The insurance giant known as AIG provoked outrage across the United States when it was revealed the company paid $165 million in retention bonuses to executives, at the same time it was receiving billions in federal bailout money from American taxpayers. At a financial committee hearing on Capitol Hill, Wednesday, AIG's CEO Edward Liddy came under pressure from angry lawmakers, demanding that taxpayers get back the bonus money paid to executives.
American International Group is one of the world's biggest insurance companies, providing insurance and financial services in more than 130 countries. AIG and its subsidiaries employ 116,000 people around the world.
But over the past year, the once solid insurance giant fell from grace, threatening to take the entire global financial economy down with it. President Barack Obama, preparing to board a helicopter Wednesday, explained the roots of the AIG's problems.
"AIG had insured a whole bunch of losses for a whole bunch of banks that had made bad bets on subprime loans and mortgages that had been packaged and bundled up, and made into securities," the president said.
As Mr. Obama explained, a lack of regulation made the problem worse.
"Unfortunately because of a lack of regulation they were able to issue far more insurance policies than they could pay out on these various instruments that these banks had issued," President Obama said.
In other words, AIG did not have the financial reserves to back up the risky mortgages they insured for banks around the world.
AIG's financial products division racked up billions of dollars in losses. In September 2008, the U.S. Federal Reserve announced a major government rescue package for AIG to save it from collapse, with Bush administration officials saying AIG was "too big to fail."
After several similar rescue payments, the U.S. Federal Reserve now holds a close to 80 percent stake in AIG. This means American taxpayers are footing the bill for $165 million of retention bonuses the company decided to hand out to executives - while receiving federal bailout money.
Republican and Democratic lawmakers have been stampeding to microphones to demand that AIG compensate taxpayers for the bonus payout.
Representative Paul Hodes, a Democrat from New York, summed it up like this.
"As far as the American people are concerned, I think AIG now stands for "arrogance, incompetence and greed," said Hodes.
Some of the lawmakers at Tuesday's hearings pointed out that bonuses are normally paid to employees on the basis of performance, but in this case, the bonuses went to 400 employees in the financial products division - the one that brought AIG to the brink of collapse.
Under this climate, AIG's Chief Executive Officer Edward Liddy appeared in front of a House subcommittee on Capitol Hill Wednesday. Liddy said the bonuses could be defended as a legal obligation of the company, but then told Congress he has heard the rage expressed across America.
"This morning I have asked the employees of AIG financial products to step up and do the right thing. Specifically, I have asked those who received retention payments in excess of $100,000 or more to return at least half of those payments. Some have already stepped forward and offered to give up 100 percent of their payments," Libby said.
The AIG chief, who has himself agreed to run the company for a $1 a year salary, said he has a plan to, as he said, "unwind" the troubled financial products division" and to do everything he can to keep the company's successful divisions going. This is the only way, Liddy said, to return as much bailout money to the U.S. government as possible, and to help get the U.S. economy back on the right track.
AIG has taken $170 billion in federal bailout money since the U.S. financial crisis erupted late last year.