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They Got the Wrong Guy
Why Congress' confrontation with AIG's CEO was a failure.
Mar 19, 2009 | Updated: 9:27 a.m. ET Mar 19, 2009
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The appearance by AIG CEO Edward Liddy before Congress on Wednesday was billed as an epic confrontation between the angry tribunes of a furious public and an arrogant Wall Street. Chris Matthews hyped it on MSNBC as "Watergate Redux." But the actual hearing—Liddy's appearance and questioning lasted barely longer than the two-hour preliminaries—was disappointing and misguided.
Roasting Liddy for AIG's manifold and expensive failures would be like putting Gerald Ford on trial for the crimes of Watergate. Edward Liddy isn't G. Gordon Liddy. Yes, he could have handled this issue much better. But he's not the villain. He's a genuine dollar-a-year man who isn't looking to make a quick buck on the bailout. (It's OK, he made gazillions when he ran Allstate.)
Watch Edward Liddy at a congressional hearing on AIG
The proximate cause of the hearings was the revelation that AIG had paid $165 million in "retention bonuses" to executives at AIG's Financial Products division, the tiny unit whose reckless bets and issuance of insurance on financial products blew up the whole company. Liddy acknowledged that it was "distasteful to have to make these payments" and explained that they were made not to people who sold credit-default swaps but to employees who were winding down other components of the business, some of which were profitable. He had asked employees of the division who received at least $100,000 to return at least half of their bonuses, he said, and some had offered to return all of it.
Aside from revealing congressional ignorance of all things financial, the hearing showed Liddy to be the wrong man at the wrong place—and it was yet another example of misplaced anger. There's no denying the horrific symbolism of these bonuses. But it would be nice if members of Congress—Republican and Democratic alike—displayed as much attention and outrage over the $80 billion-plus wound that AIG's implosion has already inflicted on the American taxpayers instead of grandstanding over a mere (irony intended) $165 million.
The failure of leadership at AIG was immense and catastrophic. But Liddy wasn't leading AIG when it blew up. He didn't get paid to make the disastrous trades, or to oversee the disastrous traders, or to oversee the people who oversaw the disastrous traders, or even to oversee the people who oversaw the people who oversaw the disastrous traders. It wasn't his idea for AIG Financial Products to insure billions of dollars in mortgage bonds, or to engage in "regulatory capital trades" or "balance-sheet rental"—insuring assets of European banks to allow them to move assets off their balance sheets. Liddy noted that at its height, AIG had between $350 billion and $370 billion of "balance sheet rental" insurance in force. (The figure is down to a mere $230 billion.)
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