sell for today. When the credit crisis began in summer 2007, all of the complex financial instruments held by these companies -- all the mortgage-backed securities, the credit-default swaps and so forth -- plummeted in value as the underlying mortgages failed.

So, Sullivan said, AIG was forced, by mark-to-market rules, to value these assets at "fire-sale prices."

Sullivan noted at least twice that it was the former leadership of AIG, not him, who got AIG into the risky financial instruments market.

"Suddenly, a company with a trillion dollars in assets was reporting unrealized losses that ultimately climbed into the tens of billions of dollars," Sullivan testified. Sullivan was removed by the AIG board in June and was replaced by Robert Willumstad, who is currently testifying.

-- Frank Ahrens

October 7, 2008; 12:58 PM ET  | Category:  business
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Is this Enron? It's really like a flash back to Lay and Skilling. Only now tax payers are paying AIG directly instead of just the prison time for their criminal directors.

My god the arrogance of these people is incredible.

Posted by: Southeasterner | October 7, 2008 1:07 PM

The Smith question. Lucy, dear child, mind your arithmetic.

What would life be without arithmetic, but a scene of horrors?

It's as if we are into totalitarianism by numbers. The computers seem to be making matters worse. Thank God for the writers and publishers or we'd all be dead by now.
It's the best of times, it's the worst of times. I have flowers growing and I never did count them. It's the flowers that count. Let's just wait.

Posted by: JD | October 7, 2008 1:36 PM

The problem with all these guys who complain about being forced to to value these assets at "fire-sale prices" or who promise the taxpayers can make a profit with the bailout is they seem to forget how we get here. We get here because the housing bubble of a lifetime has burst. It will be a long time before we see that kind of house price again. Perhaps not even in our lifetime. So the fire sale price today may still be too high. During the dot com bubble the Nasdaq index went well over 5000. It then dropped to a little over 1000. Today it is at 1800. So yes it you had bought at the low you would have made some money. But if you had bought at the high, you are still waiting almost 9 years later to recoup. Good luck to that.

Posted by: Anonymous | October 7, 2008 2:42 PM

Why can't Martin Sullivan just face the music and admit his own mistakes. IF mark to market accounting brought his company down, it is due to a very weak accounting department that apparently never bothered to even read SFAS 157 or any of the volumes of guidance put out by firms and even the SEC. If these were truly fire sale prices, they don't have to use those values under SFAS 157.

Martin Sullivan is blaming accounting rules when he doesn't have an ounce of understanding of the accounting rules. It's just convenient for him to blame it on anything and everything other than himself.

Posted by: I call BS | October 7, 2008 3:11 PM

The problem was the underlying investments. Mark to market simply forced AIG to report the problem.

Posted by: KL | October 7, 2008 3:13 PM

Ha ha ha ha... He would say that! "When the credit crisis began in summer 2007, all of the complex financial instruments held by these companies -- all the mortgage-backed securities, the credit-default swaps and so forth -- plummeted in value as the underlying mortgages failed."

WHICH IS WHAT IT WAS DESTINED TO DO!!! What isn't mentioned is all the off-book over-rated investments held in off-shore entities (all legal by the way)that are also part of the poisoned parcel and which is where these crooks really screwed up!!! The mortagage-backed securities (MBS's) and CDO's etc. were over-inflated in true worth by the ratings agencies (Moodys S&P etc) with the collusion of scum like this germ here. The "fire-sale prices" this twit said they were forced to value their "assets" to has actually turned out to be an overvaluation as we all now know!!! When you sell mutton dressed up to be lamb, the final assessment comes when you stick it in your mouth, if it tastes like crap then you are suddenly aware you've been had. It sounds like this guy is trying to pass the buck as his friends are now avoiding him like the plague, which would be a good idea cause you don't want to be near him when the final comeuppance goes down.

Posted by: icurhuman2 | October 7, 2008 11:10 PM

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