Ever More on AIG Hearings

I have to run out, here are the half edited notes I took during Edward Liddy's testimony....

Edward Liddy came out of retirement in September 2008 at the request of the government to take the job of AIG CEO for a salary of $1/year. His opening statement was quite good. He said "We weigh every decision we make with one priority in mind, will this action help our ability to pay money back the government or hurt it?" They've "wound down" over a $1 trillion in the portfolio of AIG FP, a third from it's peak, but it's still $1.6 trillion and it still contains substantial risk. The CDSs and regulatory capital business have been taken care of and longer a problem. The $1.6 trillion is other derivatives.

Regarding the bonuses, he said that they needed to retain the FP employees in order to fix the problem. They are each responsible to deal with the complicated books of business that they established. What he described above showed progress is being made. He said the bonus contracts as written guaranteed the payments which seems to be true and if he had been CEO at the time he would not have written them that way. He said there was substantial risk of higher costs if they didn't pay them and I've seen some laws written to protect employees that support that. But the real risk would have been if their leaving screwed up the $1.6 trillion of business. That's why it was important to keep these people ot manage these books of contracts. That said, he realized that the taxpayers were not happy and this morning he asked all who received $100,000 or more in bonus, to return at least half of them. Many have returned all of them.

The first question is why wasn't this done beforehand and why wasn't info about this made available to the committee? They've been working on the retention payment issue and made it public in various 10Ks, 8Ks and 10Qs (so this is proof no one reads those). They still had $1.6 trillion to wind down and in that context $165 million was a good investment. Apparently the Federal Reserve was informed of this. He also said that it was discussed with the many of the staff of the committee members and the payments weren't made secretly on a Saturday, but on their due date of March 15th.

The contracts that Barney Frank was reading from are about performance bonuses. Liddy said that no performance bonuses were paid. The $165 million was retention bonuses. Though I wonder about the reported 11 people who had already left the company. Frank asked about that and there was money paid for retention of some length and he wasn't asked if he had the figures on these people on hand but was asked to submit them later. Frank asked for the names of those people that didn't return the bonus and wouldn't accept them under a confidentiality agreement. Liddy said he was only concerned about the safety of his employees, he then read some death threats that were received. Frank said he'd take that into consideration and that threats and plots should be prosecuted but that at this point he wasn't persuaded because otherwise the congress would get no information.

Liddy was asked about the mark-to-market rule. He's a believer in the rule, but he thinks it needs to be adjusted to take into account some long term assets since if the market dries up (as has real estate) they are illiquid anyway.

Liddy defined the $170 billion number and it's not that bad. It's actually $78 billion that's owed to the taxpayers. $40 billion in TARP plus $38 billion "at the end of 2008" (I assume that means addition money given in Dec). In addition the Federal Reserve invested in some of the distressed assets at a discount of 40-60 cents on the dollar. The assets are doing well and have taken no losses. The fed is a patient investor and "they and the American public will do very well on that investment". I think they've only taken $40 billion for the distressed assets but can tap into as much as $60 billion. This figured didn't all add up from what he said, but it seemed due to time constraints and it seemed reasonable.