T Nation

AIG Party

Why I can understand the people who are against the bailout…

AIG execs’ retreat after bailout angers lawmakers

By ANDREW TAYLOR, Associated Press Writer
Tue Oct 7, 11:15 PM ET

WASHINGTON - Days after it got a federal bailout, American International Group Inc. spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company’s meltdown.

AIG sent its executives to 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 resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

The retreat didn’t include anyone from the financial products division that nearly drove AIG under, but lawmakers still were enraged over thousands of dollars spent on outing 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,” the committee’s chairman, Rep. Henry Waxman, D-Calif., scolded the company during a lengthy opening statement at a hearing Tuesday. “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.”

Former AIG CEO Robert Willumstad, who lost his job a day after the Federal Reserve put up the $85 billion on Sept. 16, said he was not familiar with the conference and would not have gone along with it.

“It seems very inappropriate,” Willumstad said in response to questioning from Rep. Elijah Cummings, D-Md.

“Those executives should be fired,” Democratic presidential candidate Sen. Barack Obama said at a debate with Sen. John McCain on Tuesday, referring to the retreat participants. Obama also said AIG should give the Treasury $440,000 to cover the costs of the retreat.

But Eric Dinallo, superintendent of the New York State Insurance Department, said he could see the value of such a retreat under the circumstances.

“Having been at large global companies and knowing what condition AIG was in … the absolute worst thing that could have happened” would have been for employees and underwriters in its life insurance subsidiary to flee the company.

“I do agree there is some profligate spending there, but the concept of bringing all the major employees together … to ensure that the $85 billion could be as greatly as possible paid back would have been not a crazy corporate decision,” Dinallo told the House committee.

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

The panel sharply criticized AIG’s former top executives, who cast blame on each other for the company’s financial woes.

“You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country,” said Rep. Carolyn Maloney, D-N.Y. “You were just gambling billions, possibly trillions of dollars.”

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, PricewaterhouseCoopers 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.

Waxman also released testimony from former AIG auditor Joseph St. Denis, who resigned after being blocked from giving his input on how the firm estimated its liabilities.

Three former AIG executives were summoned to appear before the hearing. One of them, Maurice “Hank” 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 Willumstad.

“When I left AIG, the company operated in 130 countries and employed approximately 92,000 people,” Greenberg said. “Today, the company we built up over almost four decades has been virtually destroyed.”

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 4th quarter of that year. Sullivan countered that he was mainly concerned with helping other senior executives.

Just a little late with this, Irish.

Someone already started a thread using an article almost identical to yours.

Two years from now, we’ll be watching hearings on the 2008 Bailout Scandal. And Barney Frank will be blaming Republicans again.

[quote]rainjack wrote:
Just a little late with this, Irish.

Someone already started a thread using an article almost identical to yours.

[/quote]

Whhoooops.

Didn’t see the title on the list. Apologies.

Anyone who doesn’t see that these bailouts are a bad idea needs to hear stuff like this so they see just how entitled these execs feel. Giving these guys more money is like pouring gasoline on a fire.

This is the most despicable fucking shit to come home to see.

can someone please explain to me why noone is going to jail over this shit?

[quote]toejam wrote:
can someone please explain to me why noone is going to jail over this shit?[/quote]

It’s not against the law to throw party when someone gives you money. Even if it’s tax money.

Dear Americans, I promise to never-ever say bad things about America ever again, especially not on American websites if you give me 100 million.

I promise to party hard.

I even take dollars.

Deal?

[quote]orion wrote:
Dear Americans, I promise to never-ever say bad things about America ever again, especially not on American websites if you give me 100 million.

I promise to party hard.

I even take dollars.

Deal?

[/quote]

Is this one of those “ideas” you were bragging about previously?

It must have sounded like a real winner when you were stoned off your ass, huh?

At least someone got a speck of what they deserve…

http://consumerist.com/5060063/lehman-brothers-ceo-got-punched-in-the-face

I know this is going to come off like I am defending AIG but this article is misrepresenting a few things.

What got AIG into trouble were CDS purchased by the holding company. The subsidiary insurance companies were in good standing and were not in any risk of going insolvent. Even if the subsidiaries have trouble selling new policies they will continue to make money due to the long tail nature of life insurance.

If AIG had gone bankrupt the subsidiaries would still have considerable value for their inforce business and agency force.

This party was planned by a subsidiary well in advance of the credit line given by the Treasury. It’s purpose is to reward top selling agents for selling insurance. Many of these agents are probably brokers so they could sell other companies’ policies.

The subsidiary needs to incent these brokers to sell their product so they have these parties for top selling broker and agents. You can look at the money spent for these parties as a marketing expense. If the company wants to continue competing in the market it needs to keep these brokers and agents selling their products.

The subsidiary probably put this program into place a while ago to reward brokers and agents and if they took it away all of a sudden they would risk losing the brokers. If the Treasury wants AIG to survive they need to keep selling insurance policies.

Just because a company is doing poorly it doesn’t mean that no employee should get a bonus (which is how I look at this party). Good compensation strategy will reward different areas when they perform well even if another area is underperforming.

In this situation the investment managers at AIG are underperforming but their sales force could be doing really well. On the flip side you could have the company do well overall and have an area underperform and get no bonus. That is how a good bonus plan is structured.

This doesn’t mean I approve of the party. $400k is a big party but how many agents and brokers were invited? I just don’t think I know enough about the situation to judge it. I don’t work for AIG but I am in the insurance industry.

bpeck

[quote]rainjack wrote:
orion wrote:
Dear Americans, I promise to never-ever say bad things about America ever again, especially not on American websites if you give me 100 million.

I promise to party hard.

I even take dollars.

Deal?

Is this one of those “ideas” you were bragging about previously?

It must have sounded like a real winner when you were stoned off your ass, huh? [/quote]

Ja, but the only reason you do not fall for it is because I was not bold enough.

I hereby demand 300 billion.

You know, I made some bad choices, being leveraged by a factor of 30 probably did not help either, anyway, it is good for the economy.

[quote]orion wrote:
rainjack wrote:
orion wrote:
Dear Americans, I promise to never-ever say bad things about America ever again, especially not on American websites if you give me 100 million.

I promise to party hard.

I even take dollars.

Deal?

Is this one of those “ideas” you were bragging about previously?

It must have sounded like a real winner when you were stoned off your ass, huh?

Ja, but the only reason you do not fall for it is because I was not bold enough.

I hereby demand 300 billion.

You know, I made some bad choices, being leveraged by a factor of 30 probably did not help either, anyway, it is good for the economy.

[/quote]

I won’t do a cash deal with you. Perhaps you would be interested in some MBS’s of some CRA based, Fannie Mae backed home loans?