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Show Me the Money


J ust how hostile the environment at AIG had become began to be made clear last Spring. On the afternoon of March 18, Benmosche’s predecessor Ed Liddy appeared in Washington to testify before the House subcommittee on capital markets. Nominally, Liddy was there to brief the representatives on the progress of dismantling AIG and its attendant issues. But Congress, sensing the storm, did not like getting played as a sucker. Shortly before Liddy testified, President Obama poured fuel on the fire. “I don’t want to quell anger. People are right to be angry. I’m angry,” he said from the South Lawn.

During five hours of blistering questioning, committee members demanded that Liddy justify his decision to authorize $165 million in retention payments. Congress wanted Liddy to name names. Liddy refused, citing death threats, but offered a fig leaf: That morning, he had asked AIG’s traders to return 50 percent of the money. “Mr. Liddy, we are in effect at war,” said Congressman David Scott, a Georgia Democrat. “Getting half of the money back is not the answer. The answer is getting all of the money back.”

Liddy quavered under the verbal assault. With his ruddy cheeks and soft-spoken manner, Liddy, unlike Benmosche, wasn’t willing to fight back. But privately, he was furious at his treatment by Congress. He felt hijacked, and surprised the hearing would be focused solely on bonuses. “He believed he was personally thrown under the bus in the process,” a former senior AIG executive said.

Inside AIG, senior executives came to believe that Treasury was manipulating the debate to deflect populist rage from blowing back on the government’s participation in the bailout. According to four current and former AIG executives with direct knowledge of the matter, Liddy disclosed the FP payments in a draft of a letter to Geithner on March 12. In the original draft of the letter, which I obtained, Liddy said he was “not a fan of these arrangements” but struck a defiant tone: “I cannot, however, spend my time being an armchair quarterback.” Shortly after 8 p.m., James Hennessy, a lawyer for the New York Fed, e-mailed AIG HR head Anastasia Kelly and AIG’s outside counsel, Marc Trevino of Sullivan & Cromwell, saying that Geithner wanted Liddy to edit the letter. There was a feeling inside AIG that Geithner wanted Liddy to strike a more negative tone toward the traders’ compensation. “They demanded more outrage out of Ed. It was Kabuki theater,” a senior AIG executive says. Treasury officials sent back Liddy’s statement with edits, according to a copy of the revised letter I obtained. “He was set up to be the mouthpiece,” a former senior AIG executive said.

Liddy amended his language and testified that he viewed the retention contracts as “distasteful.” But that comment infuriated the traders at the FP office in Wilton, a low-slung building along Route 7. Already, they felt under siege. The House was working on a 90 percent retroactive tax on their retention contracts, and their leader seemed to be caving under the media onslaught. “We lost the PR battle right from the get-go,” the former senior AIG executive says. Then the death threats started. One e-mail read: “I would really like to put a size-12 boot up the ass of every one of you motherfuckers. Stay out of my neighborhood, you won’t be safe there.”

When traders showed up to work on the morning Liddy testified, they received a memo from Liddy requesting they return 50 percent of the retention payments. The traders were outraged—another sign of Liddy’s weakness.

Plus they felt they had the law on their side. Since the company collapsed last fall, they had been repeatedly reassured by senior management that their retention contracts would be honored if they stayed in their jobs. On October 3, 2008, two weeks after the government had bailed out AIG, staffers received a memo from William Dooley, a senior AIG executive who took over FP when Cassano was ousted in February 2008, that stated the company would uphold the contracts that had been put in place. “The uncertainty you’ve been faced with has been frustrating,” Dooley wrote, “although many issues remain to be resolved, I can tell you that AIG will live up to its commitment in honoring your retention guarantees.” It was a message that was reiterated several times. On December 23, Dooley announced the early retention payments in a letter to employees. “Congratulations!” he wrote. “I continue to be impressed with your commitment and focus.” No one had challenged those payments, why now? They expected another installment to be paid on March 15, 2009. “The message all along,” one FP executive says, “was, we know this is difficult, you had nothing to do with the mess, but you’re now here. We’re going to pay you.”


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