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
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