April 02–Edward M. Liddy knows what it’s like to be at the center of a maelstrom.
Not long after he took over troubled insurer American International Group at the height of the financial crisis, at the request of then-Treasury Secretary Henry Paulson and others, he began receiving death threats.
“It was really terrifying,” said Liddy, who was given the job of straightening out the balance sheets of the giant insurer, which had fallen deeply into debt — but was about to be bailed out by the federal government to the tune of $85 billion.
Even though he had not been in charge of the company when the debt had been incurred, he expected to be a scapegoat if his efforts were unsuccessful.
“I would have been in jail,” he told a crowd of about 300 members of the Forum Club on Friday at the Naples Beach Hotel & Golf Club.
Ultimately, Liddy did succeed in bringing the company back to health by performing financial triage, dramatically downsizing the giant insurer by quickly selling off unprofitable units.
The scaled-down company eventually returned to financial health and paid off its loan from the federal government, which had ballooned to $182 billion before the crisis passed.
“Every penny was paid off,” he said. “I was very proud of that.”
Yet his tenure, which lasted from September 2008 to August 2009, was controversial.
A month after he took over AIG, Liddy was in the news for defending a retreat for top- performing salesmen at the swank St. Regis Resort in Monarch Beach, California.
Although Liddy later defended the retreat before Congress as “standard practice in our industry,” the bills that the retreat racked up — which included $200,000 for rooms, $150,000 for meals and $23,000 for the spa –did not make pretty headlines.
During the presidential
debate that October, Barack Obama criticized the expenditures and said, “The Treasury should demand that money back, and those executives should be fired.”
In the wake of the controversy, Liddy urged employees to return $165 million in bonuses, which also drew congressional criticism from both sides of the aisle.
Later it was revealed that Liddy had accelerated more than a quarter of AIG’s financial products bonuses by three months.
Liddy contended that the company was obligated by law to honor pre-existing contracts and pay the employee bonuses, no matter the source of the funds.
Liddy also drew fire from Congress in April 2009 for the more than 27,000 shares he owned in Goldman Sachs, which had also received bailout money from the federal government.
Owning the shares created a conflict of interest, his critics said. Liddy was serving on Goldman Sach’s board when he was asked to head AIG.
In May 2009, Liddy said he would resign from AIG when replacements could be found for the chairman and chief executive jobs; in August 2009, he did so.
Now 70, he recalls the time as one of “great personal cost.”
Even so, Liddy — who received a salary of $1 per year to head AIG — said he probably would do it all again out of a sense of patriotic duty during a time of unprecedented national financial stress.
And he was able to point to some accomplishments during his short tenure as the boss of AIG, including convincing the government to lower its initial interest rates for the bailout loan.
“The terms were brutal,” he recalled.
By quickly selling off unprofitable units of AIG, he was able to downsize the insurer dramatically and turn the leaner company toward financial health.
Consequently, the company became stable and did not fall into bankruptcy, he said.
In response to a question from the audience about whether the government should have let troubled banks and other institutions fail in 2008, Liddy was emphatic that the government had made the right move.
If they had not bailed out these institutions, “it would have been catastrophic,” he said.
Liddy said the crisis was caused by a multitude of factors, from ratings agencies that gave too-favorable ratings to shaky companies, to mortgage companies that were too lax in making loans. Homebuyers who purchased houses they couldn’t really afford were also to blame.
“They all lost their way,” he said.
And while the ship has largely righted itself, Liddy said he’s concerned to see some of the harbingers of the crisis, like low- or no-documentation mortgage loans, “creeping back into the system.”
“There’s a shortness of collective memory,” he said.
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