2009 0318 - GOV (House) - American International Group's Impact on the Global Economy

[PDF - 380p Full Video Made?] - <mp3, mp4> - R

  • Edward Liddy - CEO AIG - [VIDEO-CSPAN-Edward Liddy]
    • Edward Libby testified about operations and business practices at American International Group (AIG) before, during, and after federal intervention.
    • 2:15:28 - Carolyn Maloney:  bad regulatory decision?
    • - Liddy: yes
    • all life insurance companies would have been in trouble... asset prices....capital markets
    • House -

      Committee on Financial Services - Subcommittee On Capital Markets, Insurance, and Government Sponsored Enterprises

  • Regulators Panel
  • Regulators Panel Continuation
  • (p31) - Mr. Ackerman (D-NY): I just want to make sure that I understand it. And I’ll try to explain my understanding in what my mother would call by giving you a ‘‘for instance.’’ So there are two guys out on a life raft, and they’re adrift at sea, and a storm blows up. And the raft is surrounded by sharks and the waves are 10 feet high. And the first guy says, ‘‘I’m scared.’’ So the second guy sells him the policy.
  • That’s a credit default swap. You’re selling something with absolutely nothing to back you up. You have no money, possibly, in
    your pocket or your wallet, and, if everything goes right, you’re collecting a premium. And if everything goes wrong, so what. It makes no sense. It’s like snake oil salesmen selling you jars of snake oil, and they don’t even have the oil in the jars.
  • I mean there’s a great company called, ‘‘I Can’t Believe It’s Not Butter.’’ You know, at least they have the decency to tell you it’s not butter. I mean, this is insurance without being insurance, because if they called it insurance they would have to have money to pay you off. But they don’t have the money to pay you off and they’re calling it credit default swaps, because if they called it, ‘‘I Can’t Believe It’s Not Insurance,’’ maybe nobody would buy it."
  • (p63) - Mr. BACHUS. Thank you. Mr. Liddy, mark-to-market, I think, is good in concept, but insurance and banking CEOs are telling me that it is not working well in a distressed market. I would like your comments on modifications others have proposed, and general modifications, and how it might help AIG to increase the likelihood of the taxpayers being fully reimbursed.
  • Mr. LIDDY. Yes, sir. I think mark-to-market is a good concept, run amok. On balance, knowing what something is worth every day is a good thing, but it presumes that there’s a market. It presumes that there’s a willing buyer and a willing seller.
  • When liquidity completely dries up, there’s not a willing buyer, so you have to keep marking the value of the assets down to an unwilling buyer level.

In insurance companies, we have a long liability. We will insure your life.

  • And we will match it with a long dated asset.
  • Those long dated assets, like commercial mortgage-backed securities and residential mortgage-backed securities, because they’re long-dated, they are not liquid right now, and they have been buffeted in value, unlike anything most of us have ever seen.

So as a result of that, AIG and many other insurance companies have had to write the value of those assets down, and it has caused great stress on the liquidity.