Wednesday, March 18, 2009

AIG's CEO speaks

Ed Libby, the CEO of AIG, spoke before a Congressional committee today. It's important to note that he has only been on the job for six months. He took over after the government had already bailed out AIG, and he's only being paid $1 per year.

He testified that AIG has only received $78 billion from the government, not the $160-170 billion figure often quoted in the media.

And with respect to those $165 million in bonuses, he made these points:
  • No performance bonuses are being paid. These are purely retention bonuses.
  • When AIG failed, they had about $2.7 trillion of liabilities on their books. They've gotten that down to around $1.6 trillion. The reason they want to retain their current staff is the desire to wind down the rest of their obligation in an orderly manner and to avoid further deterioration in the financial markets.
  • While 50 of the approximately 460 bonus recipients are no longer with the company, their bonuses were designed to pay them to stay until their specific responsibilities were complete. More people will leave the company as the remaining $1.6 trillion portfolio is reduced to zero.
  • They have considered the Federal Reserve their primary regulator. They involve representatives from the Fed in all significant decisions, including the decision to go forward with these bonuses. They have relied on the Fed to keep the Treasury Department and Congress informed. They now realize this hasn't been happening as Liddy spoke to Treasury Secretary Geithner about these bonuses only last week, and Congress clearly hasn't known what was going on.
  • Oh, yeah, one more: He's asked bonus recipients to return at least half of their retention bonuses, and a few have done so already.

All in all, I felt like I understood the situation a lot better after his testimony. While it doesn't make me any happier about the bonuses, I do see where they are coming from. They were basically willing to spend $165 million to help ensure that $1.6 trillion was handled responsibly.

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