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Senate demands answers from Fed on AIG's spending

(Agencies)
Updated: 2008-10-10 09:07

WASHINGTON -- The chairman of the Senate Finance Committee demanded answers on Thursday from the Federal Reserve about reported lavish spending by insurer American International Group Inc after it received an $85 billion rescue loan.

This September 17, 2008 file photo shows the logo of American International Group Inc. outside their office in New York. The Federal Reserve said Wednesday it had authorized a new 37.8-billion-dollar cash infusion into insurance giant AIG, which is under fire over a lavish spa retreat paid for by the company after its rescue by the government. [Agencies]

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In a letter to Fed Chairman Ben Bernanke, Democratic Sen. Max Baucus of Montana said reports that AIG spent over $400,000 at a luxury hotel in California after the Fed gave it an $85 billion rescue loan were a cause for outrage.

"This kind of behavior is an insult to taxpayers, whose dollars are used to protect and preserve private companies," Baucus wrote in a letter in which he asked what procedures were in place to assess AIG executives' activities.

He also asked for a list of Fed employees who authorized or knew about the AIG retreat, as well as for an explanation why AIG was now receiving an extra $37.8 billion loan. On Wednesday, the Fed said it will take up to $37.8 billion in investment-grade securities from AIG in exchange for cash.

AIG defended itself by saying the retreat was hosted by a subsidiary, was planned months before it received the Fed loan last month, and was for independent life insurance agents.

At one time, AIG was ranked as the world's largest insurer in terms of market value. In Thursday afternoon trading, AIG's stock was down almost 22 percent at $2.50 on the New York Stock Exchange. A year ago today, AIG's stock hit a 52-week intraday high at $70.13.

On September 16, the insurer's stock plummeted to a 52-week low at $1.25. That evening, the Fed unveiled its $85 billion bailout loan for AIG.

Baucus asked Bernanke to explain what controls over AIG management the Fed is able to exert and requested that answers be delivered to the Senate Finance Committee by October 23.

The issue of the AIG retreat received a lively airing on Tuesday from lawmakers who blistered former top executives of the insurer at a Capitol Hill hearing.

"They were getting facials, manicures, and massages, while the American people were footing the bill," said Rep. Elijah Cummings, a Maryland Democrat on the House Oversight and Government Reform Committee.

Robert Willumstad, chief executive of AIG from June until he was replaced last month, told the oversight committee he was not aware of the retreat that included $200,000 in hotel rooms and $23,000 for spa services.

" ... Had I been aware of it, I would have prevented it from happening," Willumstad said.