October 8, 2008 in Nation/World

Expensive retreat after AIG bailout angers lawmakers

By ANDREW TAYLOR Associated Press
 
Associated Press photo

Former CEO of AIG Martin Sullivan testifies before the House Oversight and Government Reform Committee.
(Full-size photo)

WASHINGTON – Less than a week after the federal government had to bail out American International Group Inc., the company sent executives on a $440,000 retreat to a posh California resort, lawmakers investigating the company’s meltdown said Tuesday.

The tab included $23,380 worth of spa treatments for AIG employees at the coastal St. Regis resort south of Los Angeles even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy.

The retreat didn’t include anyone from the financial products division that nearly drove AIG under, but lawmakers were still enraged over thousands of dollars spent on catered banquets, golf outings and visits to the resort’s spa and salon for executives of AIG’s main U.S. life insurance subsidiary.

“Average Americans are suffering economically. They’re losing their jobs, their homes and their health insurance,” House Oversight Committee Chairman Henry Waxman, D-Calif., scolded the company during a lengthy opening statement. “Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation.”

The hearing disclosed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released Tuesday by a congressional panel examining the chain of events that forced the government to bail out the conglomerate.

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept the $85 billion government loan that gives the U.S. the right to an 80 percent stake in the company.

Waxman unveiled documents showing AIG executives hid the full extent of the firm’s risky financial products from auditors, both outside and inside the firm, as losses mounted.

For instance, federal regulators at the Office of Thrift Supervision warned in March that “corporate oversight of AIG Financial Products … lack critical elements of independence.” At the same time, Pricewaterhouse Cooper confidentially warned the company that the “root cause” of its mounting problems was denying internal overseers in charge of limiting AIG’s exposure access to what was going on in its highly leveraged financial products branch.

Three former AIG executives were summoned to appear before the hearing. One of them, Maurice Greenberg – who ran AIG for 38 years until 2005 – canceled his appearance citing illness but submitted prepared testimony. In it, he blamed the company’s financial woes on his successors, former CEOs Martin Sullivan and Robert Willumstad.

Sullivan and Willumstad, in turn, cast much of the blame on accounting rules that forced AIG to take tens of billions of dollars in losses stemming from exposure to toxic mortgage-related securities.

Lawmakers also upbraided Sullivan, who ran the firm from 2005 until June of this year, for urging AIG’s board of directors to waive pay guidelines to win a $5 million bonus for 2007 – even as the company lost $5 billion in the fourth quarter of that year.

Sullivan also came under fire for reassuring shareholders about the health of the company last December, just days after its auditor, Pricewaterhouse Cooper, warned him that AIG was displaying “material weakness” in its huge exposure to potential losses from insuring mortgage-related securities.

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